The consolidated financial statements of Pharming Group N.V. (\"the Company\", \"Pharming\" or \"the Group\"), Leiden for the year ended December 31, 2022, were authorized for issue in accordance with a resolution of the Board of Directors on April 4, 2023. The financial statements are subject to adoption by the Annual General Meeting of shareholders, which has been scheduled for May 17, 2023.
Pharming Group N.V. is a limited liability public company, which is listed on Euronext Amsterdam (\"PHARM\"). The Company\u2019s American Depositary Shares (\"ADSs\") are listed on the Nasdaq Global Market (\"Nasdaq\") under the symbol \"PHAR\". Each ADS represents 10 of the Company\u2019s ordinary shares of \u20ac0.01 nominal value.
In January 2020, Pharming Group N.V. issued convertible bonds, see note 18. These bonds are listed on the Frankfurt Exchange (B\u00f6rse Frankfurt: PHARMING GRP 20/25 CV).
The headquarters and registered office of Pharming Group N.V. is located at:
Darwinweg 24
2333 CR Leiden
The Netherlands
Pharming Group N.V. is registered at the Chamber of Commerce in the Netherlands under number 28048592.
Pharming Group N.V. is the ultimate parent company of Pharming Group. A list of subsidiaries is provided in note 2.3.
Pharming Group N.V. is a global biopharmaceutical company dedicated to transforming the lives of patients with rare, debilitating, and life-threatening diseases. Pharming is commercializing and developing an innovative portfolio of protein replacement therapies and precision medicines, including small molecules, biologics, and gene therapies that are in early to late-stage development. Pharming is headquartered in Leiden, Netherlands, and has employees around the globe who serve patients in over 30 markets in North America, Europe, the Middle East, Africa, and Asia-Pacific.
The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRS interpretations committee (IFRS IC) interpretations applicable to companies reporting under IFRS as endorsed by the European Union and valid as of the balance sheet date. The consolidated financial statements have been prepared under the historical cost convention, unless otherwise stated.
The preparation of financial statements in conformity with IFRS and Book 2 Title 9 of the Dutch Civil Code requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company\u2019s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 2.5.
The Company applied for the first-time certain amendments, which are effective for annual periods beginning on or after 1\u00a0January 2022 as disclosed below.
\u2022Amendments to IFRS 3: Reference to the conceptual framework;
\u2022Amendments to IAS 16: Property, plant and equipment - Proceeds before intended use;
\u2022Amendments to IAS 37: Onerous contracts - cost of fulfilling a contract;
\u2022Amendments included in the Annual Improvements to IFRS Accounting Standards 2018-2020 Cycle relating to IFRS 1, IFRS 9, IFRS 16 and IAS 41.
Their adoption has not had any material impact on the disclosures or on the amounts reported in these financial statements. The Company has not early adopted any other standard, interpretation or amendment that has been issued but not yet effective.
The new and amended standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group\u2019s financial statements, which the Group intends to adopt, if applicable, when they become effective, are disclosed below.
\u2022IFRS 17: Insurance contracts.
\u2022Amendments to IFRS 10 and IAS 28: Sale or contribution of assets between investors and its associate or joint venture.
\u2022Amendments to IAS 1 and IFRS Practice Statement 2: Disclosure of Accounting Policies
\u2022Amendments to IAS 1: Classification of Liabilities as Current or Non-current.
\u2022Amendments to IAS 8: Definition of accounting estimates.
\u2022Amendments to IAS 12: Deferred tax related to assets and liabilities arising from a single transaction.
The consolidated financial statements include Pharming Group N.V. and its controlled subsidiaries, after the elimination of all intercompany transactions and balances. Subsidiaries are consolidated from the date the acquirer obtains effective control until control ceases.
An entity is considered effectively controlled if the Company, directly or indirectly, has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Acquisitions of subsidiaries are accounted for using the acquisition method of accounting. The financial statements of the subsidiaries are prepared for the same reporting year as Pharming Group N.V., using the same accounting policies. Intercompany transactions, balances and unrealized gains and losses on transactions between group companies are eliminated.
Foreign currency translation
In preparing the financial statements of the Group, transactions in currencies other than the entity\u2019s functional currency (foreign currencies) are recognized at the rates of exchange prevailing on the dates of the transactions. At each reporting date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
Exchange differences are recognized in profit or loss in the period in which they arise except for:
\u2022Exchange differences on foreign currency borrowings relating to assets under construction for future productive use, which are included in the cost of those assets when they are regarded as an adjustment to interest costs on those foreign currency borrowings;
\u2022Exchange differences on transactions entered into to hedge certain foreign currency risks (see below under financial instruments/hedge accounting);
\u2022Exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur in the foreseeable future (therefore forming part of the net investment in the foreign operation), which are recognized initially in other comprehensive income and reclassified from equity to profit or loss on disposal or partial disposal of the net investment
Entity | Registered office | Investment % |
Pharming B.V. | The Netherlands | 100.0 |
Pharming Americas B.V. | The Netherlands | 100.0 |
Pharming Intellectual Property B.V. | The Netherlands | 100.0 |
Pharming Technologies B.V. | The Netherlands | 100.0 |
Pharming Research & Development B.V. | The Netherlands | 100.0 |
Broekman Instituut B.V. | The Netherlands | 100.0 |
Pharming Healthcare, Inc. | The United States | 100.0 |
ProBio, Inc. | The United States | 100.0 |
For the purpose of presenting consolidated financial statements in US Dollars, the assets and liabilities of the Group\u2019s operations having Euro as functional currency are translated at exchange rates prevailing on the reporting date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the date of transactions are used. Exchange differences arising, if any, are recognized in other comprehensive income and accumulated in a foreign exchange translation reserve.
The EUR/USD exchange rate applied at 31\u00a0December 2022: was 1.0667 (2021: 1.1334). The average exchange rate applied in 2022 was 1.0543 (2021: 1.1860).
Distinction between current and non-current
An item is classified as current when it is expected to be realized (settled) within 12 months after the end of the reporting year. Liabilities are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting year.
Intangible assets acquired separately
Intangible assets acquired separately are measured at historical cost. The cost of intangible assets acquired in a business combination is recognized and measured at fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. Variable considerations that are part of the purchase of an intangible asset are recognized as a liability when the considerations become due.
Intangible assets with finite lives are amortized over the useful life and assessed for impairment whenever there is an indication that the intangible assets may be impaired and at the end of each reporting period. The estimated useful lives, residual values and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. Changes in the expected useful life, according to the straight-line method, or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in the
statement of income in the relevant expense category consistent with the function of the intangible asset.
Internally-generated intangible assets \u2013 research and development expenditure
Expenditure on research activities is recognized as an expense in the period in which it is incurred. An internally-generated intangible asset arising from development (or from the development phase of an internal project) is recognized if, and only if, all of the following conditions have been demonstrated:
\u2022The technical feasibility of completing the intangible asset so that it will be available for use or sale
\u2022The intention to complete the intangible asset and use or sell it
\u2022The ability to use or sell the intangible asset
\u2022How the intangible asset will generate probable future economic benefits
\u2022The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset
\u2022The ability to measure reliably the expenditure attributable to the intangible asset during its development
The amount initially recognized for internally-generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally generated intangible asset can be recognized, development expenditure is recognized in profit or loss in the period in which it is incurred.
Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated amortization and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.
Intangible assets acquired in a business combination
Intangible assets acquired in a business combination and recognized separately from goodwill are recognized initially at their fair value at the acquisition date (which is regarded as their cost). Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortization and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.
Derecognition of intangible assets
An intangible asset is derecognized on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognized in profit or loss when the asset is derecognized.
Biological Assets
Under IAS 41 \"Agriculture\", management is required to assess whether 'biological assets' which are contributing to production of our cash flows should be accounted for as assets. Management has assessed Pharming\u2019s biological assets and conclude that these do not qualify to be recognized under the relevant standard IAS 41 \"Agriculture\" due to their uniqueness and very special transgenic nature and thus all relevant costs are expensed through the income statement.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation charges and accumulated impairment charges. Generally, depreciation is calculated using a straight-line basis over the estimated useful life of the asset. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.
An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal.
Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of income in the year the asset is derecognized. Residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each financial year-end.
All costs that are directly attributable to bringing an asset to the location and condition necessary for it to be capable of operating in the manner intended by management, will be
capitalized. These costs include direct employee benefits, rent and testing costs. Capitalization will be done until the asset is capable of operating in the manner intended by management.
Business combinations
Business combinations are accounted for using the acquisition accounting method. Identifiable assets, liabilities and contingent liabilities acquired are measured at fair value at acquisition date. The consideration transferred is measured at fair value and includes the fair value of any contingent consideration. Where the consideration transferred exceeds the fair value of the net assets, liabilities and contingent liabilities acquired, the excess is recorded as goodwill. The costs of acquisition are recognized as an expense.
Investments in associates
An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting. Under the equity method, an investment in an associate is recognized initially in the consolidated statement of financial position at cost and adjusted thereafter to recognize the Group\u2019s share of the profit or loss and other comprehensive income of the associate.
When the Group\u2019s share of losses of an associate exceeds the Group\u2019s interest in that associate (which includes any long-term interests that, in substance, form part of the Group\u2019s net investment in the associate), the Group discontinues recognizing its share of further losses. Additional losses are recognized only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. The requirements of IAS 36 are applied to determine whether it is necessary to recognize any impairment loss with respect to the Group\u2019s investment in an associate.
When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with IAS 36 as a single asset by comparing its recoverable amount (higher of value in use and fair
value less costs of disposal) with its carrying amount. Any impairment loss recognized is not allocated to any asset, including goodwill that forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognized in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases.
When a Group entity transacts with an associate of the Group, profits and losses resulting from the transactions with the associate or joint venture are recognized in the Group\u2019s consolidated financial statements only to the extent of interests in the associate or joint venture that are not related to the Group.
Financial assets
Financial assets are recognized when the Company becomes a party to the contractual provisions of a financial instrument. Financial assets are derecognized when the rights to receive cash flows from the financial assets expire, or if the Company transfers the financial asset to another party and does not retain control or substantially all risks and rewards of the asset. Purchases and sales of financial assets in the normal course of business are accounted for at settlement date (i.e., the date that the asset is delivered to or by the Company).
At initial recognition, the Company measures its financial assets at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset.
After initial recognition, the Company classifies its financial assets as subsequently measured at either i) amortized cost, ii) fair value through other comprehensive income or iii) fair value through profit or loss on basis of both:
\u2022The Company\u2019s business model for managing the financial assets;
\u2022The contractual cash flow characteristics of the financial asset.
Subsequent to initial recognition, financial assets are measured as described below. At each balance sheet date, the Company assesses whether there is objective evidence that a financial asset or a group of financial assets is impaired and recognizes a loss allowance for
expected credit losses for financial assets measured at either amortized costs or at fair value through other comprehensive income. If, at the reporting date, the credit risk on financial instrument has not increased significantly since initial recognition, the Company measures the loss allowance for that financial instrument at an amount equal to 12 months of expected credit losses. If, at the reporting date, the credit risk on a financial instrument has increased significantly since initial recognition, the Company measures the loss allowance for the financial instrument at an amount equal to the lifetime expected credit losses.
Financial assets at amortized cost
Financial assets are measured at amortized cost if both i) the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and ii) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest of on the principal amount outstanding.
A financial asset measured at amortized cost is initially recognized at fair value plus transaction cost directly attributable to the asset. After initial recognition, the carrying amount of the financial asset measured at amortized cost is determined using the effective interest method, less any impairment losses.
Financial assets at fair value through other comprehensive income (FVTOCI)
On initial recognition, the Group may make an irrevocable election (on an instrument-by-instrument basis) to designate investments in equity instruments as at FVTOCI. Investments in equity instruments at FVTOCI are initially measured at fair value plus transaction costs.
Subsequently, they are measured at fair value with gains and losses arising from changes in fair value recognized in other comprehensive income and accumulated in the legal reserve fair value revaluation. The cumulative gain or loss is reclassified to profit or loss on disposal of the equity investments.
Financial assets at fair value through profit and loss (FVTPL)
Financial assets that do not meet the criteria for being measured at amortized cost or FVTOCI are measured at FVTPL.
Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any fair value gains or losses recognized in profit or loss. The net gain or loss recognized in profit or loss includes any dividend or interest earned on the financial asset and is included in the \u2018fair value gain (loss) on revaluation\u2019 line item (note 13). Fair value is determined in the manner described in note 13.
Impairment of assets
Assets that have an indefinite useful life and assets not yet available for use are not subject to depreciation or amortization and are tested at least annually for impairment. Assets that are subject to depreciation or amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
An impairment loss is recognized for the amount by which the asset\u2019s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset\u2019s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows. Non-financial assets for which an impairment loss is recorded, are reviewed for possible reversal of the impairment at each reporting date.
Inventories
Inventories are stated at the lower of cost and net realizable value. Cost comprises direct materials and, where applicable, direct labor costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the First in First out (FIFO) method. Net realizable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.
Trade and other receivables
Trade and other receivables are recognized initially at transaction price. Subsequent measurement is at amortized cost using the effective interest method, less the expected credit loss. Trade receivables are amounts due from customers for goods sold in the ordinary course of business. They are generally due for settlement within 30 days and therefore are all classified as current. For trade receivables and contract assets, the Company applies a simplified approach in calculating expected credit loss. The
Company assesses the expected credit loss that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment. Due to the short-term nature of the current receivables, their carrying amount is considered to be the same as their fair value.\u00a0 \u00a0
Cash and cash equivalents
Cash and cash equivalents are defined as cash on hand, demand deposits and short-term, highly liquid investments (maturity less than 3 months) readily convertible to known amounts of cash and subject to insignificant risk of changes in value. For the purpose of the statement of cash flow, cash and cash equivalents do not include restricted cash. Restricted cash is cash held on short term deposits with certain banks as security mainly for credit card and lease cars and is not considered cash and cash equivalents.
Equity
The Company only has ordinary shares, and these are classified within equity upon issue. Shares transferred in relation to settlement of (convertible) debt are measured at fair value with fair value based on the closing price of the shares on the trading day prior to the settlement date. Equity is recognized upon the recognition of share-based payment expenses; shares issued upon exercise of such options are measured at their exercise price.
Transaction costs associated with an equity transaction are accounted for as a deduction from equity to the extent they are incremental costs directly attributable to the equity transaction that otherwise would have been avoided. Transaction costs related to the issue of a compound financial instrument are allocated to the liability and equity components of the instruments in proportion to the allocation of proceeds.
Financial liabilities and borrowings
Financial liabilities are classified as either financial liabilities at fair value through profit or loss (derivative financial liabilities) or financial liabilities at amortized cost (borrowings and trade and other payables). All financial liabilities and borrowings are initially recognized at the fair value of the consideration received less directly attributable transaction costs; transaction costs related to the issue of a compound financial instrument are allocated to the liability and equity components of the instruments in proportion to the allocation of proceeds. After initial recognition, financial
liabilities and borrowings are subsequently measured at amortized cost using the effective interest method.
Gains and losses are recognized in the statement of income when the liabilities are paid off or otherwise eliminated as well as through the amortization process. Purchases and sales of financial liabilities are recognized at settlement date.
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the statement of income.
Convertible bonds
The Company has issued convertible bonds. At the time of the issue of bonds itself the split between equity and liability portion has been accounted for. The liability portion of the convertible bonds is the present value of the future cash flows, calculated by discounting the future cash flows of the bonds (interest and principal) at the market rate of interest with the assumption that no conversion option is available. The value of the equity portion will be the difference between the total proceeds received from the bonds and the present value (liability portion).
The equity component is not remeasured after initial recognition.
In the case the Company extinguishes the convertible bonds before maturity through an early redemption or repurchase in which the original conversion privileges are unchanged, the entity allocates the consideration paid and any transaction costs for the repurchase or redemption to the liability and equity components of the convertible bond at the date of the transaction. The method used in allocating the consideration paid and transaction costs to the separate components is consistent with that used in the original allocation to the separate components of the proceeds received by the Company when the convertible instrument was issued. Once the allocation of the consideration is made, any resulting gain or loss is treated as follows:
1.the amount of gain or loss relating to the liability component is recognized in profit or loss; and
2.the amount of consideration relating to the equity component is recognized in equity
If the convertible bonds are converted before maturity, the amount recognized in equity in respect of the shares issued should be the amount at which the liability for the debt is stated as at the date of conversion.
On conversion of the convertible bonds at maturity, the Company recognizes the liability component and recognizes it as equity. The original equity component remains as equity (although it may be transferred from one line item within equity to another). There is no gain or loss on conversion at maturity date.
The transaction costs that are directly attributable to the convertible bonds are deducted from the initial fair value of the convertible bonds. The transaction costs are allocated between the liability and the equity components in proportion to the allocation of the proceeds. The transaction costs of the liability component are recognized as part of interest costs.
Provisions\u00a0
Provisions are recognized when there is a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation. The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (when the effect of the time value of money is material). The expense relating to any provision is presented in the statement of income net of any reimbursement.
Trade and other payables\u00a0
Trade and other payables are initially recognized at fair value. Subsequent measurement is at amortized cost using the effective interest method.
Revenue recognition
In order to determine when to recognize revenue and at what amount, the Company applies the following five steps, based on transfer of control over goods to the customer:
1.Identify the contract(s) with a customer;
2.Identify the performance obligations in the contract. Performance obligations are promises in a contract to transfer to a customer goods that are distinct;
3.Determine the transaction price. The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. If the consideration promised in a contract includes a variable amount, an entity must estimate the amount of consideration to which it expects to be entitled in exchange for transferring the promised goods or services to a customer;
4.Allocate the transaction price to each performance obligation on the basis of the relative stand-alone selling prices of each distinct good or service promised in the contract;
5.Recognize revenue when a performance obligation is satisfied by transferring a promised good or service to a customer (which is when the customer obtains control of that good or service). A performance obligation may be satisfied at a point in time (typically for promises to transfer goods to a customer) or over time (typically for promises to transfer services to a customer). For a performance obligation satisfied over time, an entity would select an appropriate measure of progress to determine how much revenue should be recognized as the performance obligation is satisfied.
All of the Group\u2019s revenue from contracts with customers is derived from delivery of goods, specifically vials of pharmaceutical products. The Group does not provide any additional services (including financing services) or equipment to its customers. In accordance with IFRS 15, revenue is recognized when the customer obtains control of the goods. For the Group\u2019s contracts the customer usually obtains control immediately after shipment of the product, which arrives at the customer within a short time frame.
The vast majority of the Group\u2019s contracts for revenue with customers are subject to chargebacks, discounts and/or rebates relating directly to customers or to ultimate reimbursement claims from government or insurance payers. These are accounted for on an estimated net basis, with any actual discounts and rebates used to refine the estimates in due course. These variable elements are deducted from revenue in the same period as the related sales are recorded. Due to the nature of these variable elements, it is not practicable to give meaningful sensitivity estimates due to the large volume of variables that contribute to the overall discounts, rebates and chargebacks accruals.
Other income
Other income consists of gains upon sale of investments and income from government grants.
Pharming receives certain grants which support the Company\u2019s research efforts in defined research and development projects. These subsidies generally provide for reimbursement of approved costs incurred as defined in various grants. Subsidies are recognized if the Company can demonstrate it has complied with all attached conditions and it is probable that the grant amount will be received. Grants are recognized in profit or loss on a systematic basis over the periods in which the Group recognizes as expenses the related costs for which the grants are intended to compensate.
The Company includes income from grant under other income in the statement of income in order to enable comparison of its statement of income with companies in the life sciences sector.
Pension plan
For all Dutch employees, the Company participates in defined contribution pension plans with an independent insurance company. Defined contributions are expensed in the year in which the related employee services are rendered.
Employees in the United States are enabled to participate in a 401k plan, which also qualifies as a defined contribution plan. To become an eligible participant, an employee must complete 6 months of service and attain the age of 18 years. The employer matches 100% of the first 3% the employee contributes to their 401k plan and 50% of any
amount over 3% up to 5%. Any employee contribution over 5% is not matched. Costs of the 401k plan are expensed in the year in which the related employee services are rendered.
Share-based payment
The costs of option plans are measured by reference to the fair value of the options on the date on which the options are granted. The fair value is determined using the Black-Scholes model. The costs of these options are recognized in the income statement (share-based compensation) during the vesting period, together with a corresponding increase in equity (other reserves). Share-based payment charges do not affect liabilities or cash flows in the year of expense since all transactions are equity-settled.
Pharming\u2019s employee option plan states that an employee is entitled to exercise the vested options within five years after the date of the grant. The period in which the options become unconditional is defined as the vesting period.
Long Term Incentive Plan
For a limited number of board members and officers, performance shares are granted free of charge. A maximum number of predetermined shares vest three years after the grant date, provided that the participant to the long-term incentive plan is still in service (continued employment condition), with actual shares to be transferred based on the relative achievement of Pharming\u2019s share price compared to a peer group. The maximum number of shares immediately vests upon a change of control.
The fair value is determined using Monte Carlo simulation. The costs of the LTIP are recognized in the income statement during the vesting period. The fair value at the grant date includes the market performance condition (relative total shareholder return performance) but excludes the three-year service condition.
On December 11, 2020, the new LTIP for the Executive Director was implemented. The existing share option plans and the grant of restricted shares under LTIP, from December 11, 2020, onwards, will no longer be applied for the Executive Directors under the new Remuneration Policy. The newly designed LTIP has been aligned with prevailing 'best practices' and is performance-related only. The performance includes Total Shareholder Return (40% weighing) and achievement of long-term strategy oriented
objectives (60% weighing). The Total Shareholders Return is compared to a peer group.
The shares granted to the Executive Director under the new LTIP, will vest in 3 years after the grant date, subject to the achievement of targets for a tree-year performance period, their relative weightings and the pay-out limits. All shares will be subject to a retention period of 5 years from the date of grant. In order to fully become entitled to the shares vesting under the LTI conditions the participant has to be a member of the Board of Directors as Executive Board Member at the vesting date.
The fair value of the new LTIP is determined using the Monte Carlo simulation. The costs of the LTIP are recognized in the income statement during the vesting period. The fair value at the grant date includes the financial performance condition of Pharming compared to the benchmark, the strategic performance condition as well as the service condition.
Restricted Stock Unit Plan
For a limited number of board members and officers, restricted stock units are granted free of charge. A maximum number of predetermined shares vest four years after the grant date, provided that the participant to the long-term incentive plan is still in service (continued employment condition).
The fair value is determined to be the market price at the grant date. The costs of the RSU grant are recognized in the income statement during the vesting period.
Leases
The Group assesses whether a contract is or contains a lease at the inception of the contract. The Group recognizes a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is a lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets (such as tablets and personal computers, small items of office furniture and telephones). For these leases the Group recognizes the lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which the economic benefits from the leased assets are consumed.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Group uses its incremental borrowing rate.
Lease payments included in the measurement of the lease liability comprise:
\u2022Fixed lease payments
\u2022Variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date.
The lease liability is presented as a separate line in the consolidated balance sheet.
The lease liability is subsequently measured by increasing the carrying amount to reflect the interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made.
The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:
\u2022The lease term has changed or there is a significant event or change in circumstances resulting in a change in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate.
\u2022The lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which case the lease liability is remeasured by discounting the revised lease payments using an unchanged discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used).
\u2022A lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of modification.
The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before commencement day, less any lease incentives
received and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses.
Whenever the Group incurs an obligation for costs to dismantle and remove a leased asset, restore the site on which it is located or restore the underlying asset to the condition required by the terms and conditions of the lease, a provision is recognized and measured under IAS 37. To the extent that the costs relate to a right-of-use asset, the costs are included in the related right-of-use, unless those costs are incurred to produce inventories.
Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset. The depreciation starts at the commencement date of the lease.
The right-of-use assets are presented as a separate line in the consolidated balance sheet.
The Group applies IAS 36 to determine whether a right-of-use asset is impaired and accounts for any identified impairment loss as described in the \u2018Property, Plant and Equipment\u2019 policy.
Variable rents that do not depend on an index or rate are not included in the measurement of the lease liability. The related payments are recognized as an expense in the period in which the event or condition triggers those payments occur.
As a practical expedient, IFRS 16 permits a lessee not to separate non-lease components, and instead account for any lease and associated non-lease components as a single arrangement. The Group has not used this practical expedient. For contracts that contain lease components and one or more additional lease or non-lease components, the Group allocates the consideration in the contract to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components. The Group had no such lease arrangements in 2022 and has none at the date of this report.
Income tax
The income tax expense or credit for the period is the tax payable on the current period\u2019s taxable income based on
the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate based on amounts expected to be paid to the tax authorities.
Deferred income tax is provided in full, using the liability method on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax is determined using tax rates that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realized, or the deferred income tax liability is settled.
Deferred tax assets are recognized only if it is probable that future taxable amounts will be available to use those temporary differences and losses. The Company has assessed all its income tax amounts and provisions in the light of IFRIC 23 'Accounting for Uncertain Income Taxes', and has concluded that it is probable that its particular tax treatment will be accepted in all relevant jurisdictions and thus it has determined taxable profit (tax loss), tax bases, unused tax losses, unused tax credits or tax rates consistently with the tax treatment included in its income tax filings.
Current and deferred tax is recognized in profit or loss, except to the extent that it relates to items recognized in other comprehensive income or directly in equity.
Earnings per share\u00a0
Basic earnings per share are calculated based on the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share are computed
The preparation of financial statements requires judgments and estimates that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the financial statements. The resulting accounting estimates will, by definition, seldom equal the related actual results. The main estimates and assumptions that have a risk of causing an adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.
Judgements:
Financial assets - Investment in BioConnection
During the second quarter of 2022, Pharming entered into a share purchase agreement, following receipt of an offer for all shares in BioConnection B.V. by Gimv Nederland Holding B.V. (\"Gimv\"), a European investment company listed on Euronext Brussels. The existing shareholders (including Pharming) reached agreement with Gimv on the sale of all issued and outstanding shares to a new holding company (BioConnection Investments B.V.) incorporated by Gimv, followed by a partial re-investment by existing shareholders of the purchase price in the share capital of BioConnection Investments B.V. The re-investment relates to the purchase of ordinary shares and a preference share.
The Board of Directors made an assessment on the accounting treatment of the agreement and concluded that the sale of the BioConnection ordinary shares and purchase of the BioConnection Investments B.V. ordinary shares shall be considered as a dilution of an existing equity stake in an investment in accounted for using they equity method. Hence Pharming recognized the dilution of its equity stake as a reduction of the carrying amount of the investment accounted for using the equity method. The preference share is valued as an investment in debt instruments designated as at fair value with changes through profit and loss (FVTPL).
The fair value of the preference share was calculated based on a commonly accepted valuation method, the option pricing model (\"OPM\"), which considers the share classes as call options on the total shareholders\u2019 equity value according to the rights and preferences of each class of equity. The payoff profile of the share classes was analyzed through a portfolio of call options, with the total equity value of a company as the underlying asset of the options and specific terms for each option calibrated to mirror, in aggregate, the payoff profile of the share classes. Relying on the forward-looking Black-Scholes-Merton (\"BSM\") financial instrument pricing framework, the OPM effectively captures the full range of potential outcomes for the share classes at exit. The OPM takes into consideration the full spectrum of risks in terms of future potential upside or downside but does not require explicit estimates of the possible future outcomes. The BSM model is commonly used to price assets on financial markets and allows to estimate the theoretical value of a call option, using six key parameters, namely the underlying equity value, strike price, time to maturity, risk free rate, expected volatility of the underlying equity and dividend yield on the underlying equity. The most important drivers for the fair value using the BSM model are:
\u2022the equity value, for which the determination of its value is highly dependent on the estimate of projected revenues, EBITDA and discount rate;
\u2022volatility; and
\u2022time to maturity.
As a result of this transaction, Pharming has received one-off net cash proceeds of US$7.3 million (EUR6.9 million) and recognized a gain of US$12.2 million.
Further reference is made to note 13.
Biological Assets
Under IAS 41 \"Agriculture\", management is required to assess whether \u2018biological assets\u2019 which are contributing to production of our cash flows should be accounted for as assets. Management has assessed Pharming\u2019s biological assets and conclude that these do not qualify to be recognized under the relevant standard IAS 41 \"Agriculture\" due to their uniqueness and very special transgenic nature and thus all relevant costs are expensed through the income statement.
Estimates:
Revenue
Revenue is recognized when control has been transferred to the customer. Revenue is reduced by chargebacks and rebates for government healthcare programs, discounts to specialty pharmacies and wholesalers, and product returns given or expected to be given, which vary by patient groups. Chargebacks and rebates for healthcare programs depend upon the submission of claims sometime after the initial recognition of the sale. The liability for this variable consideration is made, at the time of sale, for the estimated chargebacks and rebates, mainly US Medicaid, based on available market information and historical experience. Because the amounts are estimated they may not fully reflect the final outcome, and the amounts are subject to change dependent upon, amongst other things, the types of patient groups. The level of these liabilities is being reviewed and adjusted regularly in the light of contractual and legal obligations, historical charges and trends, past experience and projected mixtures of patient groups. The Group acquires this information from both internal resources and external parties.
In preparing the consolidated financial statements, the Board of Directors is responsible for assessing the Group\u2019s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. These consolidated financial statements have been prepared for the Group as a going concern.
The 2022 year-end cash balance (including restricted cash) of US$208.7 million is expected to fund the Company for more than twelve months from the date of this report.
The Board of Directors anticipate significant investments in the preparations of the launch and commercialization of Joenja\u00ae (leniolisib) in 2023. These investments will
have a negative effect on the profit in the year 2023. Consequently, cash and cash equivalents may reduce during the year as the company invests in its future. Revenue from leniolisib is expected to increase significantly from 2023 onwards. The company remains confident in the robustness of RUCONEST\u00ae sales, in the expansion of its pipeline and the addition of leniolisib for the treatment of APDS.
Presently, however, no further assurance can be given on either the timing or size of future profits. In addition, in the event that the Company needs to raise capital by issuing additional shares, shareholders\u2019 equity interests may be diluted as to voting power, and their interests as to value will depend on the price at which such issues are made. The Company sees no further need to raise capital to support its current operations, but may take an opportunity to do so in either equity issue or through an expansion of the current convertible debt or to raise debt, or through a combination of such instruments, to support an acquisition or in-licensing of additional assets, if appropriate terms can be obtained that are in the best interests of shareholders.
Macro-economic developments like pressure on energy supply, increased inflation and higher interest rates have an impact on Pharming and are managed by price increases on our products in line with CPI development and fixed interest on our convertible bond.
Overall, based on the outcome of this assessment, Pharming\u2019s 2022 financial statements have been drawn up on the basis of a going concern assumption. Notwithstanding their belief and confidence that Pharming will be able to continue as a going concern, the Executive Directors and Officers emphasize that the actual cash flows may potentially ultimately (significantly) deviate up or down from our projections to various reasons. In the absence of an (improbable) absolute catastrophe such as banning of the product from sale in a major market, the Executive Directors and Officers believe that the Company will have more than sufficient resources to meet all obligations as they fall due.
The Executive Members of the Board of Directors are the chief operating decision-maker and consider the business from both a geographic and product perspective.
From a product perspective, the Company\u2019s business is exclusively related to the recombinant human C1 esterase inhibitor business. From a geographic perspective, the Company is operating in the U.S., Europe and the Rest of the World.
The Executive Members of the Board of Directors primarily measures revenues and gross profit to assess the performance of the geographic areas. Operating costs as well as non-current assets are not sub-allocated to the geographic areas.
Total external revenues and gross profit per geographic segment for the financial year 2022 and 2021 are:
Amounts in US$ \u2018000 | 2022 | 2021 |
Revenues: | ||
US | 200,082 | 193,419 |
Europe | 4,924 | 4,933 |
RoW | 616 | 519 |
Total revenues | 205,622 | 198,871 |
Gross profit: | ||
US | 186,263 | 176,266 |
Europe | 1,378 | 1,049 |
RoW | 419 | 414 |
Total gross profit | 188,060 | 177,729 |
Other income related to the following:
Amounts in US$ \u2018000 | 2022 | 2021 |
Grants | 1,774 | 2,620 |
Gain on divestment in associates | 12,242 | \u2014 |
Other | 507 | \u2014 |
Total | 14,523 | 2,620 |
The increase in revenues was primarily a result of higher sales of RUCONEST\u00ae in the U.S. market (US$200.1 million in 2022 compared to US$193.4 million in 2021). From 2Q onwards, we experienced quarter-on-quarter growth in 2022, both in volumes and revenues, with a growing number of patients using RUCONEST\u00ae.
Revenues in Europe remained stable at US$4.9 million in 2022 (US$4.9 million in 2021), in spite of facing strong prophylactic and generic competition. Revenue in Rest of the World (excluding Europe) increased to US$0.6 million (from US$0.5 million in 2021).
Costs of sales
Costs of sales in 2022 and 2021 were as follows:
Amounts in US$ \u2018000 | 2022 | 2021 |
Costs of sales | (17,398) | (19,107) |
Obsolescence inventory impairments | (164) | (2,035) |
Total | (17,562) | (21,142) |
Costs of sales in 2022 amounted to US$17.4 million (2021: US$19.1 million) and relate to actual product sales.
Obsolescence inventory impairment stems from the valuation of the inventories against lower net realizable value and mainly relates to products no longer eligible for commercial sales. Impairments related to inventories designated for commercial activities amounted to a charge of US$0.2 million in 2022 (2021: US$2.0 million).
Costs of research and development
Research and development costs are specified as follows:
Amounts in US$ \u2018000 | 2022 | 2021 |
Employee costs | (20,595) | (24,451) |
Amortization costs IFA | (55) | (132) |
Impairment losses IFA | \u2014 | (4,992) |
Depreciation PPE and right of use assets | (1,602) | (3,152) |
Direct Operating Expenses | (27,107) | (33,190) |
Other indirect research and development costs | (3,172) | (4,452) |
Total research and development costs | (52,531) | (70,369) |
As percentage of net sales | (26)% | (35)% |
Operating expenses for research and development activities decreased to US$52.5 million in 2022 from US$70.4 million in 2021. The decrease in costs relates mainly to reduced share-based compensation cost and the impact of the USD-EUR FX rate on payroll cost. Current year\u2019s spend in leniolisib, for the treatment of activated Phosphoinositide 3-kinase Delta syndrome, and AKI and cattle were higher than 2021, while last year included the investment to in-license OTL-105 and impairment losses of US$5.0 million on intangible assets related to the development of RUCONEST\u00ae in a more convenient form for patients.
Costs of general and administrative activities
General and administrative costs are specified as follows:
Amounts in US$ \u2018000 | 2022 | 2021 |
Employee costs | (14,868) | (12,178) |
Amortization costs IFA | (492) | \u2014 |
Depreciation PPE and right of use assets | (2,525) | (857) |
Impairment losses PPE and right of use assets | (4,376) | (5,447) |
Direct Operating Expenses | (9,038) | (8,419) |
Other indirect general and administrative costs | (14,717) | (10,073) |
Total general and administrative costs | (46,016) | (36,974) |
As percentage of net sales | (22)% | (19)% |
Operating expenses for general and administrative activities increased to US$46.0 million in 2022 from US$37.0 million in 2021.\u00a0The increased costs are mainly related to the increased employee costs resulting from more staff employed, higher cost for audit, consultancy and tax advisers, and higher IT operating spend for our newly implemented ERP system, offset by reduced impairment losses in relation to the cancellation of our downstream production capacity at Pivot Park in Oss.
Costs of marketing and sales activities
Marketing and sales costs are specified as follows:
Amounts in US$ \u2018000 | 2022 | 2021 |
Employee costs | (32,858) | (24,125) |
Amortization costs IFA | (3,765) | (4,098) |
Depreciation PPE and right of use assets | (372) | (930) |
Direct Operating Expenses | (42,398) | (28,543) |
Other indirect marketing and sales costs | (6,410) | (1,749) |
Total marketing and sales costs | (85,803) | (59,445) |
As percentage of net sales | (42)% | (30)% |
Operating expenses for marketing and sales increased in 2022 to US$85.8 million from US$59.4 million in 2021. The increased costs are mainly related to the further expansion of the commercial organization and infrastructure in both the U.S. and Europe, in view of the anticipated launch of leniolisib in APDS upon approval by regulatory authorities.
Employee benefits
Amounts in US$ \u2018000 | 2022 | 2021 |
Salaries | (53,328) | (44,202) |
Social security costs | (6,317) | (5,318) |
Pension costs | (2,284) | (2,179) |
Share-based compensation | (6,392) | (9,055) |
Total | (68,321) | (60,754) |
Salaries include holiday allowances and cash bonuses for staff.
Employee benefits are included in:
Amounts in US$ \u2018000 | 2022 | 2021 |
Research and development | (20,595) | (24,451) |
General and administrative | (14,868) | (12,178) |
Marketing and sales | (32,858) | (24,125) |
Total | (68,321) | (60,754) |
The number of employees
Average full time equivalent | 2022 | 2021 |
Research and development | 186 | 169 |
General and administrative | 69 | 60 |
Marketing and sales | 77 | 56 |
Total | 332 | 285 |
The average number of full-time equivalents (FTE\u2019s) working outside the Netherlands was 133 (2021: 99). The increase of the total number of FTE\u2019s was in line with the overall business growth across the Company.
Employee benefits are charged to research and development costs, general and administrative costs, or marketing and sales costs based on the nature of the services provided by each employee.
Depreciation and amortization charges
Amounts in US$ \u2018000 | notes | 2022 | 2021 |
Property, plant and equipment | 11 | (1,993) | (2,158) |
Intangible assets | 10 | (4,312) | (4,232) |
Right of use assets | 12 | (2,565) | (2,781) |
Total | (8,870) | (9,171) |
The decrease of depreciation charges and amortization charges in 2022 as compared to 2021 mainly stems from
currency translation effects, partly offset by an increase caused by amortization charges for our new ERP system SAP 4-HANA, which is operational as per January 1, 2022.
Amortization charges of intangible assets have been allocated to research and development costs and marketing and sales costs in the statement of income, depending on the class of intangible asset.
Independent auditor\u2019s fees
Both the 2022 and the 2021 audit were performed by Deloitte Accountants B.V.
Amounts in US$ \u2018000 | 2022 | 2021 |
Audit Fees | (1,357) | (1,201) |
Audit Related Fees | \u2014 | (16) |
Tax advisory | \u2014 | \u2014 |
Total | (1,357) | (1,217) |
Amounts in US$ \u2018000 | 2022 | 2021 |
Interest income | 85 | 53 |
Foreign currency results | 4,400 | 14,841 |
Other financial income | 4,485 | 14,894 |
Interest loans and borrowings | (4,736) | (5,296) |
Interest leases | (622) | (795) |
Other financial expenses | (105) | (94) |
Other financial expenses | (5,463) | (6,185) |
Total other financial income and expenses | (978) | 8,709 |
Foreign currency results
These results primarily follow from the revaluation of bank balances which are denominated in foreign currencies, mainly U.S. dollars, and the timing of foreign currency payments against the actual exchange rate as compared to the original exchange rate applied upon the charge of fees or expenses. The gains in 2022 are mainly a result of the revaluation of the bank balances in U.S. dollars, incorporated in our Dutch entities where the functional currency is Euro.
Interest loans and borrowings
Income taxes on ordinary activities
The following table specifies the current and deferred tax components of income taxes in the income statement:
Amounts in US$ \u2018000 | 2022 | 2021 |
Income tax expense | ||
Current tax | ||
Current tax on profit for the year | (3,761) | (97) |
Adjustments for current tax of prior periods | (9) | 96 |
Total current tax expense | (3,770) | (1) |
Deferred income tax | ||
Deferred tax on profit for the year | 2,581 | (8,196) |
Adjustments for deferred tax of prior periods | (124) | 1,115 |
Total deferred tax expense | 2,457 | (7,081) |
Income tax expense | (1,313) | (7,082) |
Effective income tax rate
Pharming Group\u2019s effective rate in its consolidated income statement differed from the Netherlands\u2019 statutory tax rate of 25.8%. The following table reconciles the statutory income tax rate with the effective income tax rate in the consolidated income statement:
Amounts in US$ \u2018000 | 2022 | 2021 |
Reconciliation of tax charge | ||
Profit, (loss) on ordinary activities before taxation | 14,987 | 23,078 |
Profit/(loss) on ordinary activities multiplied by | ||
standard rate of tax in The Netherlands | (3,866) | (5,770) |
Effects of: | ||
Tax rate in other jurisdictions | 554 | 307 |
Non-taxable income | 2,680 | 370 |
Non deductible expenses | (7) | (99) |
Share based payments | (531) | (2,475) |
Adjustments of prior periods | 15 | 655 |
Change in statutory applicable tax rate | (1) | 555 |
Other | (157) | (625) |
Income tax expense for the year | (1,313) | (7,082) |
During 2022, we have changed the presentation of our effective income tax tables in order to enhance readability by splitting the effects of non taxable income (expense) separately.
Factors affecting current and future tax charges
The main difference between the nominal tax and the effective tax for the year 2022 can be explained by the effects of non-taxable income, mainly related to the other
income generated from the dilution of shares of our investment accounted for using the equity method and share-based payments, U.S. State taxes and the effect of taxable income generated and taxed in jurisdictions where tax rates differ from the statutory rate in The Netherlands.
Deferred tax
The balance of the net deferred tax assets/(liabilities) is therefore shown below:
Amounts in US$ \u2018000 | 2022 | 2021 |
Total deferred tax assets | 29,211 | 27,025 |
Total deferred tax liabilities | (6,238) | (5,809) |
Total net deferred tax assets /( liabilities) | 22,973 | 21,216 |
The deferred tax assets and liabilities are offset to the extent there is a legally enforceable right to set off current tax assets against current tax liabilities and to the extent the deferred tax income taxes relate to the same tax jurisdiction.
The significant components and annual movements of deferred income tax assets as of 31\u00a0December, 2022 and 31\u00a0December 2021, are as follows:
Amounts in US$ \u2018000 | 2022 | 2021 |
Intangible fixed assets | 9,876 | 10,493 |
Accruals | 2,026 | 2,289 |
Lease Liabilities | 7,042 | 3,795 |
Other | 6,721 | 2,672 |
Tax losses | 3,546 | 7,776 |
Total deferred tax assets | 29,211 | 27,025 |
Amounts in US$ \u2018000 | Intangible fixed assets | Lease liabilities | Accruals | Other | Tax losses | Total |
At January 1, 2021 | 17,705 | 1,279 | 5,123 | 3,856 | 5,772 | 33,735 |
(Charged)/credited | ||||||
- to profit or loss | (6,121) | 2,696 | (2,834) | 823 | 2,515 | (2,921) |
- other movement | \u2014 | \u2014 | \u2014 | (598) | \u2014 | (598) |
- to accumulated deficit | \u2014 | \u2014 | \u2014 | (1,366) | \u2014 | (1,366) |
- currency translation | (1,091) | (180) | \u2014 | (43) | (511) | (1,825) |
At December 31, 2021 | 10,493 | 3,795 | 2,289 | 2,672 | 7,776 | 27,025 |
(Charged)/credited | ||||||
- to profit or loss | \u2014 | 3,431 | (263) | 3,746 | (3,814) | 3,100 |
- other movement | \u2014 | \u2014 | \u2014 | (28) | \u2014 | (28) |
- to accumulated deficit | \u2014 | \u2014 | \u2014 | 337 | \u2014 | 337 |
- currency translation | (617) | (184) | \u2014 | (6) | (416) | (1,223) |
At December 31, 2022 | 9,876 | 7,042 | 2,026 | 6,721 | 3,546 | 29,211 |
Based upon the Company\u2019s latest budget for 2023 and its long-range forecasts for the three years thereafter, it is considered probable that there will be sufficient taxable profits in the future to realize the deferred tax assets, and therefore these assets should continue to be recognized in these financial statements.
Deferred taxes relating to intangible fixed assets represent the tax effect on temporary difference between the tax base and the carrying amount of the rights to the Pompe program, which were at the end of 2018 transferred within the Group. The deferred taxes relating to the rights to the Pompe program will be realized through the amortization of the intangible assets once in use within the fiscal unity.
Accruals represent deferred tax assets recognized for temporary differences between the carrying amount and tax bases of accrued liabilities in the U.S.
The increase in the deferred tax for other is primarily due to recognition of the deferred tax asset for future tax reductions related to share-based payments in the U.S. and the elimination of intercompany profits between the Netherlands and the U.S.
The unused tax losses were incurred by the Dutch fiscal unity and Pharming Healthcare.
The calculation of the deferred tax asset is as shown below:
Amounts in US$ \u2018000 | 2022 | 2021 |
Net Operating Losses - Netherlands | ||
Net Operating Losses at year-end | 13,556 | 25,364 |
Portion selected for deferred tax asset | 13,556 | 25,364 |
Tax rates used: | ||
2023 and later: 25,8% (25%) | 3,497 | 6,545 |
Total tax effect Netherlands | 3,497 | 6,545 |
Net Operating Losses - USA | ||
Net Operating Losses at year-end | 670 | 4,356 |
Portion selected for deferred tax asset | 670 | 4,356 |
Tax rate used: | ||
2022: 28,26% | \u2014 | 1,231 |
2023 and later: 7,65% | 49 | |
Total tax effect USA | 49 | 1,231 |
Tax effect Netherlands - losses deferred | 3,497 | 6,545 |
Tax effect USA - losses deferred | 49 | 1,231 |
Total deferred tax asset | 3,546 | 7,776 |
The current part of the net deferred tax assets is US$5.4 million (2021: US$2.4 million).
The component and annual movement of deferred income tax liabilities as of 31\u00a0December, 2022 and \u00a031\u00a0December 2021, are as follows:
Amounts in US$ \u2018000 | 2022 | 2021 |
Tangible fixed assets | (6,238) | (4,149) |
Other liabilities | \u2014 | (1,660) |
Total deferred tax liabilities | (6,238) | (5,809) |
Amounts in US$ \u2018000 | Tangible fixed assets | Other liabilities | Total |
At January 1, 2021 | (1,648) | (210) | (1,858) |
(Charged)/credited | |||
- to profit or loss | (2,710) | (1,450) | (4,160) |
- to other comprehensive income | |||
- currency translation | 209 | \u2014 | 209 |
At December 31, 2021 | (4,149) | (1,660) | (5,809) |
(Charged)/credited | |||
- to profit or loss | (2,302) | 1,660 | (642) |
- other movement | 28 | 28 | |
- to other comprehensive income | \u2014 | \u2014 | |
- currency translation | 185 | \u2014 | 185 |
At December 31, 2022 | (6,238) | \u2014 | (6,238) |
Amounts in US$ \u2018000 | Transgenic technology | RUCONEST\u00ae for HAE (EU) | Development costs | Re-acquired | Novartis\u00a0 License | Software | Total |
At cost | 3,256 | 648 | 7,779 | 77,806 | 24,667 | 958 | 115,114 |
Accumulated: | |||||||
Amortization charges | (3,213) | (648) | \u2014 | (14,699) | \u2014 | (104) | (18,664) |
Impairment charges | (43) | \u2014 | (2,324) | \u2014 | \u2014 | \u2014 | (2,367) |
Carrying value at January 1, 2021 | \u2014 | \u2014 | 5,455 | 63,107 | 24,667 | 854 | 94,083 |
Amortization charges | \u2014 | \u2014 | \u2014 | (4,054) | \u2014 | (178) | (4,232) |
Impairment charges | \u2014 | \u2014 | (4,991) | \u2014 | \u2014 | \u2014 | (4,991) |
Assets acquired | \u2014 | \u2014 | \u2014 | \u2014 | 2,530 | 3,447 | 5,977 |
Transfer from PPE - cost | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | 175 | 175 |
Transfer from PPE - accumulated amortization | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | (78) | (78) |
Divestments - cost | (3,145) | \u2014 | \u2014 | \u2014 | \u2014 | (99) | (3,244) |
Divestment - accumulated amortization | 3,105 | \u2014 | \u2014 | \u2014 | \u2014 | 99 | 3,204 |
Divestment - impairment charges | 40 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | 40 |
Currency translation - cost | (111) | (50) | (599) | (5,995) | (2,012) | (226) | (8,993) |
Currency translation - amortization | 108 | 50 | \u2014 | 1,312 | \u2014 | 19 | 1,489 |
Currency translation - impairment | 3 | \u2014 | 401 | \u2014 | \u2014 | \u2014 | 404 |
Movement 2021 | \u2014 | \u2014 | (5,189) | (8,737) | 518 | 3,159 | (10,249) |
At cost | \u2014 | 598 | 7,180 | 71,811 | 25,185 | 4,255 | 109,029 |
Accumulated: | |||||||
Amortization charges | \u2014 | (598) | \u2014 | (17,441) | \u2014 | (242) | (18,281) |
Impairment charges | \u2014 | \u2014 | (6,914) | \u2014 | \u2014 | \u2014 | (6,914) |
Carrying value at December 31, 2021 | \u2014 | \u2014 | 266 | 54,370 | 25,185 | 4,013 | 83,834 |
Amortization charges | \u2014 | \u2014 | \u2014 | (3,597) | \u2014 | (720) | (4,317) |
Impairment charges | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 |
Assets acquired | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | 601 | 601 |
Transfer from PPE - cost | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 |
Transfer from PPE - accumulated amortization | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 |
Divestments - cost | \u2014 | \u2014 | (6,431) | \u2014 | \u2014 | \u2014 | (6,431) |
Divestment - accumulated amortization | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 |
Divestment - impairment charges | \u2014 | \u2014 | 6,431 | \u2014 | \u2014 | \u2014 | 6,431 |
Currency translation - cost | \u2014 | (35) | (499) | (4,228) | (1,482) | (235) | (6,479) |
Currency translation - amortization | \u2014 | 35 | \u2014 | 984 | \u2014 | (20) | 999 |
Currency translation - impairment | \u2014 | \u2014 | 483 | \u2014 | \u2014 | \u2014 | 483 |
Movement 2022 | \u2014 | \u2014 | (16) | (6,841) | (1,482) | (374) | (8,713) |
At cost | \u2014 | 563 | 250 | 67,583 | 23,703 | 4,621 | 96,720 |
Accumulated: | |||||||
Amortization charges | \u2014 | (563) | \u2014 | (20,054) | \u2014 | (982) | (21,599) |
Impairment charges | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 |
Carrying value at December 31, 2022 | \u2014 | \u2014 | 250 | 47,529 | 23,703 | 3,639 | 75,121 |
Category | Description | Amortization period | |
Total | Remaining | ||
Transgenic technology | Patents and licenses | 6 to 10 years | Divested |
RUCONEST\u00ae for HAE (EU) | Development costs | 10 years | Fully amortized |
RUCONEST\u00ae for HAE (US) | Re-acquired commercial rights | 20 years | 14 years |
RUCONEST\u00ae for HAE (EU) | Re-acquired commercial rights | 12 years | 9 years |
Software expenses | Development costs | 3 to 5 years | 2 to 5 years |
Development costs | Development costs | Not yet in use | Not yet in use |
Transgenic technology
The transgenic technology relates to the patents and licenses historically acquired in light of Pharming\u2019s production platform on the expression of human proteins in the milk of transgenic mammals. This technology enables the development of complex therapeutic proteins in a cost-effective manner. During 2021, these assets were disposed.
RUCONEST\u00ae for HAE (EU)
Per 2022, the Company has capitalized development costs in relation to RUCONEST\u00ae for HAE in the European Union. Following market launch of the product in 2010 the amortization of the asset started, and no further development costs have been capitalized in respect to this item since then. These development costs are fully amortized at the end of 2022 and 2021.
Development costs
In 2018, the Company started to modify the current product RUCONEST\u00ae for more convenient forms of administration for use by the patient. This was expected to have resulted in better variants of the existing product. In 2021 no costs were incurred given a re-prioritization of the effort invested in the Company\u2019s pipeline assets and hence these assets were fully impaired. In 2022, the assets have been disposed.
In 2014, the Company acquired assets from Transgenic Rabbit Models SASU, for a total amount of US$0.5 million, which was recognized as intangible assets related to development costs of two new product leads: alpha-glucosidase for Pompe disease and alpha-galactosidase for Fabry\u2019s disease. In 2021, the asset relating to alpha-galactosidase for Fabry\u2019s disease was fully impaired. In 2022 this asset has been disposed.
The remaining balance (US$0.3 million) relates to the asset related to development costs of a product lead for alpha-glucosidase for Pompe disease.
Re-acquired rights and licenses
The re-acquired rights relate to the acquisition of all North American commercialization rights from Bausch Health in 2016 and the acquisition of all European commercialization and distribution rights from Swedish Orphan International AB (\"Sobi\") in 2020.
Novartis license
In August 2019, Pharming entered into a development collaboration and license agreement with Novartis to develop and commercialize leniolisib, a small molecule phosphoinositide 3-kinase delta (P13K\u03b4) inhibitor being developed by Novartis to treat patients with Activated Phosphoinositide 3-kinase Delta Syndrome (APDS). In 2022 no additional development costs were capitalized. Note that FDA approval was granted as per March 24, 2023, and hence the asset will start amortizing in 2023.
Software
Amounts in US$ \u2018000 | Land | Operational facilities | Leasehold Improvement | Machinery and equipment | Other | Asset under construction | Total |
At cost | 33 | 6,170 | 2,476 | 6,591 | 9,602 | 2,872 | 27,744 |
Accumulated depreciation | \u2014 | (3,030) | (2,176) | (5,375) | (4,937) | \u2014 | (15,518) |
Carrying value at January 1, 2021 | 33 | 3,140 | 300 | 1,216 | 4,665 | 2,872 | 12,226 |
Investments | \u2014 | 27 | 457 | 1,206 | 952 | 8,097 | 10,739 |
Internal transfer - cost | \u2014 | (544) | 3,097 | 7,977 | (5,743) | (4,787) | \u2014 |
Internal transfer - accumulated depreciation | \u2014 | 408 | 61 | (3,871) | 3,402 | \u2014 | \u2014 |
Transfer to software - cost | \u2014 | \u2014 | \u2014 | \u2014 | (175) | \u2014 | (175) |
Transfer to software - accumulated depreciation | \u2014 | \u2014 | \u2014 | \u2014 | 78 | \u2014 | 78 |
Divestments | \u2014 | (2) | \u2014 | (20) | (131) | (5,447) | (5,600) |
Depreciation charges | \u2014 | (455) | (86) | (2,004) | (680) | \u2014 | (3,225) |
Depreciation of disinvestment | \u2014 | 2 | \u2014 | 4 | 54 | \u2014 | 60 |
Currency translation - cost | (2) | (451) | (324) | (914) | (347) | (112) | (2,150) |
Currency translation - accumulated depreciation | \u2014 | 236 | 166 | 674 | 193 | \u2014 | 1,269 |
Movement 2021 | (2) | (779) | 3,371 | 3,052 | (2,397) | (2,249) | 996 |
At cost | 31 | 5,200 | 5,706 | 14,840 | 4,158 | 623 | 30,558 |
Accumulated depreciation | \u2014 | (2,839) | (2,035) | (10,572) | (1,890) | \u2014 | (17,336) |
Carrying value at December 31, 2021 | 31 | 2,361 | 3,671 | 4,268 | 2,268 | 623 | 13,222 |
Investments | \u2014 | 54 | 15 | 797 | 504 | 6 | 1,376 |
Internal transfer - cost | \u2014 | \u2014 | 42 | 380 | 170 | (592) | \u2014 |
Internal transfer - accumulated depreciation | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 |
Transfer to software - cost | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 |
Transfer to software - accumulated depreciation | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 |
Divestments | (29) | (214) | (107) | (6,422) | (27) | \u2014 | (6,799) |
Impairment | \u2014 | (72) | (55) | (377) | (13) | \u2014 | (517) |
Depreciation charges | \u2014 | (403) | (294) | (1,116) | (822) | \u2014 | (2,635) |
Depreciation of disinvestment | \u2014 | 214 | 107 | 6,097 | 27 | \u2014 | 6,445 |
Currency translation - cost | (2) | (309) | (319) | (940) | (101) | (31) | (1,702) |
Currency translation - accumulated depreciation | \u2014 | 162 | 114 | 676 | 50 | \u2014 | 1,002 |
Movement 2022 | (31) | (568) | (497) | (905) | (212) | (617) | (2,830) |
At cost | \u2014 | 4,659 | 5,282 | 8,278 | 4,691 | 6 | 22,916 |
Accumulated depreciation | \u2014 | (2,866) | (2,108) | (4,915) | (2,635) | \u2014 | (12,524) |
Carrying value at December 31, 2022 | \u2014 | 1,793 | 3,174 | 3,363 | 2,056 | 6 | 10,392 |
Category | Depreciation period |
Land | Not depreciated |
Operational facilities | 10-20 years |
Leasehold improvements | 5-10 years |
Machinery and equipment* | 5-10 years |
Other property, plant & equipment | 5-10 years |
* Depreciation charges for machinery and equipment are based on actual use of the equipment involved, which is expected to take place in a period before technical expiration |
In 2022 the Company had capital expenditures of US$1.4 million (2021: US$10.7 million), mainly related to new machinery and equipment.
Depreciation charges on machinery and equipment of US$1.0 million in 2022 (2021: US$1.1 million million) have been charged to the value of inventories and an amount of US$1.6 million of the total 2022 depreciation costs has been charged to the statement of income (2021: US$2.1 million).
This note provides information for leases where the Group is a lessee.
The balance sheet shows the following amounts relating to leases:
Amounts in US$ \u2018000 | Buildings | Cars | Total |
At cost | 10,874 | 2,290 | 13,164 |
Accumulated depreciation | (3,103) | (634) | (3,737) |
Carrying value at January 1, 2021 | 7,771 | 1,656 | 9,427 |
Investments | 13,802 | 401 | 14,203 |
Divestments | (51) | (165) | (216) |
Depreciation charges | (2,112) | (669) | (2,781) |
Depreciation of disinvestment | 30 | 81 | 111 |
Other movement - cost | (478) | (79) | (557) |
Other movement - accumulated depreciation | 644 | 57 | 701 |
Currency translation - cost | (1,148) | (67) | (1,215) |
Currency translation - accumulated depreciation | 245 | 25 | 270 |
Movement 2021 | 10,932 | (416) | 10,516 |
At cost | 22,999 | 2,380 | 25,379 |
Accumulated depreciation | (4,296) | (1,140) | (5,436) |
Carrying value at December 31, 2021 | 18,703 | 1,240 | 19,943 |
Investments | 15,066 | 1,741 | 16,807 |
Divestments | (292) | (739) | (1,031) |
Depreciation charges | (2,223) | (797) | (3,020) |
Depreciation of disinvestment | 78 | 596 | 674 |
Impairment | (3,860) | \u2014 | (3,860) |
Depreciation Impairment | 59 | \u2014 | 59 |
Currency translation - cost | (1,029) | (48) | (1,077) |
Currency translation - accumulated depreciation | 197 | 61 | 258 |
Movement 2022 | 7,996 | 814 | 8,810 |
At cost | 32,884 | 3,334 | 36,218 |
Accumulated depreciation | (6,185) | (1,280) | (7,465) |
Carrying value at December 31, 2022 | 26,699 | 2,054 | 28,753 |
Investments in buildings in 2022 relates to the lease contract for the DSP facility at Pivot Park, Oss. As communicated in prior year, as a result of our renewed strategic manufacturing partnership with long-term manufacturing partner Sanofi S.A., the Company decided to have the construction of the new building completed, but no longer pursue the realization of its own downstream
production capacity at Pivot Park in Oss. During 2022 the lease commenced and resulted in an investment of US$14.6 million. Pharming is looking into possibilities for alternative use. As a result of aforementioned decision, the right of use asset was impaired for an amount of US$3.9 million. The impairment was calculated on a value in use basis, using the incremental borrowing rate as the applicable discount rate (4.47%). The recoverable amount is reflecting in the book value of the asset, being US$10.7 million.
The Company applies for the exemption of accounting of short-term leases and low-value leases. The amounts recorded in the consolidated statement of income are immaterial to the financial statements.
Amounts recognized in the statement of income
The statement of income shows the following amounts relating to leases:
Amounts in US$ \u2018000 | 2022 | 2021 |
Depreciation right of use buildings | (2,223) | (2,112) |
Depreciation right of use cars | (797) | (669) |
Interest expense (note 8) | (622) | (795) |
Total expense right of use assets | (3,642) | (3,576) |
Lease charges
For the year 2022, the Company charged US$3.6 million (2021: US$3.6 million) to the statement of income with regard to lease commitments for office rent, equipment, facilities and lease cars.
The non-cancellable leases at 31\u00a0December 2022 have remaining terms of between one and fifteen years and generally include a clause to enable upward revision of the rental charge on an annual basis according to prevailing market conditions.
13.1 Investments accounted for using the equity method
The investment in BioConnection BV (BioConnection) announced in April 2019 provides the Company with significant influence over BioConnection, and as such has been treated as an associate of the Group.
As at December 31, 2022, the asset relates to an investment in the ordinary shares of BioConnection Investments B.V. During the second quarter of 2022, Pharming entered into a share purchase agreement, following receipt of an offer for all shares in BioConnection by Gimv, a European investment company listed on Euronext Brussels. The existing shareholders (including Pharming) reached agreement with Gimv on the sale of all issued and outstanding shares to a new holding company (BioConnection Investments B.V.) incorporated by Gimv, followed by a partial re-investment by existing shareholders of the purchase price in the share capital of BioConnection Investments B.V. The re-investment relates to the purchase of ordinary shares and a preference share. The transaction diluted Pharming\u2019s stake in BioConnection
from 43,85% in 2021 to 22,98% in 2022. Furthermore, as part of this transaction, the financial guarantee recognized in 2019, was released.
The Board of Directors made an assessment on the accounting treatment of the agreement and concluded that the sale of the BioConnection ordinary shares and purchase of the BioConnection Investments B.V. ordinary shares shall be considered as a dilution of an existing equity stake in an investment accounted for using the equity method. Hence Pharming recognized the dilution of its equity stake as a reduction of the carrying amount of the investment accounted for using the equity method. The preference share is valued as an investment in debt instruments designated as at fair value with changes through profit and loss (FVTPL). As a result of this transaction, Pharming has received one-off net cash proceeds of US$7.3 million (EUR6.9 million) and recognized a gain of US$12.2 million.
BioConnection has a share capital consisting solely of ordinary shares, which are held directly by a small group of shareholders. The proportion of ownership interest is the same as the proportion of voting rights held.
Name of entity | Place of business | % of ownership interest | Nature of relationship | Measurement method | |
2022 | 2021 | ||||
BioConnection Investment B.V. | Oss, NL | 22.98 | 43.85 | Associate | Equity |
Amounts in US$ \u2018000 | |
Carrying value at January 1, 2021 | 7,118 |
Share in net profit | 694 |
Amortization of financial guarantee | (33) |
Currency translation | (578) |
Carrying value at December 31, 2021 | 7,201 |
Share in net profit | (1,083) |
Release of financial guarantee | (153) |
Dilution of equity stake | (2,991) |
Currency translation | (473) |
Carrying value at December 31, 2022 | 2,501 |
Financial information of BioConnection B.V. per December 31, 2021, is filed at the Dutch Chamber of Commerce under number 17180803 (www.kvk.nl).
Financial information of BioConnection as filed at the Dutch Chamber of Commerce, for the year 2021 is as follows:
Amounts in US$ \u2018000 | 31 December 2022 |
Total assets | 28,313 |
Total equity | 10,609 |
Net result | 1,725 |
In the Board of Director\u2019s judgement, the investment in BioConnection constitutes an investment in an associated company and is therefore not consolidated, as Pharming has significant influence but does not have control of BioConnection and is embargoed by a shareholders agreement between the shareholders of BioConnection from influencing any activity between the two parties which is in any significant way different from the relationship which existed between the two prior to the investment.
13.2 Investment in debt instruments designated as at FVTPL
The asset relates to the preference share as obtained as part of the agreement referred to above relating to BioConnection Investments B.V. The Board of Director\u2019s made an assessment on the accounting treatment of the preference share obtained. The Board concluded that the asset should be recognized as a financial asset (debt instrument) measured at initial recognition at fair value, subsequently measured at fair value through profit and loss. The fair value was calculated based on a commonly accepted valuation method, the option pricing model (\"OPM\"), which considers the share classes as call options on the total shareholders\u2019 equity value according to
the rights and preferences of each class of equity. The payoff profile of the share classes was analyzed through a portfolio of call options, with the total equity value of a company as the underlying asset of the options and specific terms for each option calibrated to mirror, in aggregate, the payoff profile of the share classes. Relying on the forward-looking Black-Scholes-Merton (\"BSM\") financial instrument pricing framework, the OPM effectively captures the full range of potential outcomes for the share classes at exit. The OPM takes into consideration the full spectrum of risks in terms of future potential upside or downside but does not require explicit estimates of the possible future outcomes. The BSM model is commonly used to price assets on financial markets and allows to estimate the theoretical value of a call option, using six key parameters, namely the underlying equity value, strike price, time to maturity, risk free rate, expected volatility of the underlying equity and dividend yield on the underlying equity, which is a Level 3 input in terms of IFRS 13. Significant increases or decreases in equity value, volatility and time to maturity and below assumptions in isolation would result in a significantly lower or higher fair value assessment.
The following assumptions were used in the Black-Scholes model to determine the fair value of the asset:
2022 | 2021 | |
Expected time to maturity | 5 years | |
Volatility | 55% | \u2014% |
Risk-free interest rate | 2.51% | \u2014% |
The carrying amount of this investment has changed as follows:
Amounts in US$ \u2018000 | 2022 | 2021 |
1 January | \u2014 | \u2014 |
Investment | 7,933 | \u2014 |
Fair value changes | (1,185) | \u2014 |
Currency translation | 79 | \u2014 |
Balance at December 31 | 6,827 | \u2014 |
Sensitivity analysis
To illustrate the exposure of the carrying value of the investment to further fair value movements as a result of changes in the economic environment, a sensitivity analysis of fair value has been prepared over the key drives most affected by the current uncertainties. It is possible that there will be movements in these key inputs after December 31, 2022. While it is unlikely that these reported inputs would
move in isolation, these sensitivities have been performed independently to illustrate the impact each individual input has on the reported fair value and they do not represent management's estimate at December 31, 2022.
The main assumptions in determination of the equity value are shown in below table
Preference share BioConnection (in million US$) | |||||
Revenue level | Fair value | Discount rate | Fair value | EBITDA margin | Fair value |
-10.0% | 5.8 | -2.0% | 7.4 | -5.0% | 6.2 |
-5.0% | 6.3 | -1.0% | 7.0 | -2.5% | 6.5 |
Base case | 6.8 | Base case | 6.8 | Base case | 6.8 |
+5.0% | 7.3 | +1.0% | 6.6 | +2.5% | 7.1 |
+10.0% | 7.6 | +2.0% | 6.4 | +5.0% | 7.4 |
The impact of the remaining variables on the Black-Scholes model are shown in below table:
Preference share BioConnection (in million US$) | |||
Time to maturity | Fair value | Volatility | Fair value |
- 2 years | 8.2 | -10.0% | 7.8 |
- 1 year | 7.5 | -5.0% | 7.3 |
Base case | 6.8 | Base Case | 6.8 |
+ 1 year | 6.3 | +5.0% | 6.4 |
+ 2 years | 5.8 | +10.0% | 6.0 |
13.3 Investments in equity instruments designated as at Fair Value Through Other Comprehensive Income\u00a0
The Group holds 1,0 percent of the ordinary share capital of Orchard Therapeutics, a global gene therapy leader. The shares were acquired as of July 1, 2021, as part of strategic collaboration between Pharming Group N.V. and Orchard Therapeutics to research, develop, manufacture and commercialize OTL-105, a newly disclosed investigational ex-vivo autologous hematopoietic stem cell (HSC) gene therapy for the treatment of hereditary angioedema (HAE), a life-threatening rare disorder that causes recurring swelling attacks in the face, throat, extremities and abdomen.
Under the terms of the collaboration, Pharming has been granted worldwide rights to OTL-105 and will be responsible for clinical development, regulatory filings,
and commercialization of the investigational gene therapy, including associated costs. Orchard will lead the completion of IND-enabling activities and oversee manufacturing of OTL-105 during pre-clinical and clinical development, which will be funded by Pharming. In addition, both companies will explore the application of non-toxic conditioning regimen for use with OTL-105 administration. As part of the agreement, Orchard is eligible to receive up to US$189.5 million in development, regulatory and sales milestones as well as mid-single to low double-digit royalty payments on future worldwide sales.
Management does not consider that the Group is able to exercise significant influence over Orchard Therapeutics as the other 99,0 percent of the ordinary share capital is publicly traded at the Nasdaq stock exchange (Nasdaq: ORTX).
Name of entity | Place of business | % of ownership interest | Nature of relationship | Measurement method | |
2022 | 2021 | ||||
Orchard Therapeutics Plc. | London, UK | 1.00% | 1.00% | Investment | Fair value |
The fair value as at December 31, 2022 was determined on the basis of the trading price as at that date.
Amounts in US$ \u2018000 | Carrying amount |
1 January 2021 | \u2014 |
Initial recognition | 4,589 |
Fair value adjustments through OCI | (3,077) |
Currency translation | (63) |
Carrying value at December 31, 2021 | 1,449 |
Initial recognition | \u2014 |
Fair value adjustments through OCI | (950) |
Currency translation | (96) |
Carrying value at December 31, 2022 | 403 |
Inventories mainly include batches RUCONEST\u00ae and work in progress available for production of RUCONEST\u00ae.
Amounts in US$ \u2018000 | 2022 | 2021 |
Finished goods | 12,460 | 9,853 |
Work in progress | 29,553 | 16,911 |
Raw materials | 313 | 546 |
Balance at December 31 | 42,326 | 27,310 |
Changes in the adjustment to net realizable value:
Amounts in US$ \u2018000 | 2022 | 2021 |
Balance at January 1 | (2,448) | (646) |
Addition to impairment | (164) | (2,342) |
Release of impairment | 312 | 20 |
Usage of impairment | 195 | 407 |
Currency translation | 134 | 113 |
Balance at December 31 | (1,971) | (2,448) |
The inventory valuation at 31\u00a0December 2022 of US$42.3 million is stated net of an impairment of US$2.0 million (2021: US$2.4 million). The impairment primarily relates to products no longer eligible for commercial sales.
Inventories are available for use in commercial, preclinical and clinical activities. Estimates have been made with
respect to the ultimate use or sale of product, taking into account current and expected sales as well as preclinical and clinical programs. These estimates are reflected in the additions to the impairment. The releases to the impairment relate to amendments to the estimates as a result of the fact that actual sales can differ from forecasted sales and the fact that vials allocated to preclinical and clinical programs
Amounts in US$ \u2018000 | 2022 | 2021 |
Restricted cash (non-current) | 1,099 | 812 |
Restricted cash (current) | 213 | 227 |
Cash and cash equivalents | 207,342 | 191,924 |
Total restricted cash, cash and cash equivalents | 208,654 | 192,963 |
Cash is free at disposal of the Company, except for restricted cash, which amounts to US$1.3 million in 2022 (2021: US$1.0 million). Restricted cash (current), which amounts US$0.2 million in 2022 (2021: US$0.2 million), includes the value of banker\u2019s guarantees issued with respect to (potential) commitments towards third parties which is considered to be of a short-term nature.
can be returned to inventory. The costs of vials used in preclinical and clinical programs are presented under the research and development costs.
Cost of inventories included in the cost of sales in 2022 amounted US$17.4 million (2021: US$19.1\u00a0million). The main portion of inventories at 31\u00a0December 2022 have expiration dates starting beyond 2023 and are all expected to be sold and/or used before expiration.
Pharming management has assessed the different production stages, including the classification of Pharming\u2019s goods at every separate stage. Based on the assessment, Pharming management concluded that applying a
reclassification would result in providing more reliable and relevant information about Pharming\u2019s inventory and production processes. As a result, the skimmed milk used in the production of RUCONEST\u00ae will be classified as work in progress rather than raw materials as part of the production is already performed. Furthermore, the products that still have to be labelled are classified as work in progress rather than finished goods
There is no impact on the total amount of inventory at hand, nor the primary financial statements. The table below shows a summary of the disclosure impact of the inventory reclassification in the prior year closing balance.
Amounts in US$'000 | December 31, 2021 | Adjustment | December 31, 2021 |
Finished Goods | 13,560 | (3,707) | 9,853 |
Work in Progress | 9,606 | 7,305 | 16,911 |
Raw Materials | 4,144 | (3,598) | 546 |
Total inventory | 27,310 | \u2014 | 27,310 |
Amounts in US$ \u2018000 | 2022 | 2021 |
Trade receivables | 20,964 | 18,076 |
Prepaid expenses | 2,288 | 2,392 |
Value added tax | 1,453 | 2,486 |
Other receivables | 1,117 | 2,363 |
Taxes and social securities | 1,797 | 4,666 |
Balance at December 31 | 27,619 | 29,983 |
Trade receivables are amounts due from customers for goods sold in the ordinary course of business. They are generally due for settlement within 30-60 days and therefore are all classified as current. The Company\u2019s outstanding trade receivables are mainly related to the sales in the U.S. The decrease in trade receivables relates to timing of customer orders and payments around year-end
The Company did not recognize any expected credit losses. Pharming measures the loss allowance for trade receivables at an amount equal to lifetime ECL. The expected credit losses on trade receivables are estimated using a provision
The Company\u2019s authorized share capital amounts to US$9.4 million (\u20ac8.8 million), exchange rate (EUR:US$) equals 1:1.0667) and is divided into 880,000,000 ordinary shares with a nominal value of \u20ac0.01 each. All 656,348,225 (\u20ac6.6 million) shares outstanding at 31\u00a0December 2022 have been fully paid-up. Other reserves include those reserves related to currency translation, fair value revaluation, participating interest and capitalized development costs. Please refer to the Consolidated statement of changes in equity and to note 27. The Consolidated statement of changes in equity and note 27 further describes the background of the main equity movements in 2022 and 2021.
Net result and accumulated deficit
Article 21.1 of the articles of association reads as follows: \u2018the Board of Directors shall annually determine the amount of the distributable profit \u2013 the surplus on the profit and loss account \u2013 to be reserved.\u2019 The Board of Directors has proposed to forward the net profit for the year 2022 to the accumulated deficit. Anticipating the adoption of the financial statements by the shareholders at the Annual General Meeting of shareholders, this proposal has already been reflected in the financial statements.
Share-based compensation
Share-based compensation within equity includes those transactions with third parties, the former Board of Management and employees in which payment is based in shares or options, based on current or future performance. For 2022 these transactions were valued at US$6.4 million and for 2021 at US$9.1 million (see note 21).
Value conversion rights of convertible bonds
The original equity component of the convertible bonds as recorded at initial recognition amounts to US$1.6 million. Reference is made to note 18.
Warrants
In 2022 warrants, representing a total of \u2014 shares (2021: 60,915 shares) were exercised in exchange for that number of shares. In relation to the exercises, the Company received US$\u2014 million (2021: $0.02 million) in cash.
Options exercised / LTIP shares issued
In 2022, options were exercised and LTIP shares were issued for a total of 7,598,943 shares. In 2021, options were exercised and LTIP shares were issued for a total of 9,866,748 shares.
Adjustment to share capital
There were no adjustments to the authorized share capital in 2022 and 2021.
Amounts in US$ \u2018000 | Legal Reserve Currency translation reserve (CTA) | Legal Reserve Capitalized development cost | Legal Reserve participating interest | Reserve Fair value revaluation | Total |
Balance at January 1, 2021 | 19,037 | 4,955 | 622 | \u2014 | 24,614 |
Movements in the year | (15,072) | (4,553) | 694 | (2,283) | (21,214) |
Balance at December 31, 2021 | 3,965 | 402 | 1,316 | (2,283) | 3,400 |
Movements in the year | (10,349) | \u2014 | (1,083) | (705) | (12,137) |
Balance at December 31, 2022 | (6,384) | 402 | 233 | (2,988) | (8,737) |
The other reserves concern the reserve fair value revaluation, reserve participating interest, currency translation differences of foreign investments and capitalized development expenses.
Adjustments to the reserve participating interest relate to the undistributed profits of the participating interest.
Adjustments to the currency translation reserve reflect the effect of translating Euro operations denominated in Euro since their functional currency is different from the reporting currency.
The legal reserves for capitalized development expenses as of 31\u00a0December 2022 (US$0.4 million) shows no activity compared to 2021 (US$0.4 million), as there were no internally developed capitalized costs for 2022.
Recognition and movements of the convertible bonds were as follows:
Amounts in US$ \u2018000 | 2022 | 2021 |
Balance at January 1 | 140,886 | 151,767 |
Interest paid (cash flow) | (3,952) | (4,448) |
Amortization transaction cost | 784 | 849 |
Accrued interest | 3,952 | 4,447 |
Currency translation | (8,284) | (11,729) |
Balance at December 31 | 133,386 | 140,886 |
- Current portion | 1,768 | 1,879 |
- Non-current portion | 131,618 | 139,007 |
On January 21, 2020, the Company issued \u20ac125 million aggregate principal amount of 3.00% convertible bonds due 2025. The bonds were issued at par and bear interest at a rate of 3.00% per annum payable semi-annually in arrears in equal installments. Unless previously converted, redeemed or purchased and cancelled, the bonds will mature on January 21, 2025.
The bonds are convertible into the Company\u2019s ordinary shares at an initial conversion price of \u20ac2.0028. This initial conversion price is subject to customary adjustment provisions. The number of ordinary shares initially underlying the bonds is 62,412,622. Any adjustment to the conversion price resulting in an increase in the number of conversion shares may require the Company to obtain further authorization from the Company\u2019s shareholders to issue shares, grant rights to subscribe for shares and exclude preemptive rights. The Company has the option to redeem all, but not some only, of the outstanding bonds in cash at par plus accrued interest at any time, (a) if, on or after February 13, 2023, the parity value on each of at least 20 trading days in a period of 30 consecutive trading days shall have exceeded 130% of the principal amount or (b) if, at any time, 85% or more of the aggregate principal amount of the bonds originally issued shall have been previously converted and / or repurchased and cancelled.
The convertible bonds are comprised of two components. The first component is a financial liability, which represents our contractual obligation to deliver cash or another financial asset for payment of interest and principal, if not
converted. The second component is an equity instrument as it represents a written call option granting the holder the right, for a specified period of time, to convert it into a fixed number of the Company\u2019s ordinary shares.
The fair value of the consideration in respect of the liability components is measured at the fair value of a similar liability that does not have any associated equity conversion option (IFRS 9 paragraph 5.1.1). This is the liability component\u2019s carrying amount at initial recognition.
Lease liabilities can be specified as follows:
Amounts in US$ \u2018000 | 2022 | 2021 |
Balance at January 1 | 20,875 | 10,192 |
New Leases | 16,248 | 14,118 |
Interest expense accrued | 718 | 680 |
Payments of\u00a0 lease liabilities | (3,311) | (3,217) |
Other movements | (348) | 94 |
Currency translation | (874) | (992) |
Balance at December 31 | 33,308 | 20,875 |
- Current portion | 3,465 | 2,419 |
- Non-current portion | 29,843 | 18,456 |
New leases in 2022 primarily relate to new lease contracts for our operational facilities in the Netherlands.
Future minimum lease payments as at 31\u00a0December 2022 and 2021 are as follows:
2022 | 2021 | |||
Amounts in US$ \u2018000 | Minimum payments | Present value of payments | Minimum payments | Present value of payments |
Within one year | 4,644 | 4,535 | 3,118 | 3,068 |
After one year but not more than five years | 15,157 | 13,582 | 10,255 | 9,392 |
More than five years | 20,890 | 15,191 | 10,123 | 8,415 |
Balance at December 31 | 40,691 | 33,308 | 23,496 | 20,875 |
Amounts in US$ \u2018000 | 2022 | 2021 |
Accounts payable | 8,753 | 7,599 |
Taxes and social security | 2,099 | 1,505 |
Other accruals | 12,809 | 7,614 |
Other payables | \u2014 | 34 |
Accruals for employees | 12,139 | 8,850 |
Accruals for rebates and discounts | 10,490 | 11,111 |
Accrual for production | 8,175 | 5,760 |
Balance at December 31 | 54,465 | 42,473 |
The remuneration policy for the Board of Directors was adopted by our shareholders on December 11, 2020, and governs the remuneration of both the Executive and the Non-Executive Directors (hereafter referred to as the \"Remuneration Policy\"). In accordance with Dutch law, the policy has to be submitted to our shareholders for adoption every four years.
The Policy refers to an undefined number of Executive Directors and Non-Executive Directors. Since May 19, 2021, the Board of Directors is composed of one Executive Director (i.e., the CEO) and seven Non-Executive Directors. In case of future appointments of additional Executive Directors, the Policy shall also be applicable to the remuneration packages for these additional Directors, if any, in accordance with the terms thereof. Therefore, any reference below to Executive Director in the singular also includes the plural, and vice-versa, subject to more restrictive deviations in the Policy and except for specific references to the CEO.
The remuneration packages of the individual Directors are determined by the Board of Directors, without the involvement of the Executive Director in the deliberations and decision-making concerning his own remuneration, and each time within the restrictions set by the remuneration policy.
Arrangements in the form of shares or rights to subscribe for shares will each time remain subject to the approval of the shareholders at the General Meeting, notwithstanding the adopted policy. On December 11, 2020, the shareholders approved the proposals that were submitted accordingly for the new long-term incentive program for the Executive Director, as described in the Remuneration Policy, and the one-off transition arrangement for the implementation of that new program. Our shareholders also authorized the Board of Directors, for a period of eighteen months, as the company body authorized to grant and issue the ordinary shares to the Executive Director under the new long-term incentive program and the one-off transition arrangement, respectively, and to exclude any preemptive rights of existing shareholders in connection with these issuances.
The total expense recognized in 2022 for share-based payment plans amounts to US$6.4 million (2021: US$9.1 million).
The total expenses for share-based payment plans in 2022 is specified as follows:
Share-based compensation (in U.S.$ '000) | 2022 | 2021 |
Employee options | 2,390 | 4,262 |
Long term incentive plan | 3,528 | 4,793 |
Restricted stock units | 474 | \u2014 |
Balance at December 31 | 6,392 | 9,055 |
The employee options expense decreased due to vesting of the majority options for the board of directors relating to historic option plans and a change in the employee share-based compensation plans where for 2022 RSU's have been granted instead of employee options. As mentioned above, options for board of director's are not included in any new granted share-based compensation plans. The remainder of the decrease is caused by currency translation effects.
Long-term incentive plan expenses decreased due to a release of the share-based compensation provision relating to leavers during 2022. The remainder of the decrease is caused by currency translation effects.
The restricted stock units relates to the new 2022 share-based compensation plan for (senior) management of the company. The RSU's were granted as of October 26, 2022, and is an equity settled compensation plan vesting in four equal yearly tranches. The expenses represents the fair value of the granted RSU's for the year 2022 as of the grant date.
21.1 Models and assumptions
IFRS 2 describes a hierarchy of permitted valuation methods for share-based payment transactions. If possible, an entity should use market prices at measurement date to determine the fair value of its equity instruments. If market prices are unavailable, as is the case with Pharming\u2019s option plans and long-term incentive plan, the entity shall estimate the fair value of the equity instruments granted. A valuation technique should be used to estimate the value or price of those equity instruments as it would have been at the measurement date in an arm\u2019s length transaction between knowledgeable, willing parties.
The valuation technique shall be consistent with generally accepted valuation methodologies for pricing financial instruments and shall incorporate all factors and assumptions that knowledgeable market participants would consider in setting the price.
Whatever pricing model is selected, it should, as a minimum, take into account the following elements:
\u2022The exercise price of the option;
\u2022The expected time to maturity of the option;
\u2022The current price of the underlying shares;
\u2022The expected volatility of the share price;
\u2022The dividends expected on the shares;
\u2022The risk-free interest rate for the expected time to maturity of the option.
Models and assumptions option plans
The costs of option plans are measured by reference to the fair value of the options at the grant date of the option.
The six elements above are all incorporated in the Black-Scholes model used to determine the fair value of options. The exercise price of the option and the share price are known at grant date. Volatility is based on the historical end-of-month closing share prices over a period prior to the option grant date being equal to the expected option life, with a minimum of 3 years. It is assumed no dividend payments are expected.
The total number of shares with respect to which options may be granted pursuant to the option plans accumulated, shall be determined by Pharming, but shall not exceed 10% of all issued and outstanding shares of Pharming on a diluted basis. Shares transferred or to be transferred, upon exercise of options shall be applied to reduce the maximum number of shares reserved under the plans. Unexercised options can be re-used for granting of options under the option plans.
Pharming may grant options to a member of the Executive Committee or an employee:
\u2022At the time of a performance review;
\u2022Only in relation to an individual: a date within the first month of his or her employment;
\u2022In case of an extraordinary achievement;
\u2022In case of a promotion to a new function within Pharming.
The option exercise price is the price of the Pharming shares on the stock exchange on the trading day prior to the date of grant. Vested options can be exercised at any time within five years following the date of grant. Unexercised options shall be deemed lapsed and shall cease to exist automatically after five years. Exercise of options is subject to compliance with laws and regulations in the Netherlands. Exercise of options is including withholding taxes. Each option is equal to one share unless otherwise stated. Options are not applicable for early retirement.
The following assumptions were used in the Black-Scholes model to determine the fair value of options at grant date:
2022 | 2021 | |
Expected time to maturity | 1-4 years | 1-4 years |
Volatility | 36% - 50% | 47% - 57% |
Risk-free interest rate | (0.48%) - 2.49% | (0.52%) - (0.03%) |
Option plan employees
Article 2.1 of the option plan for employees\u2019 states: \u2018Pharming may grant options to any employee. The criteria for the granting of the options up to December 11, 2020, was determined by the Board of Supervisory Directors of Pharming, at its sole discretion. Up to December 11, 2020, the Board of Management proposed (i) whether the criteria for granting an option have been met by a potential participant and (ii) the number of options to be granted. As from December 11, 2020, the execution of the Company\u2019s remuneration policy and other benefits policies and incentive programs, as approved by the Board of Directors (to the extent required), for all staff members of the Company and its subsidiaries, excluding the CEO and the other members of the Executive Committee, is delegated to the Chief Executive Officer.
Article 4.4 of the employee option plan deals with the vesting scheme of employee options and reads as follows: \u2018in case of the termination of the employment of a participant, except for retirement and death, Pharming at its sole discretion is entitled to decide that the options of the participant shall lapse. The following schedule shall apply for the cancellation:
\u2022In the event of termination of employment within one year as of a date of grant, all options shall lapse;
\u2022In the event of termination of employment after the first year as of a date of grant, all options, less 1/4 of the number of options shall be lapsed. The number of options to be cancelled decreases for each month that the employment continued for more than one year as of that date of grant by 1/48 of the number of options granted of that date of grant.
Models and assumptions Long Term Incentive Plan
For the long-term incentive plan, the following elements of Pharming and/or the peer group are included in order to
determine the fair value of long-term incentive plan share awards, using Monte Carlo simulation:
\u2022Start and end date of performance period;
\u2022The grant date;
\u2022The share prices;
\u2022Exchange rates;
\u2022Expected volatilities;
\u2022Expected correlations;
\u2022Expected dividend yields;
\u2022Risk free interest rates.
Volatilities are based on the historical end-of-month closing share prices over the 3 years.
Correlations are based on 3 years of historical correlations based on end-of-month closing quotes, taking into account exchange rates. Expected dividend yields for peers and risk-free interest rates (depending on the currency) are obtained from Bloomberg.
Under the LTIP, restricted shares are granted conditionally each year with shares vesting based on the market condition in which the total shareholder return performance of the Pharming share is compared to the total shareholder return of a peer group of other European biotech companies.
During 2022, there were no LTIP grants other than the grants for the executive directors as disclosed below.
Long Term Incentive Plan for the Executive Directors
As part of the Remuneration Policy, the Long Term Incentive Program is applicable to Executive Directors and has been aligned with prevailing \"best practices\" and is performance related only. For the Executive Directors, the on-target value of the shares to be awarded under the newly designed LTI Program, as described in the remuneration policy, is set at 300% of the gross annual salary for the CEO (representing 50% below the lowest quartile of the U.S. benchmark group and just below the top quartile of the EU benchmark group for the executive directors) and 200% for other Executive Directors and Officers (representing between 20 and 30% below the lowest quartile of the U.S. benchmark group and just in the top quartile of the EU benchmark group for the Executive Directors).
EU and U.S. benchmark group:
Company Location | Location |
Europe | |
Alliance Pharma | Chippenham, United Kingdom |
Allergy Therapeutics | Worthing, United Kingdom |
Autolus Therapeutics | London, United Kingdom |
Basilea Pharmaceutica | Basel, Switzerland |
Bavarian Nordic | Hellerup, Denmark |
BioGaia | Stockholm, Sweden |
Biotest | Dreieich, Germany |
Camurus | Lund, Sweden |
Cosmo Pharmaceuticals | Dublin, Ireland |
Innate Pharma | Marseille, France |
Merus | Utrecht, Netherlands |
Mithra Pharmaceuticals | Liege, Belgium |
Myoivant Science | London, United Kingdom |
Oxford Biomedica | Oxford, United Kingdom |
uniQure | Amsterdam, Netherlands |
Valneva | Nantes, France |
Zealand Pharma | Copenhagen, Denmark |
U.S. | |
Aerie Pharmaceuticals | Durham, NC |
Anika Therapeutics | Bedford, MA |
Clovis Oncology | Boulder, CO |
Coherus BioSciences | Redwood City, CA |
Collegium Pharmaceutical | Stoughton, MA |
Enanta Pharmaceuticals | Watertown, MA |
Heron Therapeutics | San Diego, CA |
Intercept Pharmaceuticals | Morristown, NJ |
Ironwood Pharmaceuticals | Boston, MA |
Karyopharm Therapeutics | Newton, MA |
Ligand Pharmaceuticals | San Diego, CA |
MannKind | Danbury, CT |
Radius Health | Waltham, MA |
Rigel Pharmaceuticals | South San Francisco, CA |
Supernus Pharmaceuticals | Rockville, MD |
Travere Therapeutics | San Diego, CA |
Vanda Pharmaceuticals | Washington, DC |
The maximum value of the shares that can vest under the LTI program is set at 450% of the gross annual salary for the CEO and 300% for other Executive Directors and Officers. Executive Directors are required to retain the shares awarded under the LTI program for a minimum of five years from the date of grant.
The shares granted to the Executive Directors under the LTI program will vest in three years after the grant date, subject to the achievement of the targets set by the Board of Directors, upon proposal of the Remuneration Committee, for the three-year performance period (i.e., double-trigger vesting), their relative weightings and the pay-out limits. All shares awarded will be subject to a retention period of five years from the date of grant (i.e., two years after vesting), in accordance with the best practice provisions of the DCGC.
The performance objectives include the Total Shareholder Return (40% weighing) and the achievement of long-term strategy oriented objectives (60% weighing). The peer group used to determine the Total Shareholder Return is composed of the companies included in the AScX Index and the NASDAQ Biotechnology Index, represented by the
IBB ETF, respectively, equally weighted, at the time of the determination.
The thresholds and payout percentages for the LTI program are given by the following table, as to be determined for each of the AScX and IBB indices separately (each weighted at 50% of pay-out):
TSR equal to index | 80% pay-out |
TSR 10% above index | 90% pay-out |
TSR 20% above index | 100% pay-out |
TSR 40% above index | 110% pay-out |
TSR 60% above index | 120% pay-out |
TSR 80% above index | 130% pay-out |
TSR 100% above index | 150% pay-out |
TSR below index | 0% pay-out |
The range of assumptions used in the Monte Carlo simulation to determine the fair value of long-term incentive plan share awards at grant date were:
2022 | 2021 | |
Volatilities | 46% | 49% |
Risk-free interest rates | 0.61% | -0.554%--0.416% |
Dividend yields | 0.00% | 0.00% |
Restricted Stock Units
This Plan is effective as of October 26, 2022, and shall be executed in compliance with the Articles of Association and applicable law and concerns Pharming's (senior) management. The RSU plans are not applicable for the board of directors, nor the executive committee. For each participant, the RSU\u2019s granted to them will vest in four equal tranches of twelve months, provided that at the time of vesting such participant is still an employee. No performance criteria are applicable to this plan. The fair value of the grant is, in line with IFRS 2, the actual share price at date of the grant (October 26, 2022), being EUR 0,97. A total of 4.931.000 RSU's were granted with a total expense of US$5.0 million (US$ yearly average exchange rate = 1.0543). This expense will be charged to Pharming's results over the vesting for the following tranches:
a.a first tranche of 25% of the RSU\u2019s granted, vesting twelve months after the Vesting Commencement Date;
b.a second tranche of 25% of the RSU\u2019s granted, vesting two years after the Vesting Commencement Date;
c.a third tranche of 25% of the RSU\u2019s granted, vesting three years after the Vesting Commencement Date; and
d.a fourth tranche of 25% of the RSU\u2019s granted, vesting four years after the Vesting Commencement Date.
One-off transition arrangement for the Chief Executive Officer
The implementation of the new three-year vesting scheme under the LTIP has a major impact on the current
remuneration packages of existing Executive Directors for the period 2020-2023, as the Executive Directors\u2019 current packages feature annual option and share grants. The share-based compensation under the existing packages and plans over this three-year period would have resulted in three option grants, with guaranteed vesting of a total of 8,400,000 options for the CEO on the basis of continued tenure over the three-year period. In addition, the CEO would have been eligible for three annual restricted share grants pursuant to the LTIP of up to 30% of the base salary.
To mitigate the described impact, the Company has agreed to a one-off transition arrangement with the CEO as approved at the General Meeting of Shareholders on December 11, 2020. This one-off transition arrangement provides for (i) the conversion of the total number of 8,400,000 options for the CEO (i.e., the total number of share options that was expected to be granted in 2021, 2022 and 2023 without the arrangement) into one grant for a total number of 4,200,000 shares for 2020, which vesting will be governed by the performance-based criteria of the new LTI program, and (ii) the vesting of the performance shares in three annual tranches in the first quarter of 2021, 2022 and 2023, subject to the performance-based criteria of the new LTI program for Executive Directors as described above in the Long Term Incentive Plan for the Executive Directors paragraph.
In addition, the grant and each of the three potential vestings of the granted shares under the Long-term Incentive One-Off Arrangement is subject to:
i.a five-year retention period for the granted shares;
ii.the annual pro-rata satisfaction upon vesting of the set long-term performance targets, as determined by the Board of Directors; and
iii.the other terms and conditions applicable to the LTI Program pursuant to the Remuneration Policy for the Board of Directors dated December 11, 2020.
Pursuant to the one-off transition arrangement, the CEO has waived all his rights for the grant of restricted shares and option rights, respectively, under the LTIP and the existing option plans for the financial year 2020. On December 22, 2020, a total number of 4,200,000 (restricted) shares was granted to the CEO in accordance with the terms of the one-off transition arrangement.
21.2 Option plans
An overview of activity in the number of options for the year 2022 is as follows (please also refer to note 27 in respect of movements since the reporting date)(note that the dollar weighted average exercise price is translated using the closing exchange rate for the respective year (2022: 1:1,0667)):
2022 | 2021 | |||
Number | Weighted Average Exercise Price (US$) | Number | Weighted Average Exercise Price (US$) | |
Balance at January 1 | 52,789,478 | 0.911 | 50,106,488 | 0.909 |
Forfeited | (3,660,928) | 0.847 | (946,738) | 1.046 |
Granted | 4,801,938 | 0.902 | 12,081,000 | 0.931 |
Exercised | (6,333,687) | 0.599 | (8,451,272) | 0.520 |
Balance at December 31 | 47,596,801 | 0.897 | 52,789,478 | 0.911 |
- Vested | 8,687,584 | 0.844 | 21,388,237 | 0.833 |
- Unvested | 38,909,217 | 0.910 | 31,401,241 | 0.966 |
Exercised options 2022
In 2022 a total of 6,333,687 options have been exercised with an average exercise price of US$0.60. In 2021 a total of 8,451,272 options have been exercised with an average exercise price of US$0.52.
All options outstanding at 31\u00a0December 2022 are exercisable with the exception of the unvested options granted to the employees still in service. The 2022 share
options for the employees vest after one year under the condition the employees are still in service at vesting date.
Exercise prices of options outstanding at 31\u00a0December 2022 and the exercise values are in the following ranges (note that the exercise value in US$ is translated using the closing exchange rate for the respective year (2022: 1:1,0667)):
2022 | 2021 | |||
Exercise prices in US$ | Number | Exercise value | Number | Exercise value |
0.28 - 0.57 | 0 | \u2014 | 3,482,428 | 1,322 |
0.57 \u2013 0.85 | 26,796,675 | 21,847 | 12,290,925 | 10,155 |
0.85 \u2013 2.83 | 20,800,126 | 20,895 | 37,016,125 | 36,646 |
Balance at December 31 | 47,596,801 | 42,742 | 52,789,478 | 48,123 |
Granted options
In 2022, the Company granted 4,801,938 options to employees with a weighted average exercise price of US$0.90; fair values for options granted in 2022 were in the range of US$0.092 - US$0.489. In 2021, the Company granted 12,081,000 options to employees with a weighted average exercise price of US$0.93; fair values for options granted in 2021 were in the range of US$0.891 - US$1.292
21.3 Long Term Incentive Plan
An overview of the number of LTIP shares granted in 2019-2022 and in total as well as the fair value per share award is as follows (note that the fair value per share award in US$ is translated using the closing exchange rate for the respective year (2022: 1:1,0667)):
Participant category | 2019 | 2020 | 2021 | 2022 | Total |
Non Executive members of the Board of Directors | 205,000 | \u2014 | \u2014 | \u2014 | 205,000 |
Executive Members of the Board of Directors | 201,050 | \u2014 | 1,337,888 | 2,363,455 | 3,902,393 |
Executive Committee | 326,807 | 105,000 | 6,301,400 | 5,816,083 | 12,549,290 |
Senior managers | 1,830,000 | 930,000 | 812,500 | \u2014 | 3,572,500 |
Total | 2,562,857 | 1,035,000 | 8,451,788 | 8,179,538 | 20,229,183 |
Fair value per share award (US$) | 0.387 | 0.923 | 0.887 | 0.517 |
The following table provides an overview of LTIP shares granted, forfeited or issued in 2019-2022 as well as the number of LTIP shares reserved at 31\u00a0December 2022:
Participant category | Granted | Issued | Forfeited / Unvested | Reserved at December 31, 2022 |
Non Executive members of the Board of Directors | 205,000 | (18,000) | (187,000) | 0 |
Executive Members of the Board of Directors | 3,902,393 | (20,306) | (180,744) | 3,701,343 |
Executive Committee | 12,549,290 | (440,934) | (3,260,738) | 8,847,618 |
Senior managers | 3,572,500 | (180,616) | (2,059,384) | 1,332,500 |
Total | 20,229,183 | (659,856) | (5,687,866) | 13,881,461 |
21.4 Restricted Stock Units
The fair value of the grant is, in line with IFRS 2, the actual share price at date of the grant (October 26, 2022), being EUR 0,97 (US$1,035, translated at the closing exchange rate of 1:1,0667). A total of 4.931.000 RSU's were granted with a total expense of US$5.0 million (US$ yearly average exchange rate = 1.0543).
21.5 Transition arrangement for the Chief Executive Officer
On December 22, 2020, a total number of 4,200,000 (restricted) shares was granted to the CEO in accordance with the terms of the one-off transition arrangement. These shares will vest in three equal annual tranches in 1Q 2021, 1Q 2022 and 1Q 2023, subject to the pro-rata achievement of the long-term targets under the new LTI program.
The second year of the 3-year performance period for the 2021 share grant pursuant to the LTI one-off transition arrangement, ended on December 31, 2021. Accordingly the Board of Directors, upon a recommendation of the Remuneration Committee, determined in the first quarter of 2022 the vesting of the second annual tranche of the total number of 4,200,000 shares conditionally granted to the Chief Executive Officer (i.e., 1,400,000 shares).
The shares will not vest until the first quarter of 2024, applying the targets set at the start of the three year performance period in 2021.
The performance on both the TSR and the strategic corporate objectives, applying the respective weightings, leads to the following vesting level under the One-Off Transition Arrangement for the CEO (i.e., second annual tranche of 1,4000,000 shares):
Metric definition | Achievement | Weighting | Vesting level |
TSR | 115% | 40% | 46% |
Strategic Objectives | 90% | 60% | 54% |
Total | 100% | 100% |
In connection with the listing of our ADSs on Nasdaq, we converted our two-tier board structure into a one-tier board structure, with a single board of directors consisting of the executive director and non-executive directors. The new structure became effective on December 11, 2020. Since that date, the Board of Directors is jointly responsible for the management of the Company. The daily management of the Company and the execution of the strategy are entrusted to the CEO, as the only Executive Director. The CEO is supported by the non-statutory Executive Committee in the execution of his tasks and responsibilities. The Non-Executive Directors share statutory management responsibility, but shall focus
on the supervision on the policy and functioning of the performance of the duties by the Executive Director and the Company's general state of affairs. The Non-Executive Directors would focus on the supervision on the policy and functioning of the performance of the duties by the Executive Directors and the Company\u2019s general state of affairs.
Dr. S. de Vries is the Company\u2019s sole Executive member of the Board of Directors and is continuing to be the Chief Executive Officer.
The Board of Directors has the following members:
Name | Position | |
Mr. P. Sekhri | Chair of the Board of Directors and Non-Executive Board Member | |
Ms. D. Jorn | Vice Chair of the Board of Directors and Non-Executive Board Member | |
Ms. B. Yanni | Non-Executive Board Member | |
Dr. M. Pykett | Non-Executive Board Member | |
Ms. J. van der Meijs | Non-Executive Board Member | Appointed 19 May 2021 |
Mr. L. Kruimer | Non-Executive Board Member | Appointed 19 May 2021 |
Mr. S. Baert | Non-Executive Board Member | Appointed 19 May 2021 |
Dr. S. de Vries | Executive Board Member and Chief Executive Officer |
Non-Executive members Board of Directors
Remuneration
For 2022 the annual compensation of the non-executive members of the Board of Directors was as follows:
Responsibility | Cash in Euro's | Ordinary shares in Euro's * | Cash in US Dollars | Ordinary shares in US Dollars * |
Chair of the Board of Directors | 65,000 | 40,000 | 68,530 | 42,172 |
Non-Executive Director | 45,000 | 30,000 | 47,444 | 31,629 |
Chair Audit Committee | 9,000 | 9,489 | ||
Member Audit Committee | 3,000 | 3,163 | ||
Chair Remuneration Committee | 6,000 | 6,326 | ||
Member Remuneration Committee | 3,000 | 3,163 | ||
Chair Governance Committee | 6,000 | 6,326 | ||
Member Governance Committee | 3,000 | 3,163 |
* All shares to be valued at the 20 day VWAP preceding the Annual General Meeting of Shareholders, without further restrictions or grant.
An additional compensation of \u20ac1,000 (US$1,054) per day in case of extraordinary activities, as determined by the Chair of the Board of Directors. Compensation of the Non-Executive members of the Board of Directors for 2022 and 2021 was as follows:
Amounts in US$ \u2018000 | Year | Cash | Share-Based Payment | Total |
Mr. Paul Sekhri | 2022 | 72 | 42 | 114 |
2021 | 77 | 55 | 132 | |
Mr. Barrie Ward | 2022 | \u2014 | \u2014 | \u2014 |
2021 | 23 | 20 | 43 | |
Mr. Juergen Ernst | 2022 | \u2014 | \u2014 | \u2014 |
2021 | \u2014 | 6 | 6 | |
Mr. Aad de Winter | 2022 | \u2014 | \u2014 | \u2014 |
2021 | 26 | 21 | 47 | |
Ms. Deborah Jorn | 2022 | 55 | 32 | 87 |
2021 | 64 | 42 | 106 | |
Ms. Barbara Yanni | 2022 | 53 | 32 | 85 |
2021 | 60 | 36 | 96 | |
Dr. Mark Pykett | 2022 | 50 | 32 | 82 |
2021 | 57 | 36 | 93 | |
Ms. Jabine van der Meijs | 2022 | 57 | 32 | 89 |
2021 | 47 | 24 | 71 | |
Mr. Leonard Kruimer | 2022 | 57 | 32 | 89 |
2021 | 47 | 24 | 71 | |
Mr. Steven Baert | 2022 | 55 | 32 | 87 |
2021 | 45 | 24 | 69 | |
Total | 2022 | 399 | 234 | 633 |
2021 | 446 | 288 | 734 |
Shares
At 31\u00a0December 2022, the Non-Executive members of the Board of Directors held the following numbers of shares:
December 31, 2022 | Ordinary shares |
Mr. Paul Sekhri | 486,037 |
Ms. Deborah Jorn | 98,778 |
Ms. Barbara Yanni | 83,187 |
Dr. Mark Pykett | 83,187 |
Ms. Jabine van der Meijs | 58,349 |
Mr. Leonard Kruimer | 58,349 |
Mr. Steven Baert | 58,349 |
Total | 926,236 |
All shares held by the Non-Executive members of the Board of Directors are unrestricted.
Loans or guarantees
During the year 2022, the Company has not granted loans or guarantees to any member of the Non- Executive members of the Board of Directors. No loans or guarantees to Non-Executive members of the Board of Directors were outstanding at 31\u00a0December 2022.
Executive members Board of Directors
Remuneration
The Executive Board Member is entitled to the following remuneration packages:
I)Fixed remuneration: annual base salary;
II)Variable remuneration: the variable remuneration components are (a) an annual bonus in cash as a percentage of the fixed component (short-term incentive) and (b) a (share- based) long-term incentive;
III)Others: contribution pension premiums, travel allowance and holiday allowance.
The one-off transition arrangement as identified herein above provides for (i) the grant to the Chief Executive Officer, of a total number of 4,200,000 shares for the financial year 2020, and (ii) the vesting of these shares in three annual tranches in the first quarters of 2021, 2022 and 2023, respectively.
Compensation was as follows and includes the entire year 2022, up to December 31, 2022:
Amounts in US$ \u2018000 | Fixed remuneration | Short term variable: annual bonus | Share-based payments | Post-employment benefits | Other | TOTAL |
Dr. Sijmen de Vries | 2022: 636 | 2022: 394 | 2022: 1,221 | 2022: 112 | 2022: 34 | 2022: 2,396 |
* Due to a disclosure error in 2021 caused by the incorrect apportionment of the fair value share-based payment expense over the vesting period, the restated 2021 share-based payments remuneration disclosure of Dr. S. de Vries is US$1.6 million compared to previously reported share-based payments of US$1.3 million.
Options
The following table gives an overview of movements in number of option holdings of the individual members of the executive board of directors in 2022, the exercise prices and expiration dates up to December 31, 2022 (note that the exercise price in US$ is translated using 2022 closing exchange rate (1:1,0667)):
January 1, 2022 | Granted 2022 | Exercised 2022 | Forfeited / expired 2022 | December 31, 2022 | Exercise price (US$) | Expiration date | |
Dr. Sijmen de Vries | 2,800,000 | \u2014 | \u2014 | \u2014 | 2,800,000 | 0.859 | 22 May 2024 |
Shares
At December 31, 2022, the executive members of the board held the following numbers of shares:
Shares held | As at December 31, 2022 |
Dr. Sijmen de Vries | 7,434,383 |
Long term Incentive Plan
Year | Granted | Settled | Forfeited / Unvested | 12/31/2022 | |
Dr. Sijmen de Vries | 2022 | 2,363,455 | \u2014 | \u2014 | 2,363,455 |
2021 | 1,337,888 | \u2014 | \u2014 | 1,337,888 | |
2020 | \u2014 | \u2014 | \u2014 | \u2014 | |
2019 | 201,050 | (20,306) | (180,744) | 0 |
Loans or guarantees
During the year 2022, no loans or guarantees have been granted to the Executive members of the Board of Directors. No loans or guarantees to the Executive member of the Board of Directors were outstanding at 31\u00a0December 2022.
Related parties\u2019 disclosure relates mainly to key management compensation and to transactions with the associated company Bioconnection B.V.
Key management includes members of the Board of Directors:
Amounts in US$ \u2018000 | 2022 | 2021 |
Salaries and other short-term employee benefits | 1,463 | 1,522 |
Post-employment benefits | 112 | 120 |
Share-based compensation | 1,455 | 1,882* |
Total | 3,030 | 3,524 |
*2021 figure restated. See disclosure note 22. Board of Directors to the consolidated financial statements.
All direct transactions with members of the Board of Directors have been disclosed in notes 21 and 22 of these financial statements. At December 31, 2022, the Company had no payable balance to members to the Board of Directors (2021: US$ 0.1 million).
Amounts in US$ \u2018000 | 2022 | 2021 |
Non-current | ||
Financial guarantee contracts | \u2014 | 165 |
Total non-current | \u2014 | 165 |
Total | \u2014 | 165 |
Material agreements
At the end of 2022 the Company had several agreements with third parties related to the manufacturing of RUCONEST\u00ae and leniolisib and development of new products. In these agreements certain minimum volumes are committed. Total potential liabilities under these agreements are approximately US$73.8 million (2021: US$97.3 million), of which US$20.8 million relates to 2023 and US$53.0 million relates to 2024 and further. All expenditures relate to the cost of goods.
Leniolisib milestone commitments
In August 2019, Pharming entered into a development collaboration and license agreement with Novartis to develop and commercialize leniolisib, a small molecule phosphoinositide 3-kinase delta (P13K\u03b4) inhibitor being developed by Novartis to treat patients with Activated Phosphoinositide 3-kinase Delta Syndrome (APDS). In November 2022, Pharming submitted regulatory filings to the FDA and EMA for the purpose to commercialize leniolisib. On March 24, 2023, Pharming received FDA approval for the commercialization of leniolisib in the United States of America. Pharming is preparing its first leniolisib sale in the second quarter of 2023. We anticipate that the CHMP will issue its opinion on the leniolisib MAA in the second half of 2023 and expect European marketing authorisation approximately two months later.
As a result of the FDA approval and the expected EMA approval, it is expected that the first commercial sale of leniolisib will be made which triggers milestone payments for a maximum amount of US$20 million to Novartis. Furthermore, Pharming is committed to certain milestone payments based on actual worldwide annual sales. The total commitment equals US$180 million when yearly net sales reach US$500 million. The first milestone equals US$5 million when yearly net sales reach US$50 million.
In addition to these milestone payments, the Company has agreed to pay royalty fees to Novartis. These royalties are calculated as a fixed percentage over net sales, growing to a maximum of 18% when net sales exceed US$300 million. These royalty payments have a term of 10 years. The minimum royalty liability of 12% is applicable for sales up
until US$150 million. The timing of the milestone payments, except for the milestones related to the first commercial sale in the U.S. and Europe, and royalty payments is uncertain as these are highly dependent on the enrollment of new patients for leniolisib. After the FDA approval of March 24, 2023, Pharming has obtained a FDA Priority review voucher. As part of the agreement with Novartis, Novartis has the right to purchase this voucher from Pharming for an amount of 20% of the average sale price of similar transactions. This right expires within three years after the receipt of the voucher.\u00a0 Financial risk managementGeneral
Pharming is exposed to several financial risks: market risks (being currency risk and interest rate risk), credit risks and liquidity risks. The Board of Directors and the Executive Committee are responsible for the management of currency, interest, credit and liquidity risks and as such ultimately responsible for decisions taken in this field.
Capital risk management
The Company manages its capital to ensure that it will be able to continue as a going concern. This includes a regular review of cash flow forecasts and, if deemed appropriate, subsequent raising of funds through execution of equity and/or debt transactions. In doing so, the Board of Directors' and Executive Committees' strategy is to achieve a capital structure which takes into account the best interests of all stakeholders. Pharming\u2019s capital structure includes cash and cash equivalents, debt and equity. Compared to last year there have been no significant changes in risk management policies.
Currency risk
This is the risk that the fair value of assets, liabilities and especially the future cash flows of financial instruments will fluctuate because of changes in foreign exchange rates. Pharming\u2019s policy for the management of foreign currency risks is aimed at protecting the operating profit and positions held or recorded in foreign currencies, in particular of the United States dollar (U.S. dollar). Certain payments and sales of RUCONEST\u00ae in the U.S. are being and will be received in US dollar. In 2022 repayments and interest payments of the loans were made in US dollar. Some direct payments of U.S. activities are carried in U.S.
dollar through the Dutch entities. At 31\u00a0December 2022 the Group\u2019s cash and cash equivalents, including restricted cash, amounted to US$208.7 million. This balance consists of cash assets denominated in euros for a total amount of US$150.3 million or \u20ac140.9 million (applying an exchange rate EUR/US$ at 31\u00a0December 2022 of 1.0667) and cash assets in U.S. dollars for a total amount of US$58.4 million. The U.S. dollar cash balance will be used for the commercialization activities of the U.S. organization and to cover the operating costs of the activities in the EU and RoW.
Cash and cash equivalents (including restricted cash), accounts receivables and inventories denominated in USD amounted in total US$82.1 million (\u20ac77.0 million), respectively US$23.8 million (\u20ac22.3 million) for the trade and other payables denominated in USD. Pharming performed a sensitivity analysis by applying an adjustment to the spot rate at year-end. As the balance of the cash and cash equivalents (including restricted cash) accounts receivables, inventories, trade and other payables, denominated in USD, at year-end is US$58.3 million, a 10% strengthening or weakening of the euro versus US dollar would have an impact of US$5.8 million on the Group\u2019s gain (weakening of the euro) or loss (strengthening of the euro).
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Pharming\u2019s interest rate risk policy is aimed at minimizing the interest rate risks associated with the financing of the Company and thus at the same time optimizing the net interest costs. This policy translates into a certain desired profile of fixed-interest and floating interest positions, including those generated by cash and cash equivalents and those paid on finance lease liabilities. As the interest rate on the convertible bond is a fixed percentage, Pharming concluded that the total risk on interest is not material.
The issue of the Convertible Bonds due 2025 at a fixed interest rate of 3.00% p.a. replacing the Company\u2019s previous debt facility has rendered this concern obsolescent. The interest on the vast majority of the Company\u2019s financial instruments is now not variable with market interest rates. More information on the Convertible Bonds due 2025 can be found in note 18.
Credit risk
Credit risk is defined as the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge obligations. Pharming manages credit risk exposure through the selection of financial institutions having a high credit rating, using credit rating reports issued by institutions such as Standard & Poor\u2019s and Moody\u2019s. The exposure to credit risk at 31\u00a0December 2022 is represented by the carrying amounts of cash and cash equivalents and trade and other receivables.
The carrying amounts of the cash and cash equivalents (including restricted cash) as at 31\u00a0December 2022 amounted to US$208.7 million and was held through financial institutions with a BB+ to A rating or better from Standard & Poor\u2019s, Baa3 to A1 ratings from Moody\u2019s and BBB+ to A ratings from Fitch.
Trade and other receivables at 31\u00a0December 2022 amounted to US$27.6 million. As at the date of these financial statements, these amounts have largely been settled, including receipts in cash and receipt of goods and services in exchange of prepaid expense items. Based on the credit ratings of cash and cash equivalents (including restricted cash) as well as the position taken with respect to trade and other receivables, the Company considers that this risk is adequately managed.
Liquidity risk
The liquidity risk refers to the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. Pharming\u2019s objective is to maintain a minimum level and certain ratio of cash and cash equivalents (including short-term deposits). The strategy of the Company is to repay its obligations through generation of cash income from operating activities such as product sales and licensing agreements. In case such cash flows are insufficient, the Company relies on financing cash flows as provided through the issuance of shares or incurring financial liabilities. Note 3 of these financial statements more extensively describes the Company\u2019s going concern assessment.
The following table presents the financial liabilities at year-end 2022, showing the remaining undiscounted contractual amounts due including nominal interest. Liabilities denominated in foreign currency have been converted at the exchange rate at 31\u00a0December 2022.
Maturity profile of financial liabilities:
Amounts in US$\u2019000 | 2023 | 2024 | 2025 | 2026 | 2027 and onwards | Total | Prior year total |
Trade and other payables | 54,465 | \u2014 | \u2014 | \u2014 | \u2014 | 54,465 | 42,473 |
Other financial liabilities | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | 165 |
Lease Liabilities | 4,644 | 4,397 | 3,583 | 3,583 | 24,484 | 40,691 | 23,496 |
Convertible Bonds | 4,000 | 4,000 | 135,338 | \u2014 | \u2014 | 143,338 | 156,550 |
Total | 63,109 | 8,397 | 138,921 | 3,583 | 24,484 | 238,494 | 222,684 |
Fair value estimation
The Company uses the following hierarchy for determining the fair value of financial instruments measured at fair value:
\u2022Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities;
\u2022Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices);
\u2022Level 3: Inputs for the asset or liability that are not based on observable market data or which are based on the probability of future events occurring (that is, unobservable inputs).
The following table presents the assets that are measured at fair value at year-end 2022 and 2021:
2022 | 2021 | |||||
Amounts in US$\u2019000 | Level 1 | Level 3 | Total | Level 1 | Level 3 | Total |
Investments in equity instruments designated as at FVTOCI | 403 | \u2014 | 403 | 1,449 | \u2014 | 1,449 |
Investments in debt instruments designated as at FVTPL | \u2014 | 6,827 | 6,827 | \u2014 | \u2014 | \u2014 |
Balance at December 31 | 403 | 6,827 | 7,230 | 1,449 | \u2014 | 1,449 |
The following table presents the liabilities that are measured at fair value at year-end 2022 and 2021:
2022 | 2021 | |||
Amounts in US$\u2019000 | Level 3 | Total | Level 3 | Total |
Other financial liabilities | \u2014 | \u2014 | 165 | 165 |
Balance at December 31 | \u2014 | \u2014 | 165 | 165 |
The following table includes carrying values and the estimated fair values of financial instruments:
Amounts in US$ \u2018000 | 2022 | 2021 | ||
Carrying value | Fair value | Carrying value | Fair value | |
Assets: | ||||
Cash and cash equivalents, including restricted cash | 208,654 | 208,654 | 192,963 | 192,963 |
Trade and other receivables | 27,619 | 27,619 | 29,983 | 29,983 |
Liabilities: | ||||
Convertible Bond | 133,386 | 133,386 | 140,886 | 140,886 |
Lease Liabilities | 33,308 | 33,308 | 20,875 | 20,875 |
Other financial liabilities | \u2014 | \u2014 | 165 | 165 |
Trade and other payables | 54,465 | 54,465 | 42,473 | 42,473 |
The above fair values of financial instruments are based on internal calculations. Cash and cash equivalents, trade and other receivables as well as trade and other payables are stated at carrying amount, which approximates the fair value in view of the short maturity of these instruments. The fair values of finance lease liabilities (both non-current and current portion) are based on arm\u2019s length transactions.
The table sets out an analysis for each of the period presented of the net position of Loans and borrowings,
and Cash and cash equivalents, showing the remaining undiscounted contractual amounts due including nominal interest.
Amounts in US$ \u2018000 | 2022 | 2021 |
Cash and cash equivalents | 208,654 | 192,963 |
Convertible bond - repayable within one year | (1,768) | (1,879) |
Convertible bond - repayable after one year | (131,618) | (139,007) |
Net debt | 75,268 | 52,077 |
Cash and cash equivalents | 208,654 | 192,963 |
Gross debt - fixed interest rates | (133,386) | (140,886) |
Gross debt - variable interest rates | \u2014 | \u2014 |
Net debt | 75,268 | 52,077 |
Reconciliation of liabilities arising from financing activities:
2021 | Cashflows | Non - Cash changes | 2022 | ||||||
Amounts in US$\u2019000 | Acquisition and disposal | Interest Expense Accrued | Amortized costs | Fair Value Changes | Foreign exchange effects and other | ||||
Convertible Bond | 140,886 | (3,952) | \u2014 | 3,952 | 784 | \u2014 | (8,284) | 133,386 | |
Other financial liabilities | 165 | \u2014 | (165) | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | |
Lease Liabilities | 20,875 | (3,311) | 16,248 | 718 | \u2014 | \u2014 | (1,222) | 33,308 | |
Derivative financial liabilities | \u2014 | \u2014 | \u2014 | \u2014 | |||||
Total liabilities from financing activities | 161,926 | (7,263) | 16,083 | 4,670 | 784 | \u2014 | (9,506) | 166,694 |
Basic earnings per share is calculated based on the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share is computed based on the weighted average number of ordinary shares outstanding including the dilutive effect of shares to be issued in the future under certain arrangements such as option plans and warrants issued. For 2022 and 2021, the basic and diluted profit (loss) per share is:
2022 | 2021 | |
Net profit (loss) attributable to equity owners of the parent (in US$\u2019000) | 13,674 | 15,996 |
Weighted average shares outstanding | 648,676,119 | 642,007,692 |
Basic profit (loss) per share (in US$) | 0.021 | 0.025 |
Weighted average diluted shares outstanding | 707,141,263 | 701,151,525 |
Diluted profit (loss) per share (in US$) | 0.019 | 0.023 |
The diluted net profit used in the calculation of dilutive profit per share amounts to US$13.7 million. Difference between the weighted average shares outstanding and the weighted average diluted shares outstanding used for basic profits calculations per share relates to restricted stock units (RSU), options, warrants and LTIP. The 62.412.622 average shares related to the convertible bonds are anti-dilutive and are therefore excluded from the weighted average number of ordinary shares for the purpose of diluted earnings per share.
Diluted shares
The composition of the number of shares and share rights outstanding as well as authorized share capital as per 31\u00a0December 2022 and the date of these financial statements is provided in the following table.
Movements of shares and other instruments between 31\u00a0December 2022 and 4 April 2023 are shown in the table below:
December 31, | Shares issued | Other | 4 April 2023 | |
Shares | 656,348,225 | 2,324,118 | \u2014 | 658,672,343 |
RSU | 4,931,000 | \u2014 | \u2014 | 4,931,000 |
Options | 47,596,801 | (756,191) | (762,000) | 46,078,610 |
Convertible bonds | 62,412,622 | \u2014 | \u2014 | 62,412,622 |
LTIP | 15,304,821 | (1,516,432) | 3,790,993 | 17,579,382 |
Issued | 786,593,469 | 51,495 | 3,028,993 | 789,673,957 |
Available for issue | 93,406,531 | (51,495) | -3,028,993 | 90,326,043 |
Authorized share capital | 880,000,000 | \u2014 | \u2014 | 880,000,000 |
Leniolisib FDA Approval
In August 2019, Pharming entered into a development collaboration and license agreement with Novartis to develop and commercialize leniolisib, a small molecule phosphoinositide 3-kinase delta (P13K\u03b4) inhibitor being developed by Novartis to treat patients with Activated Phosphoinositide 3-kinase Delta Syndrome (APDS). In November 2022, Pharming submitted regulatory filings to the FDA and EMA for the purpose to commercialize leniolisib. On March 24, 2023, Pharming received FDA approval for the commercialization of leniolisib in the United States of America. Pharming is preparing its first leniolisib sale in the second quarter of 2023. We anticipate that the CHMP will issue its opinion on the leniolisib MAA in the second half of 2023 and expect European marketing authorisation approximately two months later. For further details, refer to note 25 of the consolidated financial statements.
The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRS interpretations committee (IFRS IC) interpretations applicable to companies reporting under IFRS as endorsed by the European Union and valid as of the balance sheet date. The consolidated financial statements have been prepared under the historical cost convention, unless otherwise stated.
The preparation of financial statements in conformity with IFRS and Book 2 Title 9 of the Dutch Civil Code requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company\u2019s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 2.5.
The Company applied for the first-time certain amendments, which are effective for annual periods beginning on or after 1\u00a0January 2022 as disclosed below.
\u2022Amendments to IFRS 3: Reference to the conceptual framework;
\u2022Amendments to IAS 16: Property, plant and equipment - Proceeds before intended use;
\u2022Amendments to IAS 37: Onerous contracts - cost of fulfilling a contract;
\u2022Amendments included in the Annual Improvements to IFRS Accounting Standards 2018-2020 Cycle relating to IFRS 1, IFRS 9, IFRS 16 and IAS 41.
Their adoption has not had any material impact on the disclosures or on the amounts reported in these financial statements. The Company has not early adopted any other standard, interpretation or amendment that has been issued but not yet effective.
The new and amended standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group\u2019s financial statements, which the Group intends to adopt, if applicable, when they become effective, are disclosed below.
\u2022IFRS 17: Insurance contracts.
\u2022Amendments to IFRS 10 and IAS 28: Sale or contribution of assets between investors and its associate or joint venture.
\u2022Amendments to IAS 1 and IFRS Practice Statement 2: Disclosure of Accounting Policies
\u2022Amendments to IAS 1: Classification of Liabilities as Current or Non-current.
\u2022Amendments to IAS 8: Definition of accounting estimates.
\u2022Amendments to IAS 12: Deferred tax related to assets and liabilities arising from a single transaction.
The consolidated financial statements include Pharming Group N.V. and its controlled subsidiaries, after the elimination of all intercompany transactions and balances. Subsidiaries are consolidated from the date the acquirer obtains effective control until control ceases.
An entity is considered effectively controlled if the Company, directly or indirectly, has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Acquisitions of subsidiaries are accounted for using the acquisition method of accounting. The financial statements of the subsidiaries are prepared for the same reporting year as Pharming Group N.V., using the same accounting policies. Intercompany transactions, balances and unrealized gains and losses on transactions between group companies are eliminated.
Foreign currency translation
In preparing the financial statements of the Group, transactions in currencies other than the entity\u2019s functional currency (foreign currencies) are recognized at the rates of exchange prevailing on the dates of the transactions. At each reporting date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
Exchange differences are recognized in profit or loss in the period in which they arise except for:
\u2022Exchange differences on foreign currency borrowings relating to assets under construction for future productive use, which are included in the cost of those assets when they are regarded as an adjustment to interest costs on those foreign currency borrowings;
\u2022Exchange differences on transactions entered into to hedge certain foreign currency risks (see below under financial instruments/hedge accounting);
\u2022Exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur in the foreseeable future (therefore forming part of the net investment in the foreign operation), which are recognized initially in other comprehensive income and reclassified from equity to profit or loss on disposal or partial disposal of the net investment
Entity | Registered office | Investment % |
Pharming B.V. | The Netherlands | 100.0 |
Pharming Americas B.V. | The Netherlands | 100.0 |
Pharming Intellectual Property B.V. | The Netherlands | 100.0 |
Pharming Technologies B.V. | The Netherlands | 100.0 |
Pharming Research & Development B.V. | The Netherlands | 100.0 |
Broekman Instituut B.V. | The Netherlands | 100.0 |
Pharming Healthcare, Inc. | The United States | 100.0 |
ProBio, Inc. | The United States | 100.0 |
For the purpose of presenting consolidated financial statements in US Dollars, the assets and liabilities of the Group\u2019s operations having Euro as functional currency are translated at exchange rates prevailing on the reporting date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the date of transactions are used. Exchange differences arising, if any, are recognized in other comprehensive income and accumulated in a foreign exchange translation reserve.
The EUR/USD exchange rate applied at 31\u00a0December 2022: was 1.0667 (2021: 1.1334). The average exchange rate applied in 2022 was 1.0543 (2021: 1.1860).
Distinction between current and non-current
An item is classified as current when it is expected to be realized (settled) within 12 months after the end of the reporting year. Liabilities are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting year.
Intangible assets acquired separately
Intangible assets acquired separately are measured at historical cost. The cost of intangible assets acquired in a business combination is recognized and measured at fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. Variable considerations that are part of the purchase of an intangible asset are recognized as a liability when the considerations become due.
Intangible assets with finite lives are amortized over the useful life and assessed for impairment whenever there is an indication that the intangible assets may be impaired and at the end of each reporting period. The estimated useful lives, residual values and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. Changes in the expected useful life, according to the straight-line method, or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in the
statement of income in the relevant expense category consistent with the function of the intangible asset.
Internally-generated intangible assets \u2013 research and development expenditure
Expenditure on research activities is recognized as an expense in the period in which it is incurred. An internally-generated intangible asset arising from development (or from the development phase of an internal project) is recognized if, and only if, all of the following conditions have been demonstrated:
\u2022The technical feasibility of completing the intangible asset so that it will be available for use or sale
\u2022The intention to complete the intangible asset and use or sell it
\u2022The ability to use or sell the intangible asset
\u2022How the intangible asset will generate probable future economic benefits
\u2022The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset
\u2022The ability to measure reliably the expenditure attributable to the intangible asset during its development
The amount initially recognized for internally-generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally generated intangible asset can be recognized, development expenditure is recognized in profit or loss in the period in which it is incurred.
Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated amortization and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.
Intangible assets acquired in a business combination
Intangible assets acquired in a business combination and recognized separately from goodwill are recognized initially at their fair value at the acquisition date (which is regarded as their cost). Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortization and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.
Derecognition of intangible assets
An intangible asset is derecognized on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognized in profit or loss when the asset is derecognized.
Biological Assets
Under IAS 41 \"Agriculture\", management is required to assess whether 'biological assets' which are contributing to production of our cash flows should be accounted for as assets. Management has assessed Pharming\u2019s biological assets and conclude that these do not qualify to be recognized under the relevant standard IAS 41 \"Agriculture\" due to their uniqueness and very special transgenic nature and thus all relevant costs are expensed through the income statement.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation charges and accumulated impairment charges. Generally, depreciation is calculated using a straight-line basis over the estimated useful life of the asset. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.
An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal.
Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of income in the year the asset is derecognized. Residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each financial year-end.
All costs that are directly attributable to bringing an asset to the location and condition necessary for it to be capable of operating in the manner intended by management, will be
capitalized. These costs include direct employee benefits, rent and testing costs. Capitalization will be done until the asset is capable of operating in the manner intended by management.
Business combinations
Business combinations are accounted for using the acquisition accounting method. Identifiable assets, liabilities and contingent liabilities acquired are measured at fair value at acquisition date. The consideration transferred is measured at fair value and includes the fair value of any contingent consideration. Where the consideration transferred exceeds the fair value of the net assets, liabilities and contingent liabilities acquired, the excess is recorded as goodwill. The costs of acquisition are recognized as an expense.
Investments in associates
An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting. Under the equity method, an investment in an associate is recognized initially in the consolidated statement of financial position at cost and adjusted thereafter to recognize the Group\u2019s share of the profit or loss and other comprehensive income of the associate.
When the Group\u2019s share of losses of an associate exceeds the Group\u2019s interest in that associate (which includes any long-term interests that, in substance, form part of the Group\u2019s net investment in the associate), the Group discontinues recognizing its share of further losses. Additional losses are recognized only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. The requirements of IAS 36 are applied to determine whether it is necessary to recognize any impairment loss with respect to the Group\u2019s investment in an associate.
When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with IAS 36 as a single asset by comparing its recoverable amount (higher of value in use and fair
value less costs of disposal) with its carrying amount. Any impairment loss recognized is not allocated to any asset, including goodwill that forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognized in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases.
When a Group entity transacts with an associate of the Group, profits and losses resulting from the transactions with the associate or joint venture are recognized in the Group\u2019s consolidated financial statements only to the extent of interests in the associate or joint venture that are not related to the Group.
Financial assets
Financial assets are recognized when the Company becomes a party to the contractual provisions of a financial instrument. Financial assets are derecognized when the rights to receive cash flows from the financial assets expire, or if the Company transfers the financial asset to another party and does not retain control or substantially all risks and rewards of the asset. Purchases and sales of financial assets in the normal course of business are accounted for at settlement date (i.e., the date that the asset is delivered to or by the Company).
At initial recognition, the Company measures its financial assets at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset.
After initial recognition, the Company classifies its financial assets as subsequently measured at either i) amortized cost, ii) fair value through other comprehensive income or iii) fair value through profit or loss on basis of both:
\u2022The Company\u2019s business model for managing the financial assets;
\u2022The contractual cash flow characteristics of the financial asset.
Subsequent to initial recognition, financial assets are measured as described below. At each balance sheet date, the Company assesses whether there is objective evidence that a financial asset or a group of financial assets is impaired and recognizes a loss allowance for
expected credit losses for financial assets measured at either amortized costs or at fair value through other comprehensive income. If, at the reporting date, the credit risk on financial instrument has not increased significantly since initial recognition, the Company measures the loss allowance for that financial instrument at an amount equal to 12 months of expected credit losses. If, at the reporting date, the credit risk on a financial instrument has increased significantly since initial recognition, the Company measures the loss allowance for the financial instrument at an amount equal to the lifetime expected credit losses.
Financial assets at amortized cost
Financial assets are measured at amortized cost if both i) the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and ii) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest of on the principal amount outstanding.
A financial asset measured at amortized cost is initially recognized at fair value plus transaction cost directly attributable to the asset. After initial recognition, the carrying amount of the financial asset measured at amortized cost is determined using the effective interest method, less any impairment losses.
Financial assets at fair value through other comprehensive income (FVTOCI)
On initial recognition, the Group may make an irrevocable election (on an instrument-by-instrument basis) to designate investments in equity instruments as at FVTOCI. Investments in equity instruments at FVTOCI are initially measured at fair value plus transaction costs.
Subsequently, they are measured at fair value with gains and losses arising from changes in fair value recognized in other comprehensive income and accumulated in the legal reserve fair value revaluation. The cumulative gain or loss is reclassified to profit or loss on disposal of the equity investments.
Financial assets at fair value through profit and loss (FVTPL)
Financial assets that do not meet the criteria for being measured at amortized cost or FVTOCI are measured at FVTPL.
Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any fair value gains or losses recognized in profit or loss. The net gain or loss recognized in profit or loss includes any dividend or interest earned on the financial asset and is included in the \u2018fair value gain (loss) on revaluation\u2019 line item (note 13). Fair value is determined in the manner described in note 13.
Impairment of assets
Assets that have an indefinite useful life and assets not yet available for use are not subject to depreciation or amortization and are tested at least annually for impairment. Assets that are subject to depreciation or amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
An impairment loss is recognized for the amount by which the asset\u2019s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset\u2019s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows. Non-financial assets for which an impairment loss is recorded, are reviewed for possible reversal of the impairment at each reporting date.
Inventories
Inventories are stated at the lower of cost and net realizable value. Cost comprises direct materials and, where applicable, direct labor costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the First in First out (FIFO) method. Net realizable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.
Trade and other receivables
Trade and other receivables are recognized initially at transaction price. Subsequent measurement is at amortized cost using the effective interest method, less the expected credit loss. Trade receivables are amounts due from customers for goods sold in the ordinary course of business. They are generally due for settlement within 30 days and therefore are all classified as current. For trade receivables and contract assets, the Company applies a simplified approach in calculating expected credit loss. The
Company assesses the expected credit loss that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment. Due to the short-term nature of the current receivables, their carrying amount is considered to be the same as their fair value.\u00a0 \u00a0
Cash and cash equivalents
Cash and cash equivalents are defined as cash on hand, demand deposits and short-term, highly liquid investments (maturity less than 3 months) readily convertible to known amounts of cash and subject to insignificant risk of changes in value. For the purpose of the statement of cash flow, cash and cash equivalents do not include restricted cash. Restricted cash is cash held on short term deposits with certain banks as security mainly for credit card and lease cars and is not considered cash and cash equivalents.
Equity
The Company only has ordinary shares, and these are classified within equity upon issue. Shares transferred in relation to settlement of (convertible) debt are measured at fair value with fair value based on the closing price of the shares on the trading day prior to the settlement date. Equity is recognized upon the recognition of share-based payment expenses; shares issued upon exercise of such options are measured at their exercise price.
Transaction costs associated with an equity transaction are accounted for as a deduction from equity to the extent they are incremental costs directly attributable to the equity transaction that otherwise would have been avoided. Transaction costs related to the issue of a compound financial instrument are allocated to the liability and equity components of the instruments in proportion to the allocation of proceeds.
Financial liabilities and borrowings
Financial liabilities are classified as either financial liabilities at fair value through profit or loss (derivative financial liabilities) or financial liabilities at amortized cost (borrowings and trade and other payables). All financial liabilities and borrowings are initially recognized at the fair value of the consideration received less directly attributable transaction costs; transaction costs related to the issue of a compound financial instrument are allocated to the liability and equity components of the instruments in proportion to the allocation of proceeds. After initial recognition, financial
liabilities and borrowings are subsequently measured at amortized cost using the effective interest method.
Gains and losses are recognized in the statement of income when the liabilities are paid off or otherwise eliminated as well as through the amortization process. Purchases and sales of financial liabilities are recognized at settlement date.
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the statement of income.
Convertible bonds
The Company has issued convertible bonds. At the time of the issue of bonds itself the split between equity and liability portion has been accounted for. The liability portion of the convertible bonds is the present value of the future cash flows, calculated by discounting the future cash flows of the bonds (interest and principal) at the market rate of interest with the assumption that no conversion option is available. The value of the equity portion will be the difference between the total proceeds received from the bonds and the present value (liability portion).
The equity component is not remeasured after initial recognition.
In the case the Company extinguishes the convertible bonds before maturity through an early redemption or repurchase in which the original conversion privileges are unchanged, the entity allocates the consideration paid and any transaction costs for the repurchase or redemption to the liability and equity components of the convertible bond at the date of the transaction. The method used in allocating the consideration paid and transaction costs to the separate components is consistent with that used in the original allocation to the separate components of the proceeds received by the Company when the convertible instrument was issued. Once the allocation of the consideration is made, any resulting gain or loss is treated as follows:
1.the amount of gain or loss relating to the liability component is recognized in profit or loss; and
2.the amount of consideration relating to the equity component is recognized in equity
If the convertible bonds are converted before maturity, the amount recognized in equity in respect of the shares issued should be the amount at which the liability for the debt is stated as at the date of conversion.
On conversion of the convertible bonds at maturity, the Company recognizes the liability component and recognizes it as equity. The original equity component remains as equity (although it may be transferred from one line item within equity to another). There is no gain or loss on conversion at maturity date.
The transaction costs that are directly attributable to the convertible bonds are deducted from the initial fair value of the convertible bonds. The transaction costs are allocated between the liability and the equity components in proportion to the allocation of the proceeds. The transaction costs of the liability component are recognized as part of interest costs.
Provisions\u00a0
Provisions are recognized when there is a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation. The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (when the effect of the time value of money is material). The expense relating to any provision is presented in the statement of income net of any reimbursement.
Trade and other payables\u00a0
Trade and other payables are initially recognized at fair value. Subsequent measurement is at amortized cost using the effective interest method.
Revenue recognition
In order to determine when to recognize revenue and at what amount, the Company applies the following five steps, based on transfer of control over goods to the customer:
1.Identify the contract(s) with a customer;
2.Identify the performance obligations in the contract. Performance obligations are promises in a contract to transfer to a customer goods that are distinct;
3.Determine the transaction price. The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. If the consideration promised in a contract includes a variable amount, an entity must estimate the amount of consideration to which it expects to be entitled in exchange for transferring the promised goods or services to a customer;
4.Allocate the transaction price to each performance obligation on the basis of the relative stand-alone selling prices of each distinct good or service promised in the contract;
5.Recognize revenue when a performance obligation is satisfied by transferring a promised good or service to a customer (which is when the customer obtains control of that good or service). A performance obligation may be satisfied at a point in time (typically for promises to transfer goods to a customer) or over time (typically for promises to transfer services to a customer). For a performance obligation satisfied over time, an entity would select an appropriate measure of progress to determine how much revenue should be recognized as the performance obligation is satisfied.
All of the Group\u2019s revenue from contracts with customers is derived from delivery of goods, specifically vials of pharmaceutical products. The Group does not provide any additional services (including financing services) or equipment to its customers. In accordance with IFRS 15, revenue is recognized when the customer obtains control of the goods. For the Group\u2019s contracts the customer usually obtains control immediately after shipment of the product, which arrives at the customer within a short time frame.
The vast majority of the Group\u2019s contracts for revenue with customers are subject to chargebacks, discounts and/or rebates relating directly to customers or to ultimate reimbursement claims from government or insurance payers. These are accounted for on an estimated net basis, with any actual discounts and rebates used to refine the estimates in due course. These variable elements are deducted from revenue in the same period as the related sales are recorded. Due to the nature of these variable elements, it is not practicable to give meaningful sensitivity estimates due to the large volume of variables that contribute to the overall discounts, rebates and chargebacks accruals.
Other income
Other income consists of gains upon sale of investments and income from government grants.
Pharming receives certain grants which support the Company\u2019s research efforts in defined research and development projects. These subsidies generally provide for reimbursement of approved costs incurred as defined in various grants. Subsidies are recognized if the Company can demonstrate it has complied with all attached conditions and it is probable that the grant amount will be received. Grants are recognized in profit or loss on a systematic basis over the periods in which the Group recognizes as expenses the related costs for which the grants are intended to compensate.
The Company includes income from grant under other income in the statement of income in order to enable comparison of its statement of income with companies in the life sciences sector.
Pension plan
For all Dutch employees, the Company participates in defined contribution pension plans with an independent insurance company. Defined contributions are expensed in the year in which the related employee services are rendered.
Employees in the United States are enabled to participate in a 401k plan, which also qualifies as a defined contribution plan. To become an eligible participant, an employee must complete 6 months of service and attain the age of 18 years. The employer matches 100% of the first 3% the employee contributes to their 401k plan and 50% of any
amount over 3% up to 5%. Any employee contribution over 5% is not matched. Costs of the 401k plan are expensed in the year in which the related employee services are rendered.
Share-based payment
The costs of option plans are measured by reference to the fair value of the options on the date on which the options are granted. The fair value is determined using the Black-Scholes model. The costs of these options are recognized in the income statement (share-based compensation) during the vesting period, together with a corresponding increase in equity (other reserves). Share-based payment charges do not affect liabilities or cash flows in the year of expense since all transactions are equity-settled.
Pharming\u2019s employee option plan states that an employee is entitled to exercise the vested options within five years after the date of the grant. The period in which the options become unconditional is defined as the vesting period.
Long Term Incentive Plan
For a limited number of board members and officers, performance shares are granted free of charge. A maximum number of predetermined shares vest three years after the grant date, provided that the participant to the long-term incentive plan is still in service (continued employment condition), with actual shares to be transferred based on the relative achievement of Pharming\u2019s share price compared to a peer group. The maximum number of shares immediately vests upon a change of control.
The fair value is determined using Monte Carlo simulation. The costs of the LTIP are recognized in the income statement during the vesting period. The fair value at the grant date includes the market performance condition (relative total shareholder return performance) but excludes the three-year service condition.
On December 11, 2020, the new LTIP for the Executive Director was implemented. The existing share option plans and the grant of restricted shares under LTIP, from December 11, 2020, onwards, will no longer be applied for the Executive Directors under the new Remuneration Policy. The newly designed LTIP has been aligned with prevailing 'best practices' and is performance-related only. The performance includes Total Shareholder Return (40% weighing) and achievement of long-term strategy oriented
objectives (60% weighing). The Total Shareholders Return is compared to a peer group.
The shares granted to the Executive Director under the new LTIP, will vest in 3 years after the grant date, subject to the achievement of targets for a tree-year performance period, their relative weightings and the pay-out limits. All shares will be subject to a retention period of 5 years from the date of grant. In order to fully become entitled to the shares vesting under the LTI conditions the participant has to be a member of the Board of Directors as Executive Board Member at the vesting date.
The fair value of the new LTIP is determined using the Monte Carlo simulation. The costs of the LTIP are recognized in the income statement during the vesting period. The fair value at the grant date includes the financial performance condition of Pharming compared to the benchmark, the strategic performance condition as well as the service condition.
Restricted Stock Unit Plan
For a limited number of board members and officers, restricted stock units are granted free of charge. A maximum number of predetermined shares vest four years after the grant date, provided that the participant to the long-term incentive plan is still in service (continued employment condition).
The fair value is determined to be the market price at the grant date. The costs of the RSU grant are recognized in the income statement during the vesting period.
Leases
The Group assesses whether a contract is or contains a lease at the inception of the contract. The Group recognizes a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is a lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets (such as tablets and personal computers, small items of office furniture and telephones). For these leases the Group recognizes the lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which the economic benefits from the leased assets are consumed.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Group uses its incremental borrowing rate.
Lease payments included in the measurement of the lease liability comprise:
\u2022Fixed lease payments
\u2022Variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date.
The lease liability is presented as a separate line in the consolidated balance sheet.
The lease liability is subsequently measured by increasing the carrying amount to reflect the interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made.
The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:
\u2022The lease term has changed or there is a significant event or change in circumstances resulting in a change in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate.
\u2022The lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which case the lease liability is remeasured by discounting the revised lease payments using an unchanged discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used).
\u2022A lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of modification.
The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before commencement day, less any lease incentives
received and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses.
Whenever the Group incurs an obligation for costs to dismantle and remove a leased asset, restore the site on which it is located or restore the underlying asset to the condition required by the terms and conditions of the lease, a provision is recognized and measured under IAS 37. To the extent that the costs relate to a right-of-use asset, the costs are included in the related right-of-use, unless those costs are incurred to produce inventories.
Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset. The depreciation starts at the commencement date of the lease.
The right-of-use assets are presented as a separate line in the consolidated balance sheet.
The Group applies IAS 36 to determine whether a right-of-use asset is impaired and accounts for any identified impairment loss as described in the \u2018Property, Plant and Equipment\u2019 policy.
Variable rents that do not depend on an index or rate are not included in the measurement of the lease liability. The related payments are recognized as an expense in the period in which the event or condition triggers those payments occur.
As a practical expedient, IFRS 16 permits a lessee not to separate non-lease components, and instead account for any lease and associated non-lease components as a single arrangement. The Group has not used this practical expedient. For contracts that contain lease components and one or more additional lease or non-lease components, the Group allocates the consideration in the contract to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components. The Group had no such lease arrangements in 2022 and has none at the date of this report.
Income tax
The income tax expense or credit for the period is the tax payable on the current period\u2019s taxable income based on
the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate based on amounts expected to be paid to the tax authorities.
Deferred income tax is provided in full, using the liability method on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax is determined using tax rates that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realized, or the deferred income tax liability is settled.
Deferred tax assets are recognized only if it is probable that future taxable amounts will be available to use those temporary differences and losses. The Company has assessed all its income tax amounts and provisions in the light of IFRIC 23 'Accounting for Uncertain Income Taxes', and has concluded that it is probable that its particular tax treatment will be accepted in all relevant jurisdictions and thus it has determined taxable profit (tax loss), tax bases, unused tax losses, unused tax credits or tax rates consistently with the tax treatment included in its income tax filings.
Current and deferred tax is recognized in profit or loss, except to the extent that it relates to items recognized in other comprehensive income or directly in equity.
Earnings per share\u00a0
Basic earnings per share are calculated based on the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share are computed
The preparation of financial statements requires judgments and estimates that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the financial statements. The resulting accounting estimates will, by definition, seldom equal the related actual results. The main estimates and assumptions that have a risk of causing an adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.
Judgements:
Financial assets - Investment in BioConnection
During the second quarter of 2022, Pharming entered into a share purchase agreement, following receipt of an offer for all shares in BioConnection B.V. by Gimv Nederland Holding B.V. (\"Gimv\"), a European investment company listed on Euronext Brussels. The existing shareholders (including Pharming) reached agreement with Gimv on the sale of all issued and outstanding shares to a new holding company (BioConnection Investments B.V.) incorporated by Gimv, followed by a partial re-investment by existing shareholders of the purchase price in the share capital of BioConnection Investments B.V. The re-investment relates to the purchase of ordinary shares and a preference share.
The Board of Directors made an assessment on the accounting treatment of the agreement and concluded that the sale of the BioConnection ordinary shares and purchase of the BioConnection Investments B.V. ordinary shares shall be considered as a dilution of an existing equity stake in an investment in accounted for using they equity method. Hence Pharming recognized the dilution of its equity stake as a reduction of the carrying amount of the investment accounted for using the equity method. The preference share is valued as an investment in debt instruments designated as at fair value with changes through profit and loss (FVTPL).
The fair value of the preference share was calculated based on a commonly accepted valuation method, the option pricing model (\"OPM\"), which considers the share classes as call options on the total shareholders\u2019 equity value according to the rights and preferences of each class of equity. The payoff profile of the share classes was analyzed through a portfolio of call options, with the total equity value of a company as the underlying asset of the options and specific terms for each option calibrated to mirror, in aggregate, the payoff profile of the share classes. Relying on the forward-looking Black-Scholes-Merton (\"BSM\") financial instrument pricing framework, the OPM effectively captures the full range of potential outcomes for the share classes at exit. The OPM takes into consideration the full spectrum of risks in terms of future potential upside or downside but does not require explicit estimates of the possible future outcomes. The BSM model is commonly used to price assets on financial markets and allows to estimate the theoretical value of a call option, using six key parameters, namely the underlying equity value, strike price, time to maturity, risk free rate, expected volatility of the underlying equity and dividend yield on the underlying equity. The most important drivers for the fair value using the BSM model are:
\u2022the equity value, for which the determination of its value is highly dependent on the estimate of projected revenues, EBITDA and discount rate;
\u2022volatility; and
\u2022time to maturity.
As a result of this transaction, Pharming has received one-off net cash proceeds of US$7.3 million (EUR6.9 million) and recognized a gain of US$12.2 million.
Further reference is made to note 13.
Biological Assets
Under IAS 41 \"Agriculture\", management is required to assess whether \u2018biological assets\u2019 which are contributing to production of our cash flows should be accounted for as assets. Management has assessed Pharming\u2019s biological assets and conclude that these do not qualify to be recognized under the relevant standard IAS 41 \"Agriculture\" due to their uniqueness and very special transgenic nature and thus all relevant costs are expensed through the income statement.
Estimates:
Revenue
Revenue is recognized when control has been transferred to the customer. Revenue is reduced by chargebacks and rebates for government healthcare programs, discounts to specialty pharmacies and wholesalers, and product returns given or expected to be given, which vary by patient groups. Chargebacks and rebates for healthcare programs depend upon the submission of claims sometime after the initial recognition of the sale. The liability for this variable consideration is made, at the time of sale, for the estimated chargebacks and rebates, mainly US Medicaid, based on available market information and historical experience. Because the amounts are estimated they may not fully reflect the final outcome, and the amounts are subject to change dependent upon, amongst other things, the types of patient groups. The level of these liabilities is being reviewed and adjusted regularly in the light of contractual and legal obligations, historical charges and trends, past experience and projected mixtures of patient groups. The Group acquires this information from both internal resources and external parties.
The consolidated financial statements of Pharming Group N.V. (\"the Company\", \"Pharming\" or \"the Group\"), Leiden for the year ended December 31, 2022, were authorized for issue in accordance with a resolution of the Board of Directors on April 4, 2023. The financial statements are subject to adoption by the Annual General Meeting of shareholders, which has been scheduled for May 17, 2023.
Pharming Group N.V. is a limited liability public company, which is listed on Euronext Amsterdam (\"PHARM\"). The Company\u2019s American Depositary Shares (\"ADSs\") are listed on the Nasdaq Global Market (\"Nasdaq\") under the symbol \"PHAR\". Each ADS represents 10 of the Company\u2019s ordinary shares of \u20ac0.01 nominal value.
In January 2020, Pharming Group N.V. issued convertible bonds, see note 18. These bonds are listed on the Frankfurt Exchange (B\u00f6rse Frankfurt: PHARMING GRP 20/25 CV).
The headquarters and registered office of Pharming Group N.V. is located at:
Darwinweg 24
2333 CR Leiden
The Netherlands
Pharming Group N.V. is registered at the Chamber of Commerce in the Netherlands under number 28048592.
Pharming Group N.V. is the ultimate parent company of Pharming Group. A list of subsidiaries is provided in note 2.3.
Pharming Group N.V. is a global biopharmaceutical company dedicated to transforming the lives of patients with rare, debilitating, and life-threatening diseases. Pharming is commercializing and developing an innovative portfolio of protein replacement therapies and precision medicines, including small molecules, biologics, and gene therapies that are in early to late-stage development. Pharming is headquartered in Leiden, Netherlands, and has employees around the globe who serve patients in over 30 markets in North America, Europe, the Middle East, Africa, and Asia-Pacific.
The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRS interpretations committee (IFRS IC) interpretations applicable to companies reporting under IFRS as endorsed by the European Union and valid as of the balance sheet date. The consolidated financial statements have been prepared under the historical cost convention, unless otherwise stated.
The preparation of financial statements in conformity with IFRS and Book 2 Title 9 of the Dutch Civil Code requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company\u2019s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 2.5.
The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRS interpretations committee (IFRS IC) interpretations applicable to companies reporting under IFRS as endorsed by the European Union and valid as of the balance sheet date. The consolidated financial statements have been prepared under the historical cost convention, unless otherwise stated.
The preparation of financial statements in conformity with IFRS and Book 2 Title 9 of the Dutch Civil Code requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company\u2019s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 2.5.
The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRS interpretations committee (IFRS IC) interpretations applicable to companies reporting under IFRS as endorsed by the European Union and valid as of the balance sheet date. The consolidated financial statements have been prepared under the historical cost convention, unless otherwise stated.
The preparation of financial statements in conformity with IFRS and Book 2 Title 9 of the Dutch Civil Code requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company\u2019s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 2.5.
The Company applied for the first-time certain amendments, which are effective for annual periods beginning on or after 1\u00a0January 2022 as disclosed below.
\u2022Amendments to IFRS 3: Reference to the conceptual framework;
\u2022Amendments to IAS 16: Property, plant and equipment - Proceeds before intended use;
\u2022Amendments to IAS 37: Onerous contracts - cost of fulfilling a contract;
\u2022Amendments included in the Annual Improvements to IFRS Accounting Standards 2018-2020 Cycle relating to IFRS 1, IFRS 9, IFRS 16 and IAS 41.
The consolidated financial statements include Pharming Group N.V. and its controlled subsidiaries, after the elimination of all intercompany transactions and balances. Subsidiaries are consolidated from the date the acquirer obtains effective control until control ceases.
An entity is considered effectively controlled if the Company, directly or indirectly, has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Acquisitions of subsidiaries are accounted for using the acquisition method of accounting. The financial statements of the subsidiaries are prepared for the same reporting year as Pharming Group N.V., using the same accounting policies. Intercompany transactions, balances and unrealized gains and losses on transactions between group companies are eliminated.
Entity | Registered office | Investment % |
Pharming B.V. | The Netherlands | 100.0 |
Pharming Americas B.V. | The Netherlands | 100.0 |
Pharming Intellectual Property B.V. | The Netherlands | 100.0 |
Pharming Technologies B.V. | The Netherlands | 100.0 |
Pharming Research & Development B.V. | The Netherlands | 100.0 |
Broekman Instituut B.V. | The Netherlands | 100.0 |
Pharming Healthcare, Inc. | The United States | 100.0 |
ProBio, Inc. | The United States | 100.0 |
The consolidated financial statements include Pharming Group N.V. and its controlled subsidiaries, after the elimination of all intercompany transactions and balances. Subsidiaries are consolidated from the date the acquirer obtains effective control until control ceases.
An entity is considered effectively controlled if the Company, directly or indirectly, has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Acquisitions of subsidiaries are accounted for using the acquisition method of accounting. The financial statements of the subsidiaries are prepared for the same reporting year as Pharming Group N.V., using the same accounting policies. Intercompany transactions, balances and unrealized gains and losses on transactions between group companies are eliminated.
Entity | Registered office | Investment % |
Pharming B.V. | The Netherlands | 100.0 |
Pharming Americas B.V. | The Netherlands | 100.0 |
Pharming Intellectual Property B.V. | The Netherlands | 100.0 |
Pharming Technologies B.V. | The Netherlands | 100.0 |
Pharming Research & Development B.V. | The Netherlands | 100.0 |
Broekman Instituut B.V. | The Netherlands | 100.0 |
Pharming Healthcare, Inc. | The United States | 100.0 |
ProBio, Inc. | The United States | 100.0 |
Foreign currency translation
In preparing the financial statements of the Group, transactions in currencies other than the entity\u2019s functional currency (foreign currencies) are recognized at the rates of exchange prevailing on the dates of the transactions. At each reporting date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
Exchange differences are recognized in profit or loss in the period in which they arise except for:
\u2022Exchange differences on foreign currency borrowings relating to assets under construction for future productive use, which are included in the cost of those assets when they are regarded as an adjustment to interest costs on those foreign currency borrowings;
\u2022Exchange differences on transactions entered into to hedge certain foreign currency risks (see below under financial instruments/hedge accounting);
\u2022Exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur in the foreseeable future (therefore forming part of the net investment in the foreign operation), which are recognized initially in other comprehensive income and reclassified from equity to profit or loss on disposal or partial disposal of the net investment
For the purpose of presenting consolidated financial statements in US Dollars, the assets and liabilities of the Group\u2019s operations having Euro as functional currency are translated at exchange rates prevailing on the reporting date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the date of transactions are used. Exchange differences arising, if any, are recognized in other comprehensive income and accumulated in a foreign exchange translation reserve.
The EUR/USD exchange rate applied at 31\u00a0December 2022: was 1.0667 (2021: 1.1334). The average exchange rate applied in 2022 was 1.0543 (2021: 1.1860).
Foreign currency translation
In preparing the financial statements of the Group, transactions in currencies other than the entity\u2019s functional currency (foreign currencies) are recognized at the rates of exchange prevailing on the dates of the transactions. At each reporting date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
Exchange differences are recognized in profit or loss in the period in which they arise except for:
\u2022Exchange differences on foreign currency borrowings relating to assets under construction for future productive use, which are included in the cost of those assets when they are regarded as an adjustment to interest costs on those foreign currency borrowings;
\u2022Exchange differences on transactions entered into to hedge certain foreign currency risks (see below under financial instruments/hedge accounting);
\u2022Exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur in the foreseeable future (therefore forming part of the net investment in the foreign operation), which are recognized initially in other comprehensive income and reclassified from equity to profit or loss on disposal or partial disposal of the net investment
For the purpose of presenting consolidated financial statements in US Dollars, the assets and liabilities of the Group\u2019s operations having Euro as functional currency are translated at exchange rates prevailing on the reporting date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the date of transactions are used. Exchange differences arising, if any, are recognized in other comprehensive income and accumulated in a foreign exchange translation reserve.
The EUR/USD exchange rate applied at 31\u00a0December 2022: was 1.0667 (2021: 1.1334). The average exchange rate applied in 2022 was 1.0543 (2021: 1.1860).
Entity | Registered office | Investment % |
Pharming B.V. | The Netherlands | 100.0 |
Pharming Americas B.V. | The Netherlands | 100.0 |
Pharming Intellectual Property B.V. | The Netherlands | 100.0 |
Pharming Technologies B.V. | The Netherlands | 100.0 |
Pharming Research & Development B.V. | The Netherlands | 100.0 |
Broekman Instituut B.V. | The Netherlands | 100.0 |
Pharming Healthcare, Inc. | The United States | 100.0 |
ProBio, Inc. | The United States | 100.0 |
Intangible assets acquired separately
Intangible assets acquired separately are measured at historical cost. The cost of intangible assets acquired in a business combination is recognized and measured at fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. Variable considerations that are part of the purchase of an intangible asset are recognized as a liability when the considerations become due.
Intangible assets with finite lives are amortized over the useful life and assessed for impairment whenever there is an indication that the intangible assets may be impaired and at the end of each reporting period. The estimated useful lives, residual values and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. Changes in the expected useful life, according to the straight-line method, or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in the
statement of income in the relevant expense category consistent with the function of the intangible asset.
Internally-generated intangible assets \u2013 research and development expenditure
Expenditure on research activities is recognized as an expense in the period in which it is incurred. An internally-generated intangible asset arising from development (or from the development phase of an internal project) is recognized if, and only if, all of the following conditions have been demonstrated:
\u2022The technical feasibility of completing the intangible asset so that it will be available for use or sale
\u2022The intention to complete the intangible asset and use or sell it
\u2022The ability to use or sell the intangible asset
\u2022How the intangible asset will generate probable future economic benefits
\u2022The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset
\u2022The ability to measure reliably the expenditure attributable to the intangible asset during its development
The amount initially recognized for internally-generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally generated intangible asset can be recognized, development expenditure is recognized in profit or loss in the period in which it is incurred.
Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated amortization and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.
Intangible assets acquired in a business combination
Intangible assets acquired in a business combination and recognized separately from goodwill are recognized initially at their fair value at the acquisition date (which is regarded as their cost). Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortization and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.
Biological Assets
Under IAS 41 \"Agriculture\", management is required to assess whether 'biological assets' which are contributing to production of our cash flows should be accounted for as assets. Management has assessed Pharming\u2019s biological assets and conclude that these do not qualify to be recognized under the relevant standard IAS 41 \"Agriculture\" due to their uniqueness and very special transgenic nature and thus all relevant costs are expensed through the income statement.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation charges and accumulated impairment charges. Generally, depreciation is calculated using a straight-line basis over the estimated useful life of the asset. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.
An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal.
Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of income in the year the asset is derecognized. Residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each financial year-end.
All costs that are directly attributable to bringing an asset to the location and condition necessary for it to be capable of operating in the manner intended by management, will be
capitalized. These costs include direct employee benefits, rent and testing costs. Capitalization will be done until the asset is capable of operating in the manner intended by management.", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForPropertyPlantAndEquipmentExplanatory", "language": "en", "entity": "scheme:724500DCJ9MPG74JEH91", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f-306": { "value": "Property, plant and equipment is stated at cost less accumulated depreciation charges and accumulated impairment charges. Generally, depreciation is calculated using a straight-line basis over the estimated useful life of the asset. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForDepreciationExpenseExplanatory", "language": "en", "entity": "scheme:724500DCJ9MPG74JEH91", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f-307": { "value": "Business combinations
Business combinations are accounted for using the acquisition accounting method. Identifiable assets, liabilities and contingent liabilities acquired are measured at fair value at acquisition date. The consideration transferred is measured at fair value and includes the fair value of any contingent consideration. Where the consideration transferred exceeds the fair value of the net assets, liabilities and contingent liabilities acquired, the excess is recorded as goodwill. The costs of acquisition are recognized as an expense.
Business combinations
Business combinations are accounted for using the acquisition accounting method. Identifiable assets, liabilities and contingent liabilities acquired are measured at fair value at acquisition date. The consideration transferred is measured at fair value and includes the fair value of any contingent consideration. Where the consideration transferred exceeds the fair value of the net assets, liabilities and contingent liabilities acquired, the excess is recorded as goodwill. The costs of acquisition are recognized as an expense.
Investments in associates
An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting. Under the equity method, an investment in an associate is recognized initially in the consolidated statement of financial position at cost and adjusted thereafter to recognize the Group\u2019s share of the profit or loss and other comprehensive income of the associate.
When the Group\u2019s share of losses of an associate exceeds the Group\u2019s interest in that associate (which includes any long-term interests that, in substance, form part of the Group\u2019s net investment in the associate), the Group discontinues recognizing its share of further losses. Additional losses are recognized only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. The requirements of IAS 36 are applied to determine whether it is necessary to recognize any impairment loss with respect to the Group\u2019s investment in an associate.
When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with IAS 36 as a single asset by comparing its recoverable amount (higher of value in use and fair
value less costs of disposal) with its carrying amount. Any impairment loss recognized is not allocated to any asset, including goodwill that forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognized in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases.
When a Group entity transacts with an associate of the Group, profits and losses resulting from the transactions with the associate or joint venture are recognized in the Group\u2019s consolidated financial statements only to the extent of interests in the associate or joint venture that are not related to the Group.
Financial assets
Financial assets are recognized when the Company becomes a party to the contractual provisions of a financial instrument. Financial assets are derecognized when the rights to receive cash flows from the financial assets expire, or if the Company transfers the financial asset to another party and does not retain control or substantially all risks and rewards of the asset. Purchases and sales of financial assets in the normal course of business are accounted for at settlement date (i.e., the date that the asset is delivered to or by the Company).
At initial recognition, the Company measures its financial assets at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset.
After initial recognition, the Company classifies its financial assets as subsequently measured at either i) amortized cost, ii) fair value through other comprehensive income or iii) fair value through profit or loss on basis of both:
\u2022The Company\u2019s business model for managing the financial assets;
\u2022The contractual cash flow characteristics of the financial asset.
Subsequent to initial recognition, financial assets are measured as described below. At each balance sheet date, the Company assesses whether there is objective evidence that a financial asset or a group of financial assets is impaired and recognizes a loss allowance for
expected credit losses for financial assets measured at either amortized costs or at fair value through other comprehensive income. If, at the reporting date, the credit risk on financial instrument has not increased significantly since initial recognition, the Company measures the loss allowance for that financial instrument at an amount equal to 12 months of expected credit losses. If, at the reporting date, the credit risk on a financial instrument has increased significantly since initial recognition, the Company measures the loss allowance for the financial instrument at an amount equal to the lifetime expected credit losses.
Financial assets at amortized cost
Financial assets are measured at amortized cost if both i) the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and ii) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest of on the principal amount outstanding.
A financial asset measured at amortized cost is initially recognized at fair value plus transaction cost directly attributable to the asset. After initial recognition, the carrying amount of the financial asset measured at amortized cost is determined using the effective interest method, less any impairment losses.
Financial assets at fair value through other comprehensive income (FVTOCI)
On initial recognition, the Group may make an irrevocable election (on an instrument-by-instrument basis) to designate investments in equity instruments as at FVTOCI. Investments in equity instruments at FVTOCI are initially measured at fair value plus transaction costs.
Subsequently, they are measured at fair value with gains and losses arising from changes in fair value recognized in other comprehensive income and accumulated in the legal reserve fair value revaluation. The cumulative gain or loss is reclassified to profit or loss on disposal of the equity investments.
Financial assets at fair value through profit and loss (FVTPL)
Financial assets that do not meet the criteria for being measured at amortized cost or FVTOCI are measured at FVTPL.
Financial assets
Financial assets are recognized when the Company becomes a party to the contractual provisions of a financial instrument. Financial assets are derecognized when the rights to receive cash flows from the financial assets expire, or if the Company transfers the financial asset to another party and does not retain control or substantially all risks and rewards of the asset. Purchases and sales of financial assets in the normal course of business are accounted for at settlement date (i.e., the date that the asset is delivered to or by the Company).
At initial recognition, the Company measures its financial assets at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset.
After initial recognition, the Company classifies its financial assets as subsequently measured at either i) amortized cost, ii) fair value through other comprehensive income or iii) fair value through profit or loss on basis of both:
\u2022The Company\u2019s business model for managing the financial assets;
\u2022The contractual cash flow characteristics of the financial asset.
Subsequent to initial recognition, financial assets are measured as described below. At each balance sheet date, the Company assesses whether there is objective evidence that a financial asset or a group of financial assets is impaired and recognizes a loss allowance for
expected credit losses for financial assets measured at either amortized costs or at fair value through other comprehensive income. If, at the reporting date, the credit risk on financial instrument has not increased significantly since initial recognition, the Company measures the loss allowance for that financial instrument at an amount equal to 12 months of expected credit losses. If, at the reporting date, the credit risk on a financial instrument has increased significantly since initial recognition, the Company measures the loss allowance for the financial instrument at an amount equal to the lifetime expected credit losses.
Financial assets at amortized cost
Financial assets are measured at amortized cost if both i) the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and ii) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest of on the principal amount outstanding.
A financial asset measured at amortized cost is initially recognized at fair value plus transaction cost directly attributable to the asset. After initial recognition, the carrying amount of the financial asset measured at amortized cost is determined using the effective interest method, less any impairment losses.
Financial assets at fair value through other comprehensive income (FVTOCI)
On initial recognition, the Group may make an irrevocable election (on an instrument-by-instrument basis) to designate investments in equity instruments as at FVTOCI. Investments in equity instruments at FVTOCI are initially measured at fair value plus transaction costs.
Subsequently, they are measured at fair value with gains and losses arising from changes in fair value recognized in other comprehensive income and accumulated in the legal reserve fair value revaluation. The cumulative gain or loss is reclassified to profit or loss on disposal of the equity investments.
Financial assets at fair value through profit and loss (FVTPL)
Financial assets that do not meet the criteria for being measured at amortized cost or FVTOCI are measured at FVTPL.
Trade and other receivables
Trade and other receivables are recognized initially at transaction price. Subsequent measurement is at amortized cost using the effective interest method, less the expected credit loss. Trade receivables are amounts due from customers for goods sold in the ordinary course of business. They are generally due for settlement within 30 days and therefore are all classified as current. For trade receivables and contract assets, the Company applies a simplified approach in calculating expected credit loss. The
Company assesses the expected credit loss that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment. Due to the short-term nature of the current receivables, their carrying amount is considered to be the same as their fair value.\u00a0 \u00a0
Cash and cash equivalents
Cash and cash equivalents are defined as cash on hand, demand deposits and short-term, highly liquid investments (maturity less than 3 months) readily convertible to known amounts of cash and subject to insignificant risk of changes in value. For the purpose of the statement of cash flow, cash and cash equivalents do not include restricted cash. Restricted cash is cash held on short term deposits with certain banks as security mainly for credit card and lease cars and is not considered cash and cash equivalents.
Financial liabilities and borrowings
Financial liabilities are classified as either financial liabilities at fair value through profit or loss (derivative financial liabilities) or financial liabilities at amortized cost (borrowings and trade and other payables). All financial liabilities and borrowings are initially recognized at the fair value of the consideration received less directly attributable transaction costs; transaction costs related to the issue of a compound financial instrument are allocated to the liability and equity components of the instruments in proportion to the allocation of proceeds. After initial recognition, financial
liabilities and borrowings are subsequently measured at amortized cost using the effective interest method.
Gains and losses are recognized in the statement of income when the liabilities are paid off or otherwise eliminated as well as through the amortization process. Purchases and sales of financial liabilities are recognized at settlement date.
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the statement of income.
Convertible bonds
The Company has issued convertible bonds. At the time of the issue of bonds itself the split between equity and liability portion has been accounted for. The liability portion of the convertible bonds is the present value of the future cash flows, calculated by discounting the future cash flows of the bonds (interest and principal) at the market rate of interest with the assumption that no conversion option is available. The value of the equity portion will be the difference between the total proceeds received from the bonds and the present value (liability portion).
The equity component is not remeasured after initial recognition.
In the case the Company extinguishes the convertible bonds before maturity through an early redemption or repurchase in which the original conversion privileges are unchanged, the entity allocates the consideration paid and any transaction costs for the repurchase or redemption to the liability and equity components of the convertible bond at the date of the transaction. The method used in allocating the consideration paid and transaction costs to the separate components is consistent with that used in the original allocation to the separate components of the proceeds received by the Company when the convertible instrument was issued. Once the allocation of the consideration is made, any resulting gain or loss is treated as follows:
1.the amount of gain or loss relating to the liability component is recognized in profit or loss; and
2.the amount of consideration relating to the equity component is recognized in equity
If the convertible bonds are converted before maturity, the amount recognized in equity in respect of the shares issued should be the amount at which the liability for the debt is stated as at the date of conversion.
On conversion of the convertible bonds at maturity, the Company recognizes the liability component and recognizes it as equity. The original equity component remains as equity (although it may be transferred from one line item within equity to another). There is no gain or loss on conversion at maturity date.
The transaction costs that are directly attributable to the convertible bonds are deducted from the initial fair value of the convertible bonds. The transaction costs are allocated between the liability and the equity components in proportion to the allocation of the proceeds. The transaction costs of the liability component are recognized as part of interest costs.
Financial assets at fair value through other comprehensive income (FVTOCI)
On initial recognition, the Group may make an irrevocable election (on an instrument-by-instrument basis) to designate investments in equity instruments as at FVTOCI. Investments in equity instruments at FVTOCI are initially measured at fair value plus transaction costs.
Subsequently, they are measured at fair value with gains and losses arising from changes in fair value recognized in other comprehensive income and accumulated in the legal reserve fair value revaluation. The cumulative gain or loss is reclassified to profit or loss on disposal of the equity investments.
Financial assets at fair value through profit and loss (FVTPL)
Financial assets that do not meet the criteria for being measured at amortized cost or FVTOCI are measured at FVTPL.
Financial assets at fair value through profit and loss (FVTPL)
Financial assets that do not meet the criteria for being measured at amortized cost or FVTOCI are measured at FVTPL.
Impairment of assets
Assets that have an indefinite useful life and assets not yet available for use are not subject to depreciation or amortization and are tested at least annually for impairment. Assets that are subject to depreciation or amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
An impairment loss is recognized for the amount by which the asset\u2019s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset\u2019s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows. Non-financial assets for which an impairment loss is recorded, are reviewed for possible reversal of the impairment at each reporting date.
Inventories
Inventories are stated at the lower of cost and net realizable value. Cost comprises direct materials and, where applicable, direct labor costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the First in First out (FIFO) method. Net realizable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.
Trade and other receivables
Trade and other receivables are recognized initially at transaction price. Subsequent measurement is at amortized cost using the effective interest method, less the expected credit loss. Trade receivables are amounts due from customers for goods sold in the ordinary course of business. They are generally due for settlement within 30 days and therefore are all classified as current. For trade receivables and contract assets, the Company applies a simplified approach in calculating expected credit loss. The
Company assesses the expected credit loss that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment. Due to the short-term nature of the current receivables, their carrying amount is considered to be the same as their fair value.", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForTradeAndOtherReceivablesExplanatory", "language": "en", "entity": "scheme:724500DCJ9MPG74JEH91", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f-317": { "value": "Cash and cash equivalentsCash and cash equivalents are defined as cash on hand, demand deposits and short-term, highly liquid investments (maturity less than 3 months) readily convertible to known amounts of cash and subject to insignificant risk of changes in value. For the purpose of the statement of cash flow, cash and cash equivalents do not include restricted cash. Restricted cash is cash held on short term deposits with certain banks as security mainly for credit card and lease cars and is not considered cash and cash equivalents.", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyToDetermineComponentsOfCashAndCashEquivalents", "language": "en", "entity": "scheme:724500DCJ9MPG74JEH91", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f-318": { "value": "Equity
The Company only has ordinary shares, and these are classified within equity upon issue. Shares transferred in relation to settlement of (convertible) debt are measured at fair value with fair value based on the closing price of the shares on the trading day prior to the settlement date. Equity is recognized upon the recognition of share-based payment expenses; shares issued upon exercise of such options are measured at their exercise price.
Transaction costs associated with an equity transaction are accounted for as a deduction from equity to the extent they are incremental costs directly attributable to the equity transaction that otherwise would have been avoided. Transaction costs related to the issue of a compound financial instrument are allocated to the liability and equity components of the instruments in proportion to the allocation of proceeds.
Financial liabilities and borrowings
Financial liabilities are classified as either financial liabilities at fair value through profit or loss (derivative financial liabilities) or financial liabilities at amortized cost (borrowings and trade and other payables). All financial liabilities and borrowings are initially recognized at the fair value of the consideration received less directly attributable transaction costs; transaction costs related to the issue of a compound financial instrument are allocated to the liability and equity components of the instruments in proportion to the allocation of proceeds. After initial recognition, financial
liabilities and borrowings are subsequently measured at amortized cost using the effective interest method.
Gains and losses are recognized in the statement of income when the liabilities are paid off or otherwise eliminated as well as through the amortization process. Purchases and sales of financial liabilities are recognized at settlement date.
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the statement of income.
Financial liabilities and borrowings
Financial liabilities are classified as either financial liabilities at fair value through profit or loss (derivative financial liabilities) or financial liabilities at amortized cost (borrowings and trade and other payables). All financial liabilities and borrowings are initially recognized at the fair value of the consideration received less directly attributable transaction costs; transaction costs related to the issue of a compound financial instrument are allocated to the liability and equity components of the instruments in proportion to the allocation of proceeds. After initial recognition, financial
liabilities and borrowings are subsequently measured at amortized cost using the effective interest method.
Gains and losses are recognized in the statement of income when the liabilities are paid off or otherwise eliminated as well as through the amortization process. Purchases and sales of financial liabilities are recognized at settlement date.
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the statement of income.
Financial liabilities and borrowings
Financial liabilities are classified as either financial liabilities at fair value through profit or loss (derivative financial liabilities) or financial liabilities at amortized cost (borrowings and trade and other payables). All financial liabilities and borrowings are initially recognized at the fair value of the consideration received less directly attributable transaction costs; transaction costs related to the issue of a compound financial instrument are allocated to the liability and equity components of the instruments in proportion to the allocation of proceeds. After initial recognition, financial
liabilities and borrowings are subsequently measured at amortized cost using the effective interest method.
Gains and losses are recognized in the statement of income when the liabilities are paid off or otherwise eliminated as well as through the amortization process. Purchases and sales of financial liabilities are recognized at settlement date.
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the statement of income.
Convertible bonds
The Company has issued convertible bonds. At the time of the issue of bonds itself the split between equity and liability portion has been accounted for. The liability portion of the convertible bonds is the present value of the future cash flows, calculated by discounting the future cash flows of the bonds (interest and principal) at the market rate of interest with the assumption that no conversion option is available. The value of the equity portion will be the difference between the total proceeds received from the bonds and the present value (liability portion).
The equity component is not remeasured after initial recognition.
In the case the Company extinguishes the convertible bonds before maturity through an early redemption or repurchase in which the original conversion privileges are unchanged, the entity allocates the consideration paid and any transaction costs for the repurchase or redemption to the liability and equity components of the convertible bond at the date of the transaction. The method used in allocating the consideration paid and transaction costs to the separate components is consistent with that used in the original allocation to the separate components of the proceeds received by the Company when the convertible instrument was issued. Once the allocation of the consideration is made, any resulting gain or loss is treated as follows:
1.the amount of gain or loss relating to the liability component is recognized in profit or loss; and
2.the amount of consideration relating to the equity component is recognized in equity
If the convertible bonds are converted before maturity, the amount recognized in equity in respect of the shares issued should be the amount at which the liability for the debt is stated as at the date of conversion.
On conversion of the convertible bonds at maturity, the Company recognizes the liability component and recognizes it as equity. The original equity component remains as equity (although it may be transferred from one line item within equity to another). There is no gain or loss on conversion at maturity date.
Revenue recognition
In order to determine when to recognize revenue and at what amount, the Company applies the following five steps, based on transfer of control over goods to the customer:
1.Identify the contract(s) with a customer;
2.Identify the performance obligations in the contract. Performance obligations are promises in a contract to transfer to a customer goods that are distinct;
3.Determine the transaction price. The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. If the consideration promised in a contract includes a variable amount, an entity must estimate the amount of consideration to which it expects to be entitled in exchange for transferring the promised goods or services to a customer;
4.Allocate the transaction price to each performance obligation on the basis of the relative stand-alone selling prices of each distinct good or service promised in the contract;
5.Recognize revenue when a performance obligation is satisfied by transferring a promised good or service to a customer (which is when the customer obtains control of that good or service). A performance obligation may be satisfied at a point in time (typically for promises to transfer goods to a customer) or over time (typically for promises to transfer services to a customer). For a performance obligation satisfied over time, an entity would select an appropriate measure of progress to determine how much revenue should be recognized as the performance obligation is satisfied.
All of the Group\u2019s revenue from contracts with customers is derived from delivery of goods, specifically vials of pharmaceutical products. The Group does not provide any additional services (including financing services) or equipment to its customers. In accordance with IFRS 15, revenue is recognized when the customer obtains control of the goods. For the Group\u2019s contracts the customer usually obtains control immediately after shipment of the product, which arrives at the customer within a short time frame.
Revenue recognition
In order to determine when to recognize revenue and at what amount, the Company applies the following five steps, based on transfer of control over goods to the customer:
1.Identify the contract(s) with a customer;
2.Identify the performance obligations in the contract. Performance obligations are promises in a contract to transfer to a customer goods that are distinct;
3.Determine the transaction price. The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. If the consideration promised in a contract includes a variable amount, an entity must estimate the amount of consideration to which it expects to be entitled in exchange for transferring the promised goods or services to a customer;
4.Allocate the transaction price to each performance obligation on the basis of the relative stand-alone selling prices of each distinct good or service promised in the contract;
5.Recognize revenue when a performance obligation is satisfied by transferring a promised good or service to a customer (which is when the customer obtains control of that good or service). A performance obligation may be satisfied at a point in time (typically for promises to transfer goods to a customer) or over time (typically for promises to transfer services to a customer). For a performance obligation satisfied over time, an entity would select an appropriate measure of progress to determine how much revenue should be recognized as the performance obligation is satisfied.
All of the Group\u2019s revenue from contracts with customers is derived from delivery of goods, specifically vials of pharmaceutical products. The Group does not provide any additional services (including financing services) or equipment to its customers. In accordance with IFRS 15, revenue is recognized when the customer obtains control of the goods. For the Group\u2019s contracts the customer usually obtains control immediately after shipment of the product, which arrives at the customer within a short time frame.
Other income
Other income consists of gains upon sale of investments and income from government grants.
Pharming receives certain grants which support the Company\u2019s research efforts in defined research and development projects. These subsidies generally provide for reimbursement of approved costs incurred as defined in various grants. Subsidies are recognized if the Company can demonstrate it has complied with all attached conditions and it is probable that the grant amount will be received. Grants are recognized in profit or loss on a systematic basis over the periods in which the Group recognizes as expenses the related costs for which the grants are intended to compensate.
The Company includes income from grant under other income in the statement of income in order to enable comparison of its statement of income with companies in the life sciences sector.
Pension plan
For all Dutch employees, the Company participates in defined contribution pension plans with an independent insurance company. Defined contributions are expensed in the year in which the related employee services are rendered.
Employees in the United States are enabled to participate in a 401k plan, which also qualifies as a defined contribution plan. To become an eligible participant, an employee must complete 6 months of service and attain the age of 18 years. The employer matches 100% of the first 3% the employee contributes to their 401k plan and 50% of any
amount over 3% up to 5%. Any employee contribution over 5% is not matched. Costs of the 401k plan are expensed in the year in which the related employee services are rendered.", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForEmployeeBenefitsExplanatory", "language": "en", "entity": "scheme:724500DCJ9MPG74JEH91", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f-328": { "value": "Share-based payment
The costs of option plans are measured by reference to the fair value of the options on the date on which the options are granted. The fair value is determined using the Black-Scholes model. The costs of these options are recognized in the income statement (share-based compensation) during the vesting period, together with a corresponding increase in equity (other reserves). Share-based payment charges do not affect liabilities or cash flows in the year of expense since all transactions are equity-settled.
Pharming\u2019s employee option plan states that an employee is entitled to exercise the vested options within five years after the date of the grant. The period in which the options become unconditional is defined as the vesting period.
Long Term Incentive Plan
For a limited number of board members and officers, performance shares are granted free of charge. A maximum number of predetermined shares vest three years after the grant date, provided that the participant to the long-term incentive plan is still in service (continued employment condition), with actual shares to be transferred based on the relative achievement of Pharming\u2019s share price compared to a peer group. The maximum number of shares immediately vests upon a change of control.
The fair value is determined using Monte Carlo simulation. The costs of the LTIP are recognized in the income statement during the vesting period. The fair value at the grant date includes the market performance condition (relative total shareholder return performance) but excludes the three-year service condition.
On December 11, 2020, the new LTIP for the Executive Director was implemented. The existing share option plans and the grant of restricted shares under LTIP, from December 11, 2020, onwards, will no longer be applied for the Executive Directors under the new Remuneration Policy. The newly designed LTIP has been aligned with prevailing 'best practices' and is performance-related only. The performance includes Total Shareholder Return (40% weighing) and achievement of long-term strategy oriented
objectives (60% weighing). The Total Shareholders Return is compared to a peer group.
The shares granted to the Executive Director under the new LTIP, will vest in 3 years after the grant date, subject to the achievement of targets for a tree-year performance period, their relative weightings and the pay-out limits. All shares will be subject to a retention period of 5 years from the date of grant. In order to fully become entitled to the shares vesting under the LTI conditions the participant has to be a member of the Board of Directors as Executive Board Member at the vesting date.
The fair value of the new LTIP is determined using the Monte Carlo simulation. The costs of the LTIP are recognized in the income statement during the vesting period. The fair value at the grant date includes the financial performance condition of Pharming compared to the benchmark, the strategic performance condition as well as the service condition.
Restricted Stock Unit Plan
For a limited number of board members and officers, restricted stock units are granted free of charge. A maximum number of predetermined shares vest four years after the grant date, provided that the participant to the long-term incentive plan is still in service (continued employment condition).
The fair value is determined to be the market price at the grant date. The costs of the RSU grant are recognized in the income statement during the vesting period.
Leases
The Group assesses whether a contract is or contains a lease at the inception of the contract. The Group recognizes a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is a lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets (such as tablets and personal computers, small items of office furniture and telephones). For these leases the Group recognizes the lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which the economic benefits from the leased assets are consumed.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Group uses its incremental borrowing rate.
Lease payments included in the measurement of the lease liability comprise:
\u2022Fixed lease payments
\u2022Variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date.
The lease liability is presented as a separate line in the consolidated balance sheet.
The lease liability is subsequently measured by increasing the carrying amount to reflect the interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made.
The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:
\u2022The lease term has changed or there is a significant event or change in circumstances resulting in a change in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate.
\u2022The lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which case the lease liability is remeasured by discounting the revised lease payments using an unchanged discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used).
\u2022A lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of modification.
The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before commencement day, less any lease incentives
received and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses.
Whenever the Group incurs an obligation for costs to dismantle and remove a leased asset, restore the site on which it is located or restore the underlying asset to the condition required by the terms and conditions of the lease, a provision is recognized and measured under IAS 37. To the extent that the costs relate to a right-of-use asset, the costs are included in the related right-of-use, unless those costs are incurred to produce inventories.
Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset. The depreciation starts at the commencement date of the lease.
The right-of-use assets are presented as a separate line in the consolidated balance sheet.
The Group applies IAS 36 to determine whether a right-of-use asset is impaired and accounts for any identified impairment loss as described in the \u2018Property, Plant and Equipment\u2019 policy.
Variable rents that do not depend on an index or rate are not included in the measurement of the lease liability. The related payments are recognized as an expense in the period in which the event or condition triggers those payments occur.
As a practical expedient, IFRS 16 permits a lessee not to separate non-lease components, and instead account for any lease and associated non-lease components as a single arrangement. The Group has not used this practical expedient. For contracts that contain lease components and one or more additional lease or non-lease components, the Group allocates the consideration in the contract to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components. The Group had no such lease arrangements in 2022 and has none at the date of this report.
Income tax
The income tax expense or credit for the period is the tax payable on the current period\u2019s taxable income based on
the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate based on amounts expected to be paid to the tax authorities.
Deferred income tax is provided in full, using the liability method on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax is determined using tax rates that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realized, or the deferred income tax liability is settled.
Deferred tax assets are recognized only if it is probable that future taxable amounts will be available to use those temporary differences and losses. The Company has assessed all its income tax amounts and provisions in the light of IFRIC 23 'Accounting for Uncertain Income Taxes', and has concluded that it is probable that its particular tax treatment will be accepted in all relevant jurisdictions and thus it has determined taxable profit (tax loss), tax bases, unused tax losses, unused tax credits or tax rates consistently with the tax treatment included in its income tax filings.
Current and deferred tax is recognized in profit or loss, except to the extent that it relates to items recognized in other comprehensive income or directly in equity.
Income tax
The income tax expense or credit for the period is the tax payable on the current period\u2019s taxable income based on
the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate based on amounts expected to be paid to the tax authorities.
Deferred income tax is provided in full, using the liability method on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax is determined using tax rates that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realized, or the deferred income tax liability is settled.
Deferred tax assets are recognized only if it is probable that future taxable amounts will be available to use those temporary differences and losses. The Company has assessed all its income tax amounts and provisions in the light of IFRIC 23 'Accounting for Uncertain Income Taxes', and has concluded that it is probable that its particular tax treatment will be accepted in all relevant jurisdictions and thus it has determined taxable profit (tax loss), tax bases, unused tax losses, unused tax credits or tax rates consistently with the tax treatment included in its income tax filings.
Current and deferred tax is recognized in profit or loss, except to the extent that it relates to items recognized in other comprehensive income or directly in equity.
Earnings per share\u00a0
Basic earnings per share are calculated based on the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share are computed
based on the weighted average number of ordinary shares outstanding including the dilutive effect of shares to be issued in the future under certain arrangements such as option plans, warrants issued and convertible loan agreements.", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForEarningsPerShareExplanatory", "language": "en", "entity": "scheme:724500DCJ9MPG74JEH91", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f-333": { "value": "Critical accounting judgements and key sources of estimation uncertaintyThe preparation of financial statements requires judgments and estimates that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the financial statements. The resulting accounting estimates will, by definition, seldom equal the related actual results. The main estimates and assumptions that have a risk of causing an adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.
Judgements:
Financial assets - Investment in BioConnection
During the second quarter of 2022, Pharming entered into a share purchase agreement, following receipt of an offer for all shares in BioConnection B.V. by Gimv Nederland Holding B.V. (\"Gimv\"), a European investment company listed on Euronext Brussels. The existing shareholders (including Pharming) reached agreement with Gimv on the sale of all issued and outstanding shares to a new holding company (BioConnection Investments B.V.) incorporated by Gimv, followed by a partial re-investment by existing shareholders of the purchase price in the share capital of BioConnection Investments B.V. The re-investment relates to the purchase of ordinary shares and a preference share.
The Board of Directors made an assessment on the accounting treatment of the agreement and concluded that the sale of the BioConnection ordinary shares and purchase of the BioConnection Investments B.V. ordinary shares shall be considered as a dilution of an existing equity stake in an investment in accounted for using they equity method. Hence Pharming recognized the dilution of its equity stake as a reduction of the carrying amount of the investment accounted for using the equity method. The preference share is valued as an investment in debt instruments designated as at fair value with changes through profit and loss (FVTPL).
The fair value of the preference share was calculated based on a commonly accepted valuation method, the option pricing model (\"OPM\"), which considers the share classes as call options on the total shareholders\u2019 equity value according to the rights and preferences of each class of equity. The payoff profile of the share classes was analyzed through a portfolio of call options, with the total equity value of a company as the underlying asset of the options and specific terms for each option calibrated to mirror, in aggregate, the payoff profile of the share classes. Relying on the forward-looking Black-Scholes-Merton (\"BSM\") financial instrument pricing framework, the OPM effectively captures the full range of potential outcomes for the share classes at exit. The OPM takes into consideration the full spectrum of risks in terms of future potential upside or downside but does not require explicit estimates of the possible future outcomes. The BSM model is commonly used to price assets on financial markets and allows to estimate the theoretical value of a call option, using six key parameters, namely the underlying equity value, strike price, time to maturity, risk free rate, expected volatility of the underlying equity and dividend yield on the underlying equity. The most important drivers for the fair value using the BSM model are:
\u2022the equity value, for which the determination of its value is highly dependent on the estimate of projected revenues, EBITDA and discount rate;
\u2022volatility; and
\u2022time to maturity.
As a result of this transaction, Pharming has received one-off net cash proceeds of US$7.3 million (EUR6.9 million) and recognized a gain of US$12.2 million.
Further reference is made to note 13.
Biological Assets
Under IAS 41 \"Agriculture\", management is required to assess whether \u2018biological assets\u2019 which are contributing to production of our cash flows should be accounted for as assets. Management has assessed Pharming\u2019s biological assets and conclude that these do not qualify to be recognized under the relevant standard IAS 41 \"Agriculture\" due to their uniqueness and very special transgenic nature and thus all relevant costs are expensed through the income statement.
Estimates:
Revenue
Revenue is recognized when control has been transferred to the customer. Revenue is reduced by chargebacks and rebates for government healthcare programs, discounts to specialty pharmacies and wholesalers, and product returns given or expected to be given, which vary by patient groups. Chargebacks and rebates for healthcare programs depend upon the submission of claims sometime after the initial recognition of the sale. The liability for this variable consideration is made, at the time of sale, for the estimated chargebacks and rebates, mainly US Medicaid, based on available market information and historical experience. Because the amounts are estimated they may not fully reflect the final outcome, and the amounts are subject to change dependent upon, amongst other things, the types of patient groups. The level of these liabilities is being reviewed and adjusted regularly in the light of contractual and legal obligations, historical charges and trends, past experience and projected mixtures of patient groups. The Group acquires this information from both internal resources and external parties.
In preparing the consolidated financial statements, the Board of Directors is responsible for assessing the Group\u2019s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. These consolidated financial statements have been prepared for the Group as a going concern.
The 2022 year-end cash balance (including restricted cash) of US$208.7 million is expected to fund the Company for more than twelve months from the date of this report.
The Board of Directors anticipate significant investments in the preparations of the launch and commercialization of Joenja\u00ae (leniolisib) in 2023. These investments will
have a negative effect on the profit in the year 2023. Consequently, cash and cash equivalents may reduce during the year as the company invests in its future. Revenue from leniolisib is expected to increase significantly from 2023 onwards. The company remains confident in the robustness of RUCONEST\u00ae sales, in the expansion of its pipeline and the addition of leniolisib for the treatment of APDS.
Presently, however, no further assurance can be given on either the timing or size of future profits. In addition, in the event that the Company needs to raise capital by issuing additional shares, shareholders\u2019 equity interests may be diluted as to voting power, and their interests as to value will depend on the price at which such issues are made. The Company sees no further need to raise capital to support its current operations, but may take an opportunity to do so in either equity issue or through an expansion of the current convertible debt or to raise debt, or through a combination of such instruments, to support an acquisition or in-licensing of additional assets, if appropriate terms can be obtained that are in the best interests of shareholders.
Macro-economic developments like pressure on energy supply, increased inflation and higher interest rates have an impact on Pharming and are managed by price increases on our products in line with CPI development and fixed interest on our convertible bond.
Overall, based on the outcome of this assessment, Pharming\u2019s 2022 financial statements have been drawn up on the basis of a going concern assumption. Notwithstanding their belief and confidence that Pharming will be able to continue as a going concern, the Executive Directors and Officers emphasize that the actual cash flows may potentially ultimately (significantly) deviate up or down from our projections to various reasons. In the absence of an (improbable) absolute catastrophe such as banning of the product from sale in a major market, the Executive Directors and Officers believe that the Company will have more than sufficient resources to meet all obligations as they fall due.
The Executive Members of the Board of Directors are the chief operating decision-maker and consider the business from both a geographic and product perspective.
From a product perspective, the Company\u2019s business is exclusively related to the recombinant human C1 esterase inhibitor business. From a geographic perspective, the Company is operating in the U.S., Europe and the Rest of the World.
The Executive Members of the Board of Directors primarily measures revenues and gross profit to assess the performance of the geographic areas. Operating costs as well as non-current assets are not sub-allocated to the geographic areas.
Total external revenues and gross profit per geographic segment for the financial year 2022 and 2021 are:
Amounts in US$ \u2018000 | 2022 | 2021 |
Revenues: | ||
US | 200,082 | 193,419 |
Europe | 4,924 | 4,933 |
RoW | 616 | 519 |
Total revenues | 205,622 | 198,871 |
Gross profit: | ||
US | 186,263 | 176,266 |
Europe | 1,378 | 1,049 |
RoW | 419 | 414 |
Total gross profit | 188,060 | 177,729 |
The Executive Members of the Board of Directors are the chief operating decision-maker and consider the business from both a geographic and product perspective.
From a product perspective, the Company\u2019s business is exclusively related to the recombinant human C1 esterase inhibitor business. From a geographic perspective, the Company is operating in the U.S., Europe and the Rest of the World.
The Executive Members of the Board of Directors primarily measures revenues and gross profit to assess the performance of the geographic areas. Operating costs as well as non-current assets are not sub-allocated to the geographic areas.
Other income related to the following:
Amounts in US$ \u2018000 | 2022 | 2021 |
Grants | 1,774 | 2,620 |
Gain on divestment in associates | 12,242 | \u2014 |
Other | 507 | \u2014 |
Total | 14,523 | 2,620 |
Other income related to the following:
Amounts in US$ \u2018000 | 2022 | 2021 |
Grants | 1,774 | 2,620 |
Gain on divestment in associates | 12,242 | \u2014 |
Other | 507 | \u2014 |
Total | 14,523 | 2,620 |
Other income related to the following:
Amounts in US$ \u2018000 | 2022 | 2021 |
Grants | 1,774 | 2,620 |
Gain on divestment in associates | 12,242 | \u2014 |
Other | 507 | \u2014 |
Total | 14,523 | 2,620 |
The increase in revenues was primarily a result of higher sales of RUCONEST\u00ae in the U.S. market (US$200.1 million in 2022 compared to US$193.4 million in 2021). From 2Q onwards, we experienced quarter-on-quarter growth in 2022, both in volumes and revenues, with a growing number of patients using RUCONEST\u00ae.
Revenues in Europe remained stable at US$4.9 million in 2022 (US$4.9 million in 2021), in spite of facing strong prophylactic and generic competition. Revenue in Rest of the World (excluding Europe) increased to US$0.6 million (from US$0.5 million in 2021).
The increase in revenues was primarily a result of higher sales of RUCONEST\u00ae in the U.S. market (US$200.1 million in 2022 compared to US$193.4 million in 2021). From 2Q onwards, we experienced quarter-on-quarter growth in 2022, both in volumes and revenues, with a growing number of patients using RUCONEST\u00ae.
Revenues in Europe remained stable at US$4.9 million in 2022 (US$4.9 million in 2021), in spite of facing strong prophylactic and generic competition. Revenue in Rest of the World (excluding Europe) increased to US$0.6 million (from US$0.5 million in 2021).
Costs of sales
Costs of sales in 2022 and 2021 were as follows:
Amounts in US$ \u2018000 | 2022 | 2021 |
Costs of sales | (17,398) | (19,107) |
Obsolescence inventory impairments | (164) | (2,035) |
Total | (17,562) | (21,142) |
Costs of sales in 2022 amounted to US$17.4 million (2021: US$19.1 million) and relate to actual product sales.
Obsolescence inventory impairment stems from the valuation of the inventories against lower net realizable value and mainly relates to products no longer eligible for commercial sales. Impairments related to inventories designated for commercial activities amounted to a charge of US$0.2 million in 2022 (2021: US$2.0 million).
Costs of research and development
Research and development costs are specified as follows:
Amounts in US$ \u2018000 | 2022 | 2021 |
Employee costs | (20,595) | (24,451) |
Amortization costs IFA | (55) | (132) |
Impairment losses IFA | \u2014 | (4,992) |
Depreciation PPE and right of use assets | (1,602) | (3,152) |
Direct Operating Expenses | (27,107) | (33,190) |
Other indirect research and development costs | (3,172) | (4,452) |
Total research and development costs | (52,531) | (70,369) |
As percentage of net sales | (26)% | (35)% |
Operating expenses for research and development activities decreased to US$52.5 million in 2022 from US$70.4 million in 2021. The decrease in costs relates mainly to reduced share-based compensation cost and the impact of the USD-EUR FX rate on payroll cost. Current year\u2019s spend in leniolisib, for the treatment of activated Phosphoinositide 3-kinase Delta syndrome, and AKI and cattle were higher than 2021, while last year included the investment to in-license OTL-105 and impairment losses of US$5.0 million on intangible assets related to the development of RUCONEST\u00ae in a more convenient form for patients.
Costs of general and administrative activities
General and administrative costs are specified as follows:
Amounts in US$ \u2018000 | 2022 | 2021 |
Employee costs | (14,868) | (12,178) |
Amortization costs IFA | (492) | \u2014 |
Depreciation PPE and right of use assets | (2,525) | (857) |
Impairment losses PPE and right of use assets | (4,376) | (5,447) |
Direct Operating Expenses | (9,038) | (8,419) |
Other indirect general and administrative costs | (14,717) | (10,073) |
Total general and administrative costs | (46,016) | (36,974) |
As percentage of net sales | (22)% | (19)% |
Operating expenses for general and administrative activities increased to US$46.0 million in 2022 from US$37.0 million in 2021.\u00a0The increased costs are mainly related to the increased employee costs resulting from more staff employed, higher cost for audit, consultancy and tax advisers, and higher IT operating spend for our newly implemented ERP system, offset by reduced impairment losses in relation to the cancellation of our downstream production capacity at Pivot Park in Oss.
Costs of marketing and sales activities
Marketing and sales costs are specified as follows:
Amounts in US$ \u2018000 | 2022 | 2021 |
Employee costs | (32,858) | (24,125) |
Amortization costs IFA | (3,765) | (4,098) |
Depreciation PPE and right of use assets | (372) | (930) |
Direct Operating Expenses | (42,398) | (28,543) |
Other indirect marketing and sales costs | (6,410) | (1,749) |
Total marketing and sales costs | (85,803) | (59,445) |
As percentage of net sales | (42)% | (30)% |
Operating expenses for marketing and sales increased in 2022 to US$85.8 million from US$59.4 million in 2021. The increased costs are mainly related to the further expansion of the commercial organization and infrastructure in both the U.S. and Europe, in view of the anticipated launch of leniolisib in APDS upon approval by regulatory authorities.
Employee benefits
Amounts in US$ \u2018000 | 2022 | 2021 |
Salaries | (53,328) | (44,202) |
Social security costs | (6,317) | (5,318) |
Pension costs | (2,284) | (2,179) |
Share-based compensation | (6,392) | (9,055) |
Total | (68,321) | (60,754) |
Salaries include holiday allowances and cash bonuses for staff.
Employee benefits are included in:
Amounts in US$ \u2018000 | 2022 | 2021 |
Research and development | (20,595) | (24,451) |
General and administrative | (14,868) | (12,178) |
Marketing and sales | (32,858) | (24,125) |
Total | (68,321) | (60,754) |
The number of employees
Average full time equivalent | 2022 | 2021 |
Research and development | 186 | 169 |
General and administrative | 69 | 60 |
Marketing and sales | 77 | 56 |
Total | 332 | 285 |
The average number of full-time equivalents (FTE\u2019s) working outside the Netherlands was 133 (2021: 99). The increase of the total number of FTE\u2019s was in line with the overall business growth across the Company.
Employee benefits are charged to research and development costs, general and administrative costs, or marketing and sales costs based on the nature of the services provided by each employee.
Depreciation and amortization charges
Amounts in US$ \u2018000 | notes | 2022 | 2021 |
Property, plant and equipment | 11 | (1,993) | (2,158) |
Intangible assets | 10 | (4,312) | (4,232) |
Right of use assets | 12 | (2,565) | (2,781) |
Total | (8,870) | (9,171) |
The decrease of depreciation charges and amortization charges in 2022 as compared to 2021 mainly stems from
currency translation effects, partly offset by an increase caused by amortization charges for our new ERP system SAP 4-HANA, which is operational as per January 1, 2022.
Amortization charges of intangible assets have been allocated to research and development costs and marketing and sales costs in the statement of income, depending on the class of intangible asset.
Independent auditor\u2019s fees
Both the 2022 and the 2021 audit were performed by Deloitte Accountants B.V.
Amounts in US$ \u2018000 | 2022 | 2021 |
Audit Fees | (1,357) | (1,201) |
Audit Related Fees | \u2014 | (16) |
Tax advisory | \u2014 | \u2014 |
Total | (1,357) | (1,217) |
Amounts in US$ \u2018000 | 2022 | 2021 |
Interest income | 85 | 53 |
Foreign currency results | 4,400 | 14,841 |
Other financial income | 4,485 | 14,894 |
Interest loans and borrowings | (4,736) | (5,296) |
Interest leases | (622) | (795) |
Other financial expenses | (105) | (94) |
Other financial expenses | (5,463) | (6,185) |
Total other financial income and expenses | (978) | 8,709 |
Foreign currency results
These results primarily follow from the revaluation of bank balances which are denominated in foreign currencies, mainly U.S. dollars, and the timing of foreign currency payments against the actual exchange rate as compared to the original exchange rate applied upon the charge of fees or expenses. The gains in 2022 are mainly a result of the revaluation of the bank balances in U.S. dollars, incorporated in our Dutch entities where the functional currency is Euro.
Interest loans and borrowings
Income taxes on ordinary activities
The following table specifies the current and deferred tax components of income taxes in the income statement:
Amounts in US$ \u2018000 | 2022 | 2021 |
Income tax expense | ||
Current tax | ||
Current tax on profit for the year | (3,761) | (97) |
Adjustments for current tax of prior periods | (9) | 96 |
Total current tax expense | (3,770) | (1) |
Deferred income tax | ||
Deferred tax on profit for the year | 2,581 | (8,196) |
Adjustments for deferred tax of prior periods | (124) | 1,115 |
Total deferred tax expense | 2,457 | (7,081) |
Income tax expense | (1,313) | (7,082) |
Effective income tax rate
Pharming Group\u2019s effective rate in its consolidated income statement differed from the Netherlands\u2019 statutory tax rate of 25.8%. The following table reconciles the statutory income tax rate with the effective income tax rate in the consolidated income statement:
Amounts in US$ \u2018000 | 2022 | 2021 |
Reconciliation of tax charge | ||
Profit, (loss) on ordinary activities before taxation | 14,987 | 23,078 |
Profit/(loss) on ordinary activities multiplied by | ||
standard rate of tax in The Netherlands | (3,866) | (5,770) |
Effects of: | ||
Tax rate in other jurisdictions | 554 | 307 |
Non-taxable income | 2,680 | 370 |
Non deductible expenses | (7) | (99) |
Share based payments | (531) | (2,475) |
Adjustments of prior periods | 15 | 655 |
Change in statutory applicable tax rate | (1) | 555 |
Other | (157) | (625) |
Income tax expense for the year | (1,313) | (7,082) |
Costs of sales
Costs of sales in 2022 and 2021 were as follows:
Amounts in US$ \u2018000 | 2022 | 2021 |
Costs of sales | (17,398) | (19,107) |
Obsolescence inventory impairments | (164) | (2,035) |
Total | (17,562) | (21,142) |
Costs of sales in 2022 amounted to US$17.4 million (2021: US$19.1 million) and relate to actual product sales.
Obsolescence inventory impairment stems from the valuation of the inventories against lower net realizable value and mainly relates to products no longer eligible for commercial sales. Impairments related to inventories designated for commercial activities amounted to a charge of US$0.2 million in 2022 (2021: US$2.0 million).
Costs of research and development
Research and development costs are specified as follows:
Amounts in US$ \u2018000 | 2022 | 2021 |
Employee costs | (20,595) | (24,451) |
Amortization costs IFA | (55) | (132) |
Impairment losses IFA | \u2014 | (4,992) |
Depreciation PPE and right of use assets | (1,602) | (3,152) |
Direct Operating Expenses | (27,107) | (33,190) |
Other indirect research and development costs | (3,172) | (4,452) |
Total research and development costs | (52,531) | (70,369) |
As percentage of net sales | (26)% | (35)% |
Operating expenses for research and development activities decreased to US$52.5 million in 2022 from US$70.4 million in 2021. The decrease in costs relates mainly to reduced share-based compensation cost and the impact of the USD-EUR FX rate on payroll cost. Current year\u2019s spend in leniolisib, for the treatment of activated Phosphoinositide 3-kinase Delta syndrome, and AKI and cattle were higher than 2021, while last year included the investment to in-license OTL-105 and impairment losses of US$5.0 million on intangible assets related to the development of RUCONEST\u00ae in a more convenient form for patients.
Costs of general and administrative activities
General and administrative costs are specified as follows:
Amounts in US$ \u2018000 | 2022 | 2021 |
Employee costs | (14,868) | (12,178) |
Amortization costs IFA | (492) | \u2014 |
Depreciation PPE and right of use assets | (2,525) | (857) |
Impairment losses PPE and right of use assets | (4,376) | (5,447) |
Direct Operating Expenses | (9,038) | (8,419) |
Other indirect general and administrative costs | (14,717) | (10,073) |
Total general and administrative costs | (46,016) | (36,974) |
As percentage of net sales | (22)% | (19)% |
Operating expenses for general and administrative activities increased to US$46.0 million in 2022 from US$37.0 million in 2021.\u00a0The increased costs are mainly related to the increased employee costs resulting from more staff employed, higher cost for audit, consultancy and tax advisers, and higher IT operating spend for our newly implemented ERP system, offset by reduced impairment losses in relation to the cancellation of our downstream production capacity at Pivot Park in Oss.
Costs of marketing and sales activities
Marketing and sales costs are specified as follows:
Amounts in US$ \u2018000 | 2022 | 2021 |
Employee costs | (32,858) | (24,125) |
Amortization costs IFA | (3,765) | (4,098) |
Depreciation PPE and right of use assets | (372) | (930) |
Direct Operating Expenses | (42,398) | (28,543) |
Other indirect marketing and sales costs | (6,410) | (1,749) |
Total marketing and sales costs | (85,803) | (59,445) |
As percentage of net sales | (42)% | (30)% |
Operating expenses for marketing and sales increased in 2022 to US$85.8 million from US$59.4 million in 2021. The increased costs are mainly related to the further expansion of the commercial organization and infrastructure in both the U.S. and Europe, in view of the anticipated launch of leniolisib in APDS upon approval by regulatory authorities.
Employee benefits
Amounts in US$ \u2018000 | 2022 | 2021 |
Salaries | (53,328) | (44,202) |
Social security costs | (6,317) | (5,318) |
Pension costs | (2,284) | (2,179) |
Share-based compensation | (6,392) | (9,055) |
Total | (68,321) | (60,754) |
Salaries include holiday allowances and cash bonuses for staff.
Employee benefits are included in:
Amounts in US$ \u2018000 | 2022 | 2021 |
Research and development | (20,595) | (24,451) |
General and administrative | (14,868) | (12,178) |
Marketing and sales | (32,858) | (24,125) |
Total | (68,321) | (60,754) |
The number of employees
Average full time equivalent | 2022 | 2021 |
Research and development | 186 | 169 |
General and administrative | 69 | 60 |
Marketing and sales | 77 | 56 |
Total | 332 | 285 |
The average number of full-time equivalents (FTE\u2019s) working outside the Netherlands was 133 (2021: 99). The increase of the total number of FTE\u2019s was in line with the overall business growth across the Company.
Employee benefits are charged to research and development costs, general and administrative costs, or marketing and sales costs based on the nature of the services provided by each employee.
Depreciation and amortization charges
Amounts in US$ \u2018000 | notes | 2022 | 2021 |
Property, plant and equipment | 11 | (1,993) | (2,158) |
Intangible assets | 10 | (4,312) | (4,232) |
Right of use assets | 12 | (2,565) | (2,781) |
Total | (8,870) | (9,171) |
The decrease of depreciation charges and amortization charges in 2022 as compared to 2021 mainly stems from
currency translation effects, partly offset by an increase caused by amortization charges for our new ERP system SAP 4-HANA, which is operational as per January 1, 2022.
Amortization charges of intangible assets have been allocated to research and development costs and marketing and sales costs in the statement of income, depending on the class of intangible asset.
Independent auditor\u2019s fees
Both the 2022 and the 2021 audit were performed by Deloitte Accountants B.V.
Amounts in US$ \u2018000 | 2022 | 2021 |
Audit Fees | (1,357) | (1,201) |
Audit Related Fees | \u2014 | (16) |
Tax advisory | \u2014 | \u2014 |
Total | (1,357) | (1,217) |
Costs of sales
Costs of sales in 2022 and 2021 were as follows:
Amounts in US$ \u2018000 | 2022 | 2021 |
Costs of sales | (17,398) | (19,107) |
Obsolescence inventory impairments | (164) | (2,035) |
Total | (17,562) | (21,142) |
Costs of sales in 2022 amounted to US$17.4 million (2021: US$19.1 million) and relate to actual product sales.
Obsolescence inventory impairment stems from the valuation of the inventories against lower net realizable value and mainly relates to products no longer eligible for commercial sales. Impairments related to inventories designated for commercial activities amounted to a charge of US$0.2 million in 2022 (2021: US$2.0 million).
Costs of research and development
Research and development costs are specified as follows:
Amounts in US$ \u2018000 | 2022 | 2021 |
Employee costs | (20,595) | (24,451) |
Amortization costs IFA | (55) | (132) |
Impairment losses IFA | \u2014 | (4,992) |
Depreciation PPE and right of use assets | (1,602) | (3,152) |
Direct Operating Expenses | (27,107) | (33,190) |
Other indirect research and development costs | (3,172) | (4,452) |
Total research and development costs | (52,531) | (70,369) |
As percentage of net sales | (26)% | (35)% |
Costs of general and administrative activities
General and administrative costs are specified as follows:
Amounts in US$ \u2018000 | 2022 | 2021 |
Employee costs | (14,868) | (12,178) |
Amortization costs IFA | (492) | \u2014 |
Depreciation PPE and right of use assets | (2,525) | (857) |
Impairment losses PPE and right of use assets | (4,376) | (5,447) |
Direct Operating Expenses | (9,038) | (8,419) |
Other indirect general and administrative costs | (14,717) | (10,073) |
Total general and administrative costs | (46,016) | (36,974) |
As percentage of net sales | (22)% | (19)% |
Employee benefits
Amounts in US$ \u2018000 | 2022 | 2021 |
Salaries | (53,328) | (44,202) |
Social security costs | (6,317) | (5,318) |
Pension costs | (2,284) | (2,179) |
Share-based compensation | (6,392) | (9,055) |
Total | (68,321) | (60,754) |
Salaries include holiday allowances and cash bonuses for staff.
Employee benefits are included in:
Amounts in US$ \u2018000 | 2022 | 2021 |
Research and development | (20,595) | (24,451) |
General and administrative | (14,868) | (12,178) |
Marketing and sales | (32,858) | (24,125) |
Total | (68,321) | (60,754) |
The number of employees
Average full time equivalent | 2022 | 2021 |
Research and development | 186 | 169 |
General and administrative | 69 | 60 |
Marketing and sales | 77 | 56 |
Total | 332 | 285 |
The average number of full-time equivalents (FTE\u2019s) working outside the Netherlands was 133 (2021: 99). The increase of the total number of FTE\u2019s was in line with the overall business growth across the Company.
Employee benefits are charged to research and development costs, general and administrative costs, or marketing and sales costs based on the nature of the services provided by each employee.
Depreciation and amortization charges
Amounts in US$ \u2018000 | notes | 2022 | 2021 |
Property, plant and equipment | 11 | (1,993) | (2,158) |
Intangible assets | 10 | (4,312) | (4,232) |
Right of use assets | 12 | (2,565) | (2,781) |
Total | (8,870) | (9,171) |
The decrease of depreciation charges and amortization charges in 2022 as compared to 2021 mainly stems from
currency translation effects, partly offset by an increase caused by amortization charges for our new ERP system SAP 4-HANA, which is operational as per January 1, 2022.Amortization charges of intangible assets have been allocated to research and development costs and marketing and sales costs in the statement of income, depending on the class of intangible asset.", "dimensions": { "concept": "ifrs-full:DisclosureOfDepreciationAndAmortisationExpenseExplanatory", "language": "en", "entity": "scheme:724500DCJ9MPG74JEH91", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f-350": { "value": "Independent auditor\u2019s fees
Both the 2022 and the 2021 audit were performed by Deloitte Accountants B.V.
Amounts in US$ \u2018000 | 2022 | 2021 |
Audit Fees | (1,357) | (1,201) |
Audit Related Fees | \u2014 | (16) |
Tax advisory | \u2014 | \u2014 |
Total | (1,357) | (1,217) |
Amounts in US$ \u2018000 | 2022 | 2021 |
Interest income | 85 | 53 |
Foreign currency results | 4,400 | 14,841 |
Other financial income | 4,485 | 14,894 |
Interest loans and borrowings | (4,736) | (5,296) |
Interest leases | (622) | (795) |
Other financial expenses | (105) | (94) |
Other financial expenses | (5,463) | (6,185) |
Total other financial income and expenses | (978) | 8,709 |
Foreign currency results
These results primarily follow from the revaluation of bank balances which are denominated in foreign currencies, mainly U.S. dollars, and the timing of foreign currency payments against the actual exchange rate as compared to the original exchange rate applied upon the charge of fees or expenses. The gains in 2022 are mainly a result of the revaluation of the bank balances in U.S. dollars, incorporated in our Dutch entities where the functional currency is Euro.
Interest loans and borrowings
Amounts in US$ \u2018000 | 2022 | 2021 |
Interest income | 85 | 53 |
Foreign currency results | 4,400 | 14,841 |
Other financial income | 4,485 | 14,894 |
Interest loans and borrowings | (4,736) | (5,296) |
Interest leases | (622) | (795) |
Other financial expenses | (105) | (94) |
Other financial expenses | (5,463) | (6,185) |
Total other financial income and expenses | (978) | 8,709 |
Foreign currency results
These results primarily follow from the revaluation of bank balances which are denominated in foreign currencies, mainly U.S. dollars, and the timing of foreign currency payments against the actual exchange rate as compared to the original exchange rate applied upon the charge of fees or expenses. The gains in 2022 are mainly a result of the revaluation of the bank balances in U.S. dollars, incorporated in our Dutch entities where the functional currency is Euro.
Interest loans and borrowings
Amounts in US$ \u2018000 | 2022 | 2021 |
Interest income | 85 | 53 |
Foreign currency results | 4,400 | 14,841 |
Other financial income | 4,485 | 14,894 |
Interest loans and borrowings | (4,736) | (5,296) |
Interest leases | (622) | (795) |
Other financial expenses | (105) | (94) |
Other financial expenses | (5,463) | (6,185) |
Total other financial income and expenses | (978) | 8,709 |
Foreign currency results
These results primarily follow from the revaluation of bank balances which are denominated in foreign currencies, mainly U.S. dollars, and the timing of foreign currency payments against the actual exchange rate as compared to the original exchange rate applied upon the charge of fees or expenses. The gains in 2022 are mainly a result of the revaluation of the bank balances in U.S. dollars, incorporated in our Dutch entities where the functional currency is Euro.
Interest loans and borrowings
Amounts in US$ \u2018000 | 2022 | 2021 |
Interest income | 85 | 53 |
Foreign currency results | 4,400 | 14,841 |
Other financial income | 4,485 | 14,894 |
Interest loans and borrowings | (4,736) | (5,296) |
Interest leases | (622) | (795) |
Other financial expenses | (105) | (94) |
Other financial expenses | (5,463) | (6,185) |
Total other financial income and expenses | (978) | 8,709 |
Foreign currency results
These results primarily follow from the revaluation of bank balances which are denominated in foreign currencies, mainly U.S. dollars, and the timing of foreign currency payments against the actual exchange rate as compared to the original exchange rate applied upon the charge of fees or expenses. The gains in 2022 are mainly a result of the revaluation of the bank balances in U.S. dollars, incorporated in our Dutch entities where the functional currency is Euro.
Interest loans and borrowings
Amounts in US$ \u2018000 | 2022 | 2021 |
Interest income | 85 | 53 |
Foreign currency results | 4,400 | 14,841 |
Other financial income | 4,485 | 14,894 |
Interest loans and borrowings | (4,736) | (5,296) |
Interest leases | (622) | (795) |
Other financial expenses | (105) | (94) |
Other financial expenses | (5,463) | (6,185) |
Total other financial income and expenses | (978) | 8,709 |
Foreign currency results
These results primarily follow from the revaluation of bank balances which are denominated in foreign currencies, mainly U.S. dollars, and the timing of foreign currency payments against the actual exchange rate as compared to the original exchange rate applied upon the charge of fees or expenses. The gains in 2022 are mainly a result of the revaluation of the bank balances in U.S. dollars, incorporated in our Dutch entities where the functional currency is Euro.
Interest loans and borrowings
Amounts in US$ \u2018000 | 2022 | 2021 |
Interest income | 85 | 53 |
Foreign currency results | 4,400 | 14,841 |
Other financial income | 4,485 | 14,894 |
Interest loans and borrowings | (4,736) | (5,296) |
Interest leases | (622) | (795) |
Other financial expenses | (105) | (94) |
Other financial expenses | (5,463) | (6,185) |
Total other financial income and expenses | (978) | 8,709 |
Foreign currency results
These results primarily follow from the revaluation of bank balances which are denominated in foreign currencies, mainly U.S. dollars, and the timing of foreign currency payments against the actual exchange rate as compared to the original exchange rate applied upon the charge of fees or expenses. The gains in 2022 are mainly a result of the revaluation of the bank balances in U.S. dollars, incorporated in our Dutch entities where the functional currency is Euro.
Interest loans and borrowings
Amounts in US$ \u2018000 | 2022 | 2021 |
Interest income | 85 | 53 |
Foreign currency results | 4,400 | 14,841 |
Other financial income | 4,485 | 14,894 |
Interest loans and borrowings | (4,736) | (5,296) |
Interest leases | (622) | (795) |
Other financial expenses | (105) | (94) |
Other financial expenses | (5,463) | (6,185) |
Total other financial income and expenses | (978) | 8,709 |
Foreign currency results
These results primarily follow from the revaluation of bank balances which are denominated in foreign currencies, mainly U.S. dollars, and the timing of foreign currency payments against the actual exchange rate as compared to the original exchange rate applied upon the charge of fees or expenses. The gains in 2022 are mainly a result of the revaluation of the bank balances in U.S. dollars, incorporated in our Dutch entities where the functional currency is Euro.
Interest loans and borrowings
Income taxes on ordinary activities
The following table specifies the current and deferred tax components of income taxes in the income statement:
Amounts in US$ \u2018000 | 2022 | 2021 |
Income tax expense | ||
Current tax | ||
Current tax on profit for the year | (3,761) | (97) |
Adjustments for current tax of prior periods | (9) | 96 |
Total current tax expense | (3,770) | (1) |
Deferred income tax | ||
Deferred tax on profit for the year | 2,581 | (8,196) |
Adjustments for deferred tax of prior periods | (124) | 1,115 |
Total deferred tax expense | 2,457 | (7,081) |
Income tax expense | (1,313) | (7,082) |
Effective income tax rate
Pharming Group\u2019s effective rate in its consolidated income statement differed from the Netherlands\u2019 statutory tax rate of 25.8%. The following table reconciles the statutory income tax rate with the effective income tax rate in the consolidated income statement:
Amounts in US$ \u2018000 | 2022 | 2021 |
Reconciliation of tax charge | ||
Profit, (loss) on ordinary activities before taxation | 14,987 | 23,078 |
Profit/(loss) on ordinary activities multiplied by | ||
standard rate of tax in The Netherlands | (3,866) | (5,770) |
Effects of: | ||
Tax rate in other jurisdictions | 554 | 307 |
Non-taxable income | 2,680 | 370 |
Non deductible expenses | (7) | (99) |
Share based payments | (531) | (2,475) |
Adjustments of prior periods | 15 | 655 |
Change in statutory applicable tax rate | (1) | 555 |
Other | (157) | (625) |
Income tax expense for the year | (1,313) | (7,082) |
During 2022, we have changed the presentation of our effective income tax tables in order to enhance readability by splitting the effects of non taxable income (expense) separately.
Factors affecting current and future tax charges
The main difference between the nominal tax and the effective tax for the year 2022 can be explained by the effects of non-taxable income, mainly related to the other
income generated from the dilution of shares of our investment accounted for using the equity method and share-based payments, U.S. State taxes and the effect of taxable income generated and taxed in jurisdictions where tax rates differ from the statutory rate in The Netherlands.
Deferred tax
The balance of the net deferred tax assets/(liabilities) is therefore shown below:
Amounts in US$ \u2018000 | 2022 | 2021 |
Total deferred tax assets | 29,211 | 27,025 |
Total deferred tax liabilities | (6,238) | (5,809) |
Total net deferred tax assets /( liabilities) | 22,973 | 21,216 |
The deferred tax assets and liabilities are offset to the extent there is a legally enforceable right to set off current tax assets against current tax liabilities and to the extent the deferred tax income taxes relate to the same tax jurisdiction.
The significant components and annual movements of deferred income tax assets as of 31\u00a0December, 2022 and 31\u00a0December 2021, are as follows:
Amounts in US$ \u2018000 | 2022 | 2021 |
Intangible fixed assets | 9,876 | 10,493 |
Accruals | 2,026 | 2,289 |
Lease Liabilities | 7,042 | 3,795 |
Other | 6,721 | 2,672 |
Tax losses | 3,546 | 7,776 |
Total deferred tax assets | 29,211 | 27,025 |
Amounts in US$ \u2018000 | Intangible fixed assets | Lease liabilities | Accruals | Other | Tax losses | Total |
At January 1, 2021 | 17,705 | 1,279 | 5,123 | 3,856 | 5,772 | 33,735 |
(Charged)/credited | ||||||
- to profit or loss | (6,121) | 2,696 | (2,834) | 823 | 2,515 | (2,921) |
- other movement | \u2014 | \u2014 | \u2014 | (598) | \u2014 | (598) |
- to accumulated deficit | \u2014 | \u2014 | \u2014 | (1,366) | \u2014 | (1,366) |
- currency translation | (1,091) | (180) | \u2014 | (43) | (511) | (1,825) |
At December 31, 2021 | 10,493 | 3,795 | 2,289 | 2,672 | 7,776 | 27,025 |
(Charged)/credited | ||||||
- to profit or loss | \u2014 | 3,431 | (263) | 3,746 | (3,814) | 3,100 |
- other movement | \u2014 | \u2014 | \u2014 | (28) | \u2014 | (28) |
- to accumulated deficit | \u2014 | \u2014 | \u2014 | 337 | \u2014 | 337 |
- currency translation | (617) | (184) | \u2014 | (6) | (416) | (1,223) |
At December 31, 2022 | 9,876 | 7,042 | 2,026 | 6,721 | 3,546 | 29,211 |
Based upon the Company\u2019s latest budget for 2023 and its long-range forecasts for the three years thereafter, it is considered probable that there will be sufficient taxable profits in the future to realize the deferred tax assets, and therefore these assets should continue to be recognized in these financial statements.
Deferred taxes relating to intangible fixed assets represent the tax effect on temporary difference between the tax base and the carrying amount of the rights to the Pompe program, which were at the end of 2018 transferred within the Group. The deferred taxes relating to the rights to the Pompe program will be realized through the amortization of the intangible assets once in use within the fiscal unity.
Accruals represent deferred tax assets recognized for temporary differences between the carrying amount and tax bases of accrued liabilities in the U.S.
The increase in the deferred tax for other is primarily due to recognition of the deferred tax asset for future tax reductions related to share-based payments in the U.S. and the elimination of intercompany profits between the Netherlands and the U.S.
The unused tax losses were incurred by the Dutch fiscal unity and Pharming Healthcare.
The calculation of the deferred tax asset is as shown below:
Amounts in US$ \u2018000 | 2022 | 2021 |
Net Operating Losses - Netherlands | ||
Net Operating Losses at year-end | 13,556 | 25,364 |
Portion selected for deferred tax asset | 13,556 | 25,364 |
Tax rates used: | ||
2023 and later: 25,8% (25%) | 3,497 | 6,545 |
Total tax effect Netherlands | 3,497 | 6,545 |
Net Operating Losses - USA | ||
Net Operating Losses at year-end | 670 | 4,356 |
Portion selected for deferred tax asset | 670 | 4,356 |
Tax rate used: | ||
2022: 28,26% | \u2014 | 1,231 |
2023 and later: 7,65% | 49 | |
Total tax effect USA | 49 | 1,231 |
Tax effect Netherlands - losses deferred | 3,497 | 6,545 |
Tax effect USA - losses deferred | 49 | 1,231 |
Total deferred tax asset | 3,546 | 7,776 |
The current part of the net deferred tax assets is US$5.4 million (2021: US$2.4 million).
The component and annual movement of deferred income tax liabilities as of 31\u00a0December, 2022 and \u00a031\u00a0December 2021, are as follows:
Amounts in US$ \u2018000 | 2022 | 2021 |
Tangible fixed assets | (6,238) | (4,149) |
Other liabilities | \u2014 | (1,660) |
Total deferred tax liabilities | (6,238) | (5,809) |
Amounts in US$ \u2018000 | Tangible fixed assets | Other liabilities | Total |
At January 1, 2021 | (1,648) | (210) | (1,858) |
(Charged)/credited | |||
- to profit or loss | (2,710) | (1,450) | (4,160) |
- to other comprehensive income | |||
- currency translation | 209 | \u2014 | 209 |
At December 31, 2021 | (4,149) | (1,660) | (5,809) |
(Charged)/credited | |||
- to profit or loss | (2,302) | 1,660 | (642) |
- other movement | 28 | 28 | |
- to other comprehensive income | \u2014 | \u2014 | |
- currency translation | 185 | \u2014 | 185 |
At December 31, 2022 | (6,238) | \u2014 | (6,238) |
Deferred tax
The balance of the net deferred tax assets/(liabilities) is therefore shown below:
Amounts in US$ \u2018000 | 2022 | 2021 |
Total deferred tax assets | 29,211 | 27,025 |
Total deferred tax liabilities | (6,238) | (5,809) |
Total net deferred tax assets /( liabilities) | 22,973 | 21,216 |
The deferred tax assets and liabilities are offset to the extent there is a legally enforceable right to set off current tax assets against current tax liabilities and to the extent the deferred tax income taxes relate to the same tax jurisdiction.
The significant components and annual movements of deferred income tax assets as of 31\u00a0December, 2022 and 31\u00a0December 2021, are as follows:
Amounts in US$ \u2018000 | 2022 | 2021 |
Intangible fixed assets | 9,876 | 10,493 |
Accruals | 2,026 | 2,289 |
Lease Liabilities | 7,042 | 3,795 |
Other | 6,721 | 2,672 |
Tax losses | 3,546 | 7,776 |
Total deferred tax assets | 29,211 | 27,025 |
Amounts in US$ \u2018000 | Intangible fixed assets | Lease liabilities | Accruals | Other | Tax losses | Total |
At January 1, 2021 | 17,705 | 1,279 | 5,123 | 3,856 | 5,772 | 33,735 |
(Charged)/credited | ||||||
- to profit or loss | (6,121) | 2,696 | (2,834) | 823 | 2,515 | (2,921) |
- other movement | \u2014 | \u2014 | \u2014 | (598) | \u2014 | (598) |
- to accumulated deficit | \u2014 | \u2014 | \u2014 | (1,366) | \u2014 | (1,366) |
- currency translation | (1,091) | (180) | \u2014 | (43) | (511) | (1,825) |
At December 31, 2021 | 10,493 | 3,795 | 2,289 | 2,672 | 7,776 | 27,025 |
(Charged)/credited | ||||||
- to profit or loss | \u2014 | 3,431 | (263) | 3,746 | (3,814) | 3,100 |
- other movement | \u2014 | \u2014 | \u2014 | (28) | \u2014 | (28) |
- to accumulated deficit | \u2014 | \u2014 | \u2014 | 337 | \u2014 | 337 |
- currency translation | (617) | (184) | \u2014 | (6) | (416) | (1,223) |
At December 31, 2022 | 9,876 | 7,042 | 2,026 | 6,721 | 3,546 | 29,211 |
Based upon the Company\u2019s latest budget for 2023 and its long-range forecasts for the three years thereafter, it is considered probable that there will be sufficient taxable profits in the future to realize the deferred tax assets, and therefore these assets should continue to be recognized in these financial statements.
Deferred taxes relating to intangible fixed assets represent the tax effect on temporary difference between the tax base and the carrying amount of the rights to the Pompe program, which were at the end of 2018 transferred within the Group. The deferred taxes relating to the rights to the Pompe program will be realized through the amortization of the intangible assets once in use within the fiscal unity.
Accruals represent deferred tax assets recognized for temporary differences between the carrying amount and tax bases of accrued liabilities in the U.S.
The increase in the deferred tax for other is primarily due to recognition of the deferred tax asset for future tax reductions related to share-based payments in the U.S. and the elimination of intercompany profits between the Netherlands and the U.S.
The unused tax losses were incurred by the Dutch fiscal unity and Pharming Healthcare.
The calculation of the deferred tax asset is as shown below:
Amounts in US$ \u2018000 | 2022 | 2021 |
Net Operating Losses - Netherlands | ||
Net Operating Losses at year-end | 13,556 | 25,364 |
Portion selected for deferred tax asset | 13,556 | 25,364 |
Tax rates used: | ||
2023 and later: 25,8% (25%) | 3,497 | 6,545 |
Total tax effect Netherlands | 3,497 | 6,545 |
Net Operating Losses - USA | ||
Net Operating Losses at year-end | 670 | 4,356 |
Portion selected for deferred tax asset | 670 | 4,356 |
Tax rate used: | ||
2022: 28,26% | \u2014 | 1,231 |
2023 and later: 7,65% | 49 | |
Total tax effect USA | 49 | 1,231 |
Tax effect Netherlands - losses deferred | 3,497 | 6,545 |
Tax effect USA - losses deferred | 49 | 1,231 |
Total deferred tax asset | 3,546 | 7,776 |
The current part of the net deferred tax assets is US$5.4 million (2021: US$2.4 million).
The component and annual movement of deferred income tax liabilities as of 31\u00a0December, 2022 and \u00a031\u00a0December 2021, are as follows:
Amounts in US$ \u2018000 | 2022 | 2021 |
Tangible fixed assets | (6,238) | (4,149) |
Other liabilities | \u2014 | (1,660) |
Total deferred tax liabilities | (6,238) | (5,809) |
Amounts in US$ \u2018000 | Tangible fixed assets | Other liabilities | Total |
At January 1, 2021 | (1,648) | (210) | (1,858) |
(Charged)/credited | |||
- to profit or loss | (2,710) | (1,450) | (4,160) |
- to other comprehensive income | |||
- currency translation | 209 | \u2014 | 209 |
At December 31, 2021 | (4,149) | (1,660) | (5,809) |
(Charged)/credited | |||
- to profit or loss | (2,302) | 1,660 | (642) |
- other movement | 28 | 28 | |
- to other comprehensive income | \u2014 | \u2014 | |
- currency translation | 185 | \u2014 | 185 |
At December 31, 2022 | (6,238) | \u2014 | (6,238) |
Amounts in US$ \u2018000 | Transgenic technology | RUCONEST\u00ae for HAE (EU) | Development costs | Re-acquired | Novartis\u00a0 License | Software | Total |
At cost | 3,256 | 648 | 7,779 | 77,806 | 24,667 | 958 | 115,114 |
Accumulated: | |||||||
Amortization charges | (3,213) | (648) | \u2014 | (14,699) | \u2014 | (104) | (18,664) |
Impairment charges | (43) | \u2014 | (2,324) | \u2014 | \u2014 | \u2014 | (2,367) |
Carrying value at January 1, 2021 | \u2014 | \u2014 | 5,455 | 63,107 | 24,667 | 854 | 94,083 |
Amortization charges | \u2014 | \u2014 | \u2014 | (4,054) | \u2014 | (178) | (4,232) |
Impairment charges | \u2014 | \u2014 | (4,991) | \u2014 | \u2014 | \u2014 | (4,991) |
Assets acquired | \u2014 | \u2014 | \u2014 | \u2014 | 2,530 | 3,447 | 5,977 |
Transfer from PPE - cost | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | 175 | 175 |
Transfer from PPE - accumulated amortization | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | (78) | (78) |
Divestments - cost | (3,145) | \u2014 | \u2014 | \u2014 | \u2014 | (99) | (3,244) |
Divestment - accumulated amortization | 3,105 | \u2014 | \u2014 | \u2014 | \u2014 | 99 | 3,204 |
Divestment - impairment charges | 40 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | 40 |
Currency translation - cost | (111) | (50) | (599) | (5,995) | (2,012) | (226) | (8,993) |
Currency translation - amortization | 108 | 50 | \u2014 | 1,312 | \u2014 | 19 | 1,489 |
Currency translation - impairment | 3 | \u2014 | 401 | \u2014 | \u2014 | \u2014 | 404 |
Movement 2021 | \u2014 | \u2014 | (5,189) | (8,737) | 518 | 3,159 | (10,249) |
At cost | \u2014 | 598 | 7,180 | 71,811 | 25,185 | 4,255 | 109,029 |
Accumulated: | |||||||
Amortization charges | \u2014 | (598) | \u2014 | (17,441) | \u2014 | (242) | (18,281) |
Impairment charges | \u2014 | \u2014 | (6,914) | \u2014 | \u2014 | \u2014 | (6,914) |
Carrying value at December 31, 2021 | \u2014 | \u2014 | 266 | 54,370 | 25,185 | 4,013 | 83,834 |
Amortization charges | \u2014 | \u2014 | \u2014 | (3,597) | \u2014 | (720) | (4,317) |
Impairment charges | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 |
Assets acquired | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | 601 | 601 |
Transfer from PPE - cost | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 |
Transfer from PPE - accumulated amortization | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 |
Divestments - cost | \u2014 | \u2014 | (6,431) | \u2014 | \u2014 | \u2014 | (6,431) |
Divestment - accumulated amortization | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 |
Divestment - impairment charges | \u2014 | \u2014 | 6,431 | \u2014 | \u2014 | \u2014 | 6,431 |
Currency translation - cost | \u2014 | (35) | (499) | (4,228) | (1,482) | (235) | (6,479) |
Currency translation - amortization | \u2014 | 35 | \u2014 | 984 | \u2014 | (20) | 999 |
Currency translation - impairment | \u2014 | \u2014 | 483 | \u2014 | \u2014 | \u2014 | 483 |
Movement 2022 | \u2014 | \u2014 | (16) | (6,841) | (1,482) | (374) | (8,713) |
At cost | \u2014 | 563 | 250 | 67,583 | 23,703 | 4,621 | 96,720 |
Accumulated: | |||||||
Amortization charges | \u2014 | (563) | \u2014 | (20,054) | \u2014 | (982) | (21,599) |
Impairment charges | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 |
Carrying value at December 31, 2022 | \u2014 | \u2014 | 250 | 47,529 | 23,703 | 3,639 | 75,121 |
Category | Description | Amortization period | |
Total | Remaining | ||
Transgenic technology | Patents and licenses | 6 to 10 years | Divested |
RUCONEST\u00ae for HAE (EU) | Development costs | 10 years | Fully amortized |
RUCONEST\u00ae for HAE (US) | Re-acquired commercial rights | 20 years | 14 years |
RUCONEST\u00ae for HAE (EU) | Re-acquired commercial rights | 12 years | 9 years |
Software expenses | Development costs | 3 to 5 years | 2 to 5 years |
Development costs | Development costs | Not yet in use | Not yet in use |
Transgenic technology
The transgenic technology relates to the patents and licenses historically acquired in light of Pharming\u2019s production platform on the expression of human proteins in the milk of transgenic mammals. This technology enables the development of complex therapeutic proteins in a cost-effective manner. During 2021, these assets were disposed.
RUCONEST\u00ae for HAE (EU)
Per 2022, the Company has capitalized development costs in relation to RUCONEST\u00ae for HAE in the European Union. Following market launch of the product in 2010 the amortization of the asset started, and no further development costs have been capitalized in respect to this item since then. These development costs are fully amortized at the end of 2022 and 2021.
Development costs
In 2018, the Company started to modify the current product RUCONEST\u00ae for more convenient forms of administration for use by the patient. This was expected to have resulted in better variants of the existing product. In 2021 no costs were incurred given a re-prioritization of the effort invested in the Company\u2019s pipeline assets and hence these assets were fully impaired. In 2022, the assets have been disposed.
In 2014, the Company acquired assets from Transgenic Rabbit Models SASU, for a total amount of US$0.5 million, which was recognized as intangible assets related to development costs of two new product leads: alpha-glucosidase for Pompe disease and alpha-galactosidase for Fabry\u2019s disease. In 2021, the asset relating to alpha-galactosidase for Fabry\u2019s disease was fully impaired. In 2022 this asset has been disposed.
The remaining balance (US$0.3 million) relates to the asset related to development costs of a product lead for alpha-glucosidase for Pompe disease.
Re-acquired rights and licenses
The re-acquired rights relate to the acquisition of all North American commercialization rights from Bausch Health in 2016 and the acquisition of all European commercialization and distribution rights from Swedish Orphan International AB (\"Sobi\") in 2020.
Novartis license
In August 2019, Pharming entered into a development collaboration and license agreement with Novartis to develop and commercialize leniolisib, a small molecule phosphoinositide 3-kinase delta (P13K\u03b4) inhibitor being developed by Novartis to treat patients with Activated Phosphoinositide 3-kinase Delta Syndrome (APDS). In 2022 no additional development costs were capitalized. Note that FDA approval was granted as per March 24, 2023, and hence the asset will start amortizing in 2023.
Software
Amounts in US$ \u2018000 | Land | Operational facilities | Leasehold Improvement | Machinery and equipment | Other | Asset under construction | Total |
At cost | 33 | 6,170 | 2,476 | 6,591 | 9,602 | 2,872 | 27,744 |
Accumulated depreciation | \u2014 | (3,030) | (2,176) | (5,375) | (4,937) | \u2014 | (15,518) |
Carrying value at January 1, 2021 | 33 | 3,140 | 300 | 1,216 | 4,665 | 2,872 | 12,226 |
Investments | \u2014 | 27 | 457 | 1,206 | 952 | 8,097 | 10,739 |
Internal transfer - cost | \u2014 | (544) | 3,097 | 7,977 | (5,743) | (4,787) | \u2014 |
Internal transfer - accumulated depreciation | \u2014 | 408 | 61 | (3,871) | 3,402 | \u2014 | \u2014 |
Transfer to software - cost | \u2014 | \u2014 | \u2014 | \u2014 | (175) | \u2014 | (175) |
Transfer to software - accumulated depreciation | \u2014 | \u2014 | \u2014 | \u2014 | 78 | \u2014 | 78 |
Divestments | \u2014 | (2) | \u2014 | (20) | (131) | (5,447) | (5,600) |
Depreciation charges | \u2014 | (455) | (86) | (2,004) | (680) | \u2014 | (3,225) |
Depreciation of disinvestment | \u2014 | 2 | \u2014 | 4 | 54 | \u2014 | 60 |
Currency translation - cost | (2) | (451) | (324) | (914) | (347) | (112) | (2,150) |
Currency translation - accumulated depreciation | \u2014 | 236 | 166 | 674 | 193 | \u2014 | 1,269 |
Movement 2021 | (2) | (779) | 3,371 | 3,052 | (2,397) | (2,249) | 996 |
At cost | 31 | 5,200 | 5,706 | 14,840 | 4,158 | 623 | 30,558 |
Accumulated depreciation | \u2014 | (2,839) | (2,035) | (10,572) | (1,890) | \u2014 | (17,336) |
Carrying value at December 31, 2021 | 31 | 2,361 | 3,671 | 4,268 | 2,268 | 623 | 13,222 |
Investments | \u2014 | 54 | 15 | 797 | 504 | 6 | 1,376 |
Internal transfer - cost | \u2014 | \u2014 | 42 | 380 | 170 | (592) | \u2014 |
Internal transfer - accumulated depreciation | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 |
Transfer to software - cost | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 |
Transfer to software - accumulated depreciation | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 |
Divestments | (29) | (214) | (107) | (6,422) | (27) | \u2014 | (6,799) |
Impairment | \u2014 | (72) | (55) | (377) | (13) | \u2014 | (517) |
Depreciation charges | \u2014 | (403) | (294) | (1,116) | (822) | \u2014 | (2,635) |
Depreciation of disinvestment | \u2014 | 214 | 107 | 6,097 | 27 | \u2014 | 6,445 |
Currency translation - cost | (2) | (309) | (319) | (940) | (101) | (31) | (1,702) |
Currency translation - accumulated depreciation | \u2014 | 162 | 114 | 676 | 50 | \u2014 | 1,002 |
Movement 2022 | (31) | (568) | (497) | (905) | (212) | (617) | (2,830) |
At cost | \u2014 | 4,659 | 5,282 | 8,278 | 4,691 | 6 | 22,916 |
Accumulated depreciation | \u2014 | (2,866) | (2,108) | (4,915) | (2,635) | \u2014 | (12,524) |
Carrying value at December 31, 2022 | \u2014 | 1,793 | 3,174 | 3,363 | 2,056 | 6 | 10,392 |
Category | Depreciation period |
Land | Not depreciated |
Operational facilities | 10-20 years |
Leasehold improvements | 5-10 years |
Machinery and equipment* | 5-10 years |
Other property, plant & equipment | 5-10 years |
* Depreciation charges for machinery and equipment are based on actual use of the equipment involved, which is expected to take place in a period before technical expiration |
In 2022 the Company had capital expenditures of US$1.4 million (2021: US$10.7 million), mainly related to new machinery and equipment.
Depreciation charges on machinery and equipment of US$1.0 million in 2022 (2021: US$1.1 million million) have been charged to the value of inventories and an amount of US$1.6 million of the total 2022 depreciation costs has been charged to the statement of income (2021: US$2.1 million).
This note provides information for leases where the Group is a lessee.
The balance sheet shows the following amounts relating to leases:
Amounts in US$ \u2018000 | Buildings | Cars | Total |
At cost | 10,874 | 2,290 | 13,164 |
Accumulated depreciation | (3,103) | (634) | (3,737) |
Carrying value at January 1, 2021 | 7,771 | 1,656 | 9,427 |
Investments | 13,802 | 401 | 14,203 |
Divestments | (51) | (165) | (216) |
Depreciation charges | (2,112) | (669) | (2,781) |
Depreciation of disinvestment | 30 | 81 | 111 |
Other movement - cost | (478) | (79) | (557) |
Other movement - accumulated depreciation | 644 | 57 | 701 |
Currency translation - cost | (1,148) | (67) | (1,215) |
Currency translation - accumulated depreciation | 245 | 25 | 270 |
Movement 2021 | 10,932 | (416) | 10,516 |
At cost | 22,999 | 2,380 | 25,379 |
Accumulated depreciation | (4,296) | (1,140) | (5,436) |
Carrying value at December 31, 2021 | 18,703 | 1,240 | 19,943 |
Investments | 15,066 | 1,741 | 16,807 |
Divestments | (292) | (739) | (1,031) |
Depreciation charges | (2,223) | (797) | (3,020) |
Depreciation of disinvestment | 78 | 596 | 674 |
Impairment | (3,860) | \u2014 | (3,860) |
Depreciation Impairment | 59 | \u2014 | 59 |
Currency translation - cost | (1,029) | (48) | (1,077) |
Currency translation - accumulated depreciation | 197 | 61 | 258 |
Movement 2022 | 7,996 | 814 | 8,810 |
At cost | 32,884 | 3,334 | 36,218 |
Accumulated depreciation | (6,185) | (1,280) | (7,465) |
Carrying value at December 31, 2022 | 26,699 | 2,054 | 28,753 |
Investments in buildings in 2022 relates to the lease contract for the DSP facility at Pivot Park, Oss. As communicated in prior year, as a result of our renewed strategic manufacturing partnership with long-term manufacturing partner Sanofi S.A., the Company decided to have the construction of the new building completed, but no longer pursue the realization of its own downstream
production capacity at Pivot Park in Oss. During 2022 the lease commenced and resulted in an investment of US$14.6 million. Pharming is looking into possibilities for alternative use. As a result of aforementioned decision, the right of use asset was impaired for an amount of US$3.9 million. The impairment was calculated on a value in use basis, using the incremental borrowing rate as the applicable discount rate (4.47%). The recoverable amount is reflecting in the book value of the asset, being US$10.7 million.
The Company applies for the exemption of accounting of short-term leases and low-value leases. The amounts recorded in the consolidated statement of income are immaterial to the financial statements.
Amounts recognized in the statement of income
The statement of income shows the following amounts relating to leases:
Amounts in US$ \u2018000 | 2022 | 2021 |
Depreciation right of use buildings | (2,223) | (2,112) |
Depreciation right of use cars | (797) | (669) |
Interest expense (note 8) | (622) | (795) |
Total expense right of use assets | (3,642) | (3,576) |
Lease charges
For the year 2022, the Company charged US$3.6 million (2021: US$3.6 million) to the statement of income with regard to lease commitments for office rent, equipment, facilities and lease cars.
The non-cancellable leases at 31\u00a0December 2022 have remaining terms of between one and fifteen years and generally include a clause to enable upward revision of the rental charge on an annual basis according to prevailing market conditions.
Amounts in US$ \u2018000 | Transgenic technology | RUCONEST\u00ae for HAE (EU) | Development costs | Re-acquired | Novartis\u00a0 License | Software | Total |
At cost | 3,256 | 648 | 7,779 | 77,806 | 24,667 | 958 | 115,114 |
Accumulated: | |||||||
Amortization charges | (3,213) | (648) | \u2014 | (14,699) | \u2014 | (104) | (18,664) |
Impairment charges | (43) | \u2014 | (2,324) | \u2014 | \u2014 | \u2014 | (2,367) |
Carrying value at January 1, 2021 | \u2014 | \u2014 | 5,455 | 63,107 | 24,667 | 854 | 94,083 |
Amortization charges | \u2014 | \u2014 | \u2014 | (4,054) | \u2014 | (178) | (4,232) |
Impairment charges | \u2014 | \u2014 | (4,991) | \u2014 | \u2014 | \u2014 | (4,991) |
Assets acquired | \u2014 | \u2014 | \u2014 | \u2014 | 2,530 | 3,447 | 5,977 |
Transfer from PPE - cost | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | 175 | 175 |
Transfer from PPE - accumulated amortization | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | (78) | (78) |
Divestments - cost | (3,145) | \u2014 | \u2014 | \u2014 | \u2014 | (99) | (3,244) |
Divestment - accumulated amortization | 3,105 | \u2014 | \u2014 | \u2014 | \u2014 | 99 | 3,204 |
Divestment - impairment charges | 40 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | 40 |
Currency translation - cost | (111) | (50) | (599) | (5,995) | (2,012) | (226) | (8,993) |
Currency translation - amortization | 108 | 50 | \u2014 | 1,312 | \u2014 | 19 | 1,489 |
Currency translation - impairment | 3 | \u2014 | 401 | \u2014 | \u2014 | \u2014 | 404 |
Movement 2021 | \u2014 | \u2014 | (5,189) | (8,737) | 518 | 3,159 | (10,249) |
At cost | \u2014 | 598 | 7,180 | 71,811 | 25,185 | 4,255 | 109,029 |
Accumulated: | |||||||
Amortization charges | \u2014 | (598) | \u2014 | (17,441) | \u2014 | (242) | (18,281) |
Impairment charges | \u2014 | \u2014 | (6,914) | \u2014 | \u2014 | \u2014 | (6,914) |
Carrying value at December 31, 2021 | \u2014 | \u2014 | 266 | 54,370 | 25,185 | 4,013 | 83,834 |
Amortization charges | \u2014 | \u2014 | \u2014 | (3,597) | \u2014 | (720) | (4,317) |
Impairment charges | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 |
Assets acquired | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | 601 | 601 |
Transfer from PPE - cost | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 |
Transfer from PPE - accumulated amortization | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 |
Divestments - cost | \u2014 | \u2014 | (6,431) | \u2014 | \u2014 | \u2014 | (6,431) |
Divestment - accumulated amortization | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 |
Divestment - impairment charges | \u2014 | \u2014 | 6,431 | \u2014 | \u2014 | \u2014 | 6,431 |
Currency translation - cost | \u2014 | (35) | (499) | (4,228) | (1,482) | (235) | (6,479) |
Currency translation - amortization | \u2014 | 35 | \u2014 | 984 | \u2014 | (20) | 999 |
Currency translation - impairment | \u2014 | \u2014 | 483 | \u2014 | \u2014 | \u2014 | 483 |
Movement 2022 | \u2014 | \u2014 | (16) | (6,841) | (1,482) | (374) | (8,713) |
At cost | \u2014 | 563 | 250 | 67,583 | 23,703 | 4,621 | 96,720 |
Accumulated: | |||||||
Amortization charges | \u2014 | (563) | \u2014 | (20,054) | \u2014 | (982) | (21,599) |
Impairment charges | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 |
Carrying value at December 31, 2022 | \u2014 | \u2014 | 250 | 47,529 | 23,703 | 3,639 | 75,121 |
Category | Description | Amortization period | |
Total | Remaining | ||
Transgenic technology | Patents and licenses | 6 to 10 years | Divested |
RUCONEST\u00ae for HAE (EU) | Development costs | 10 years | Fully amortized |
RUCONEST\u00ae for HAE (US) | Re-acquired commercial rights | 20 years | 14 years |
RUCONEST\u00ae for HAE (EU) | Re-acquired commercial rights | 12 years | 9 years |
Software expenses | Development costs | 3 to 5 years | 2 to 5 years |
Development costs | Development costs | Not yet in use | Not yet in use |
Transgenic technology
The transgenic technology relates to the patents and licenses historically acquired in light of Pharming\u2019s production platform on the expression of human proteins in the milk of transgenic mammals. This technology enables the development of complex therapeutic proteins in a cost-effective manner. During 2021, these assets were disposed.
RUCONEST\u00ae for HAE (EU)
Per 2022, the Company has capitalized development costs in relation to RUCONEST\u00ae for HAE in the European Union. Following market launch of the product in 2010 the amortization of the asset started, and no further development costs have been capitalized in respect to this item since then. These development costs are fully amortized at the end of 2022 and 2021.
Development costs
In 2018, the Company started to modify the current product RUCONEST\u00ae for more convenient forms of administration for use by the patient. This was expected to have resulted in better variants of the existing product. In 2021 no costs were incurred given a re-prioritization of the effort invested in the Company\u2019s pipeline assets and hence these assets were fully impaired. In 2022, the assets have been disposed.
In 2014, the Company acquired assets from Transgenic Rabbit Models SASU, for a total amount of US$0.5 million, which was recognized as intangible assets related to development costs of two new product leads: alpha-glucosidase for Pompe disease and alpha-galactosidase for Fabry\u2019s disease. In 2021, the asset relating to alpha-galactosidase for Fabry\u2019s disease was fully impaired. In 2022 this asset has been disposed.
The remaining balance (US$0.3 million) relates to the asset related to development costs of a product lead for alpha-glucosidase for Pompe disease.
Re-acquired rights and licenses
The re-acquired rights relate to the acquisition of all North American commercialization rights from Bausch Health in 2016 and the acquisition of all European commercialization and distribution rights from Swedish Orphan International AB (\"Sobi\") in 2020.
Novartis license
In August 2019, Pharming entered into a development collaboration and license agreement with Novartis to develop and commercialize leniolisib, a small molecule phosphoinositide 3-kinase delta (P13K\u03b4) inhibitor being developed by Novartis to treat patients with Activated Phosphoinositide 3-kinase Delta Syndrome (APDS). In 2022 no additional development costs were capitalized. Note that FDA approval was granted as per March 24, 2023, and hence the asset will start amortizing in 2023.
Software
Amounts in US$ \u2018000 | Transgenic technology | RUCONEST\u00ae for HAE (EU) | Development costs | Re-acquired | Novartis\u00a0 License | Software | Total |
At cost | 3,256 | 648 | 7,779 | 77,806 | 24,667 | 958 | 115,114 |
Accumulated: | |||||||
Amortization charges | (3,213) | (648) | \u2014 | (14,699) | \u2014 | (104) | (18,664) |
Impairment charges | (43) | \u2014 | (2,324) | \u2014 | \u2014 | \u2014 | (2,367) |
Carrying value at January 1, 2021 | \u2014 | \u2014 | 5,455 | 63,107 | 24,667 | 854 | 94,083 |
Amortization charges | \u2014 | \u2014 | \u2014 | (4,054) | \u2014 | (178) | (4,232) |
Impairment charges | \u2014 | \u2014 | (4,991) | \u2014 | \u2014 | \u2014 | (4,991) |
Assets acquired | \u2014 | \u2014 | \u2014 | \u2014 | 2,530 | 3,447 | 5,977 |
Transfer from PPE - cost | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | 175 | 175 |
Transfer from PPE - accumulated amortization | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | (78) | (78) |
Divestments - cost | (3,145) | \u2014 | \u2014 | \u2014 | \u2014 | (99) | (3,244) |
Divestment - accumulated amortization | 3,105 | \u2014 | \u2014 | \u2014 | \u2014 | 99 | 3,204 |
Divestment - impairment charges | 40 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | 40 |
Currency translation - cost | (111) | (50) | (599) | (5,995) | (2,012) | (226) | (8,993) |
Currency translation - amortization | 108 | 50 | \u2014 | 1,312 | \u2014 | 19 | 1,489 |
Currency translation - impairment | 3 | \u2014 | 401 | \u2014 | \u2014 | \u2014 | 404 |
Movement 2021 | \u2014 | \u2014 | (5,189) | (8,737) | 518 | 3,159 | (10,249) |
At cost | \u2014 | 598 | 7,180 | 71,811 | 25,185 | 4,255 | 109,029 |
Accumulated: | |||||||
Amortization charges | \u2014 | (598) | \u2014 | (17,441) | \u2014 | (242) | (18,281) |
Impairment charges | \u2014 | \u2014 | (6,914) | \u2014 | \u2014 | \u2014 | (6,914) |
Carrying value at December 31, 2021 | \u2014 | \u2014 | 266 | 54,370 | 25,185 | 4,013 | 83,834 |
Amortization charges | \u2014 | \u2014 | \u2014 | (3,597) | \u2014 | (720) | (4,317) |
Impairment charges | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 |
Assets acquired | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | 601 | 601 |
Transfer from PPE - cost | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 |
Transfer from PPE - accumulated amortization | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 |
Divestments - cost | \u2014 | \u2014 | (6,431) | \u2014 | \u2014 | \u2014 | (6,431) |
Divestment - accumulated amortization | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 |
Divestment - impairment charges | \u2014 | \u2014 | 6,431 | \u2014 | \u2014 | \u2014 | 6,431 |
Currency translation - cost | \u2014 | (35) | (499) | (4,228) | (1,482) | (235) | (6,479) |
Currency translation - amortization | \u2014 | 35 | \u2014 | 984 | \u2014 | (20) | 999 |
Currency translation - impairment | \u2014 | \u2014 | 483 | \u2014 | \u2014 | \u2014 | 483 |
Movement 2022 | \u2014 | \u2014 | (16) | (6,841) | (1,482) | (374) | (8,713) |
At cost | \u2014 | 563 | 250 | 67,583 | 23,703 | 4,621 | 96,720 |
Accumulated: | |||||||
Amortization charges | \u2014 | (563) | \u2014 | (20,054) | \u2014 | (982) | (21,599) |
Impairment charges | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 |
Carrying value at December 31, 2022 | \u2014 | \u2014 | 250 | 47,529 | 23,703 | 3,639 | 75,121 |
Category | Description | Amortization period | |
Total | Remaining | ||
Transgenic technology | Patents and licenses | 6 to 10 years | Divested |
RUCONEST\u00ae for HAE (EU) | Development costs | 10 years | Fully amortized |
RUCONEST\u00ae for HAE (US) | Re-acquired commercial rights | 20 years | 14 years |
RUCONEST\u00ae for HAE (EU) | Re-acquired commercial rights | 12 years | 9 years |
Software expenses | Development costs | 3 to 5 years | 2 to 5 years |
Development costs | Development costs | Not yet in use | Not yet in use |
Transgenic technology
The transgenic technology relates to the patents and licenses historically acquired in light of Pharming\u2019s production platform on the expression of human proteins in the milk of transgenic mammals. This technology enables the development of complex therapeutic proteins in a cost-effective manner. During 2021, these assets were disposed.
RUCONEST\u00ae for HAE (EU)
Per 2022, the Company has capitalized development costs in relation to RUCONEST\u00ae for HAE in the European Union. Following market launch of the product in 2010 the amortization of the asset started, and no further development costs have been capitalized in respect to this item since then. These development costs are fully amortized at the end of 2022 and 2021.
Development costs
In 2018, the Company started to modify the current product RUCONEST\u00ae for more convenient forms of administration for use by the patient. This was expected to have resulted in better variants of the existing product. In 2021 no costs were incurred given a re-prioritization of the effort invested in the Company\u2019s pipeline assets and hence these assets were fully impaired. In 2022, the assets have been disposed.
In 2014, the Company acquired assets from Transgenic Rabbit Models SASU, for a total amount of US$0.5 million, which was recognized as intangible assets related to development costs of two new product leads: alpha-glucosidase for Pompe disease and alpha-galactosidase for Fabry\u2019s disease. In 2021, the asset relating to alpha-galactosidase for Fabry\u2019s disease was fully impaired. In 2022 this asset has been disposed.
The remaining balance (US$0.3 million) relates to the asset related to development costs of a product lead for alpha-glucosidase for Pompe disease.
Re-acquired rights and licenses
The re-acquired rights relate to the acquisition of all North American commercialization rights from Bausch Health in 2016 and the acquisition of all European commercialization and distribution rights from Swedish Orphan International AB (\"Sobi\") in 2020.
Novartis license
In August 2019, Pharming entered into a development collaboration and license agreement with Novartis to develop and commercialize leniolisib, a small molecule phosphoinositide 3-kinase delta (P13K\u03b4) inhibitor being developed by Novartis to treat patients with Activated Phosphoinositide 3-kinase Delta Syndrome (APDS). In 2022 no additional development costs were capitalized. Note that FDA approval was granted as per March 24, 2023, and hence the asset will start amortizing in 2023.
Software
Amounts in US$ \u2018000 | Land | Operational facilities | Leasehold Improvement | Machinery and equipment | Other | Asset under construction | Total |
At cost | 33 | 6,170 | 2,476 | 6,591 | 9,602 | 2,872 | 27,744 |
Accumulated depreciation | \u2014 | (3,030) | (2,176) | (5,375) | (4,937) | \u2014 | (15,518) |
Carrying value at January 1, 2021 | 33 | 3,140 | 300 | 1,216 | 4,665 | 2,872 | 12,226 |
Investments | \u2014 | 27 | 457 | 1,206 | 952 | 8,097 | 10,739 |
Internal transfer - cost | \u2014 | (544) | 3,097 | 7,977 | (5,743) | (4,787) | \u2014 |
Internal transfer - accumulated depreciation | \u2014 | 408 | 61 | (3,871) | 3,402 | \u2014 | \u2014 |
Transfer to software - cost | \u2014 | \u2014 | \u2014 | \u2014 | (175) | \u2014 | (175) |
Transfer to software - accumulated depreciation | \u2014 | \u2014 | \u2014 | \u2014 | 78 | \u2014 | 78 |
Divestments | \u2014 | (2) | \u2014 | (20) | (131) | (5,447) | (5,600) |
Depreciation charges | \u2014 | (455) | (86) | (2,004) | (680) | \u2014 | (3,225) |
Depreciation of disinvestment | \u2014 | 2 | \u2014 | 4 | 54 | \u2014 | 60 |
Currency translation - cost | (2) | (451) | (324) | (914) | (347) | (112) | (2,150) |
Currency translation - accumulated depreciation | \u2014 | 236 | 166 | 674 | 193 | \u2014 | 1,269 |
Movement 2021 | (2) | (779) | 3,371 | 3,052 | (2,397) | (2,249) | 996 |
At cost | 31 | 5,200 | 5,706 | 14,840 | 4,158 | 623 | 30,558 |
Accumulated depreciation | \u2014 | (2,839) | (2,035) | (10,572) | (1,890) | \u2014 | (17,336) |
Carrying value at December 31, 2021 | 31 | 2,361 | 3,671 | 4,268 | 2,268 | 623 | 13,222 |
Investments | \u2014 | 54 | 15 | 797 | 504 | 6 | 1,376 |
Internal transfer - cost | \u2014 | \u2014 | 42 | 380 | 170 | (592) | \u2014 |
Internal transfer - accumulated depreciation | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 |
Transfer to software - cost | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 |
Transfer to software - accumulated depreciation | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 |
Divestments | (29) | (214) | (107) | (6,422) | (27) | \u2014 | (6,799) |
Impairment | \u2014 | (72) | (55) | (377) | (13) | \u2014 | (517) |
Depreciation charges | \u2014 | (403) | (294) | (1,116) | (822) | \u2014 | (2,635) |
Depreciation of disinvestment | \u2014 | 214 | 107 | 6,097 | 27 | \u2014 | 6,445 |
Currency translation - cost | (2) | (309) | (319) | (940) | (101) | (31) | (1,702) |
Currency translation - accumulated depreciation | \u2014 | 162 | 114 | 676 | 50 | \u2014 | 1,002 |
Movement 2022 | (31) | (568) | (497) | (905) | (212) | (617) | (2,830) |
At cost | \u2014 | 4,659 | 5,282 | 8,278 | 4,691 | 6 | 22,916 |
Accumulated depreciation | \u2014 | (2,866) | (2,108) | (4,915) | (2,635) | \u2014 | (12,524) |
Carrying value at December 31, 2022 | \u2014 | 1,793 | 3,174 | 3,363 | 2,056 | 6 | 10,392 |
Category | Depreciation period |
Land | Not depreciated |
Operational facilities | 10-20 years |
Leasehold improvements | 5-10 years |
Machinery and equipment* | 5-10 years |
Other property, plant & equipment | 5-10 years |
* Depreciation charges for machinery and equipment are based on actual use of the equipment involved, which is expected to take place in a period before technical expiration |
In 2022 the Company had capital expenditures of US$1.4 million (2021: US$10.7 million), mainly related to new machinery and equipment.
Depreciation charges on machinery and equipment of US$1.0 million in 2022 (2021: US$1.1 million million) have been charged to the value of inventories and an amount of US$1.6 million of the total 2022 depreciation costs has been charged to the statement of income (2021: US$2.1 million).
This note provides information for leases where the Group is a lessee.
The balance sheet shows the following amounts relating to leases:
Amounts in US$ \u2018000 | Buildings | Cars | Total |
At cost | 10,874 | 2,290 | 13,164 |
Accumulated depreciation | (3,103) | (634) | (3,737) |
Carrying value at January 1, 2021 | 7,771 | 1,656 | 9,427 |
Investments | 13,802 | 401 | 14,203 |
Divestments | (51) | (165) | (216) |
Depreciation charges | (2,112) | (669) | (2,781) |
Depreciation of disinvestment | 30 | 81 | 111 |
Other movement - cost | (478) | (79) | (557) |
Other movement - accumulated depreciation | 644 | 57 | 701 |
Currency translation - cost | (1,148) | (67) | (1,215) |
Currency translation - accumulated depreciation | 245 | 25 | 270 |
Movement 2021 | 10,932 | (416) | 10,516 |
At cost | 22,999 | 2,380 | 25,379 |
Accumulated depreciation | (4,296) | (1,140) | (5,436) |
Carrying value at December 31, 2021 | 18,703 | 1,240 | 19,943 |
Investments | 15,066 | 1,741 | 16,807 |
Divestments | (292) | (739) | (1,031) |
Depreciation charges | (2,223) | (797) | (3,020) |
Depreciation of disinvestment | 78 | 596 | 674 |
Impairment | (3,860) | \u2014 | (3,860) |
Depreciation Impairment | 59 | \u2014 | 59 |
Currency translation - cost | (1,029) | (48) | (1,077) |
Currency translation - accumulated depreciation | 197 | 61 | 258 |
Movement 2022 | 7,996 | 814 | 8,810 |
At cost | 32,884 | 3,334 | 36,218 |
Accumulated depreciation | (6,185) | (1,280) | (7,465) |
Carrying value at December 31, 2022 | 26,699 | 2,054 | 28,753 |
Investments in buildings in 2022 relates to the lease contract for the DSP facility at Pivot Park, Oss. As communicated in prior year, as a result of our renewed strategic manufacturing partnership with long-term manufacturing partner Sanofi S.A., the Company decided to have the construction of the new building completed, but no longer pursue the realization of its own downstream
production capacity at Pivot Park in Oss. During 2022 the lease commenced and resulted in an investment of US$14.6 million. Pharming is looking into possibilities for alternative use. As a result of aforementioned decision, the right of use asset was impaired for an amount of US$3.9 million. The impairment was calculated on a value in use basis, using the incremental borrowing rate as the applicable discount rate (4.47%). The recoverable amount is reflecting in the book value of the asset, being US$10.7 million.
The Company applies for the exemption of accounting of short-term leases and low-value leases. The amounts recorded in the consolidated statement of income are immaterial to the financial statements.
Amounts recognized in the statement of income
The statement of income shows the following amounts relating to leases:
Amounts in US$ \u2018000 | 2022 | 2021 |
Depreciation right of use buildings | (2,223) | (2,112) |
Depreciation right of use cars | (797) | (669) |
Interest expense (note 8) | (622) | (795) |
Total expense right of use assets | (3,642) | (3,576) |
Lease charges
For the year 2022, the Company charged US$3.6 million (2021: US$3.6 million) to the statement of income with regard to lease commitments for office rent, equipment, facilities and lease cars.
The non-cancellable leases at 31\u00a0December 2022 have remaining terms of between one and fifteen years and generally include a clause to enable upward revision of the rental charge on an annual basis according to prevailing market conditions.
Lease liabilities can be specified as follows:
Amounts in US$ \u2018000 | 2022 | 2021 |
Balance at January 1 | 20,875 | 10,192 |
New Leases | 16,248 | 14,118 |
Interest expense accrued | 718 | 680 |
Payments of\u00a0 lease liabilities | (3,311) | (3,217) |
Other movements | (348) | 94 |
Currency translation | (874) | (992) |
Balance at December 31 | 33,308 | 20,875 |
- Current portion | 3,465 | 2,419 |
- Non-current portion | 29,843 | 18,456 |
New leases in 2022 primarily relate to new lease contracts for our operational facilities in the Netherlands.
Future minimum lease payments as at 31\u00a0December 2022 and 2021 are as follows:
2022 | 2021 | |||
Amounts in US$ \u2018000 | Minimum payments | Present value of payments | Minimum payments | Present value of payments |
Within one year | 4,644 | 4,535 | 3,118 | 3,068 |
After one year but not more than five years | 15,157 | 13,582 | 10,255 | 9,392 |
More than five years | 20,890 | 15,191 | 10,123 | 8,415 |
Balance at December 31 | 40,691 | 33,308 | 23,496 | 20,875 |
13.1 Investments accounted for using the equity method
The investment in BioConnection BV (BioConnection) announced in April 2019 provides the Company with significant influence over BioConnection, and as such has been treated as an associate of the Group.
As at December 31, 2022, the asset relates to an investment in the ordinary shares of BioConnection Investments B.V. During the second quarter of 2022, Pharming entered into a share purchase agreement, following receipt of an offer for all shares in BioConnection by Gimv, a European investment company listed on Euronext Brussels. The existing shareholders (including Pharming) reached agreement with Gimv on the sale of all issued and outstanding shares to a new holding company (BioConnection Investments B.V.) incorporated by Gimv, followed by a partial re-investment by existing shareholders of the purchase price in the share capital of BioConnection Investments B.V. The re-investment relates to the purchase of ordinary shares and a preference share. The transaction diluted Pharming\u2019s stake in BioConnection
from 43,85% in 2021 to 22,98% in 2022. Furthermore, as part of this transaction, the financial guarantee recognized in 2019, was released.
The Board of Directors made an assessment on the accounting treatment of the agreement and concluded that the sale of the BioConnection ordinary shares and purchase of the BioConnection Investments B.V. ordinary shares shall be considered as a dilution of an existing equity stake in an investment accounted for using the equity method. Hence Pharming recognized the dilution of its equity stake as a reduction of the carrying amount of the investment accounted for using the equity method. The preference share is valued as an investment in debt instruments designated as at fair value with changes through profit and loss (FVTPL). As a result of this transaction, Pharming has received one-off net cash proceeds of US$7.3 million (EUR6.9 million) and recognized a gain of US$12.2 million.
BioConnection has a share capital consisting solely of ordinary shares, which are held directly by a small group of shareholders. The proportion of ownership interest is the same as the proportion of voting rights held.
Name of entity | Place of business | % of ownership interest | Nature of relationship | Measurement method | |
2022 | 2021 | ||||
BioConnection Investment B.V. | Oss, NL | 22.98 | 43.85 | Associate | Equity |
Amounts in US$ \u2018000 | |
Carrying value at January 1, 2021 | 7,118 |
Share in net profit | 694 |
Amortization of financial guarantee | (33) |
Currency translation | (578) |
Carrying value at December 31, 2021 | 7,201 |
Share in net profit | (1,083) |
Release of financial guarantee | (153) |
Dilution of equity stake | (2,991) |
Currency translation | (473) |
Carrying value at December 31, 2022 | 2,501 |
Financial information of BioConnection B.V. per December 31, 2021, is filed at the Dutch Chamber of Commerce under number 17180803 (www.kvk.nl).
Financial information of BioConnection as filed at the Dutch Chamber of Commerce, for the year 2021 is as follows:
Amounts in US$ \u2018000 | 31 December 2022 |
Total assets | 28,313 |
Total equity | 10,609 |
Net result | 1,725 |
In the Board of Director\u2019s judgement, the investment in BioConnection constitutes an investment in an associated company and is therefore not consolidated, as Pharming has significant influence but does not have control of BioConnection and is embargoed by a shareholders agreement between the shareholders of BioConnection from influencing any activity between the two parties which is in any significant way different from the relationship which existed between the two prior to the investment.
13.2 Investment in debt instruments designated as at FVTPL
The asset relates to the preference share as obtained as part of the agreement referred to above relating to BioConnection Investments B.V. The Board of Director\u2019s made an assessment on the accounting treatment of the preference share obtained. The Board concluded that the asset should be recognized as a financial asset (debt instrument) measured at initial recognition at fair value, subsequently measured at fair value through profit and loss. The fair value was calculated based on a commonly accepted valuation method, the option pricing model (\"OPM\"), which considers the share classes as call options on the total shareholders\u2019 equity value according to
the rights and preferences of each class of equity. The payoff profile of the share classes was analyzed through a portfolio of call options, with the total equity value of a company as the underlying asset of the options and specific terms for each option calibrated to mirror, in aggregate, the payoff profile of the share classes. Relying on the forward-looking Black-Scholes-Merton (\"BSM\") financial instrument pricing framework, the OPM effectively captures the full range of potential outcomes for the share classes at exit. The OPM takes into consideration the full spectrum of risks in terms of future potential upside or downside but does not require explicit estimates of the possible future outcomes. The BSM model is commonly used to price assets on financial markets and allows to estimate the theoretical value of a call option, using six key parameters, namely the underlying equity value, strike price, time to maturity, risk free rate, expected volatility of the underlying equity and dividend yield on the underlying equity, which is a Level 3 input in terms of IFRS 13. Significant increases or decreases in equity value, volatility and time to maturity and below assumptions in isolation would result in a significantly lower or higher fair value assessment.
The following assumptions were used in the Black-Scholes model to determine the fair value of the asset:
2022 | 2021 | |
Expected time to maturity | 5 years | |
Volatility | 55% | \u2014% |
Risk-free interest rate | 2.51% | \u2014% |
The carrying amount of this investment has changed as follows:
Amounts in US$ \u2018000 | 2022 | 2021 |
1 January | \u2014 | \u2014 |
Investment | 7,933 | \u2014 |
Fair value changes | (1,185) | \u2014 |
Currency translation | 79 | \u2014 |
Balance at December 31 | 6,827 | \u2014 |
Sensitivity analysis
To illustrate the exposure of the carrying value of the investment to further fair value movements as a result of changes in the economic environment, a sensitivity analysis of fair value has been prepared over the key drives most affected by the current uncertainties. It is possible that there will be movements in these key inputs after December 31, 2022. While it is unlikely that these reported inputs would
move in isolation, these sensitivities have been performed independently to illustrate the impact each individual input has on the reported fair value and they do not represent management's estimate at December 31, 2022.
The main assumptions in determination of the equity value are shown in below table
Preference share BioConnection (in million US$) | |||||
Revenue level | Fair value | Discount rate | Fair value | EBITDA margin | Fair value |
-10.0% | 5.8 | -2.0% | 7.4 | -5.0% | 6.2 |
-5.0% | 6.3 | -1.0% | 7.0 | -2.5% | 6.5 |
Base case | 6.8 | Base case | 6.8 | Base case | 6.8 |
+5.0% | 7.3 | +1.0% | 6.6 | +2.5% | 7.1 |
+10.0% | 7.6 | +2.0% | 6.4 | +5.0% | 7.4 |
The impact of the remaining variables on the Black-Scholes model are shown in below table:
Preference share BioConnection (in million US$) | |||
Time to maturity | Fair value | Volatility | Fair value |
- 2 years | 8.2 | -10.0% | 7.8 |
- 1 year | 7.5 | -5.0% | 7.3 |
Base case | 6.8 | Base Case | 6.8 |
+ 1 year | 6.3 | +5.0% | 6.4 |
+ 2 years | 5.8 | +10.0% | 6.0 |
13.3 Investments in equity instruments designated as at Fair Value Through Other Comprehensive Income\u00a0
The Group holds 1,0 percent of the ordinary share capital of Orchard Therapeutics, a global gene therapy leader. The shares were acquired as of July 1, 2021, as part of strategic collaboration between Pharming Group N.V. and Orchard Therapeutics to research, develop, manufacture and commercialize OTL-105, a newly disclosed investigational ex-vivo autologous hematopoietic stem cell (HSC) gene therapy for the treatment of hereditary angioedema (HAE), a life-threatening rare disorder that causes recurring swelling attacks in the face, throat, extremities and abdomen.
Under the terms of the collaboration, Pharming has been granted worldwide rights to OTL-105 and will be responsible for clinical development, regulatory filings,
and commercialization of the investigational gene therapy, including associated costs. Orchard will lead the completion of IND-enabling activities and oversee manufacturing of OTL-105 during pre-clinical and clinical development, which will be funded by Pharming. In addition, both companies will explore the application of non-toxic conditioning regimen for use with OTL-105 administration. As part of the agreement, Orchard is eligible to receive up to US$189.5 million in development, regulatory and sales milestones as well as mid-single to low double-digit royalty payments on future worldwide sales.
Management does not consider that the Group is able to exercise significant influence over Orchard Therapeutics as the other 99,0 percent of the ordinary share capital is publicly traded at the Nasdaq stock exchange (Nasdaq: ORTX).
Name of entity | Place of business | % of ownership interest | Nature of relationship | Measurement method | |
2022 | 2021 | ||||
Orchard Therapeutics Plc. | London, UK | 1.00% | 1.00% | Investment | Fair value |
The fair value as at December 31, 2022 was determined on the basis of the trading price as at that date.
Amounts in US$ \u2018000 | Carrying amount |
1 January 2021 | \u2014 |
Initial recognition | 4,589 |
Fair value adjustments through OCI | (3,077) |
Currency translation | (63) |
Carrying value at December 31, 2021 | 1,449 |
Initial recognition | \u2014 |
Fair value adjustments through OCI | (950) |
Currency translation | (96) |
Carrying value at December 31, 2022 | 403 |
13.1 Investments accounted for using the equity method
The investment in BioConnection BV (BioConnection) announced in April 2019 provides the Company with significant influence over BioConnection, and as such has been treated as an associate of the Group.
As at December 31, 2022, the asset relates to an investment in the ordinary shares of BioConnection Investments B.V. During the second quarter of 2022, Pharming entered into a share purchase agreement, following receipt of an offer for all shares in BioConnection by Gimv, a European investment company listed on Euronext Brussels. The existing shareholders (including Pharming) reached agreement with Gimv on the sale of all issued and outstanding shares to a new holding company (BioConnection Investments B.V.) incorporated by Gimv, followed by a partial re-investment by existing shareholders of the purchase price in the share capital of BioConnection Investments B.V. The re-investment relates to the purchase of ordinary shares and a preference share. The transaction diluted Pharming\u2019s stake in BioConnection
from 43,85% in 2021 to 22,98% in 2022. Furthermore, as part of this transaction, the financial guarantee recognized in 2019, was released.
The Board of Directors made an assessment on the accounting treatment of the agreement and concluded that the sale of the BioConnection ordinary shares and purchase of the BioConnection Investments B.V. ordinary shares shall be considered as a dilution of an existing equity stake in an investment accounted for using the equity method. Hence Pharming recognized the dilution of its equity stake as a reduction of the carrying amount of the investment accounted for using the equity method. The preference share is valued as an investment in debt instruments designated as at fair value with changes through profit and loss (FVTPL). As a result of this transaction, Pharming has received one-off net cash proceeds of US$7.3 million (EUR6.9 million) and recognized a gain of US$12.2 million.
BioConnection has a share capital consisting solely of ordinary shares, which are held directly by a small group of shareholders. The proportion of ownership interest is the same as the proportion of voting rights held.
Name of entity | Place of business | % of ownership interest | Nature of relationship | Measurement method | |
2022 | 2021 | ||||
BioConnection Investment B.V. | Oss, NL | 22.98 | 43.85 | Associate | Equity |
Amounts in US$ \u2018000 | |
Carrying value at January 1, 2021 | 7,118 |
Share in net profit | 694 |
Amortization of financial guarantee | (33) |
Currency translation | (578) |
Carrying value at December 31, 2021 | 7,201 |
Share in net profit | (1,083) |
Release of financial guarantee | (153) |
Dilution of equity stake | (2,991) |
Currency translation | (473) |
Carrying value at December 31, 2022 | 2,501 |
Financial information of BioConnection B.V. per December 31, 2021, is filed at the Dutch Chamber of Commerce under number 17180803 (www.kvk.nl).
Financial information of BioConnection as filed at the Dutch Chamber of Commerce, for the year 2021 is as follows:
Amounts in US$ \u2018000 | 31 December 2022 |
Total assets | 28,313 |
Total equity | 10,609 |
Net result | 1,725 |
In the Board of Director\u2019s judgement, the investment in BioConnection constitutes an investment in an associated company and is therefore not consolidated, as Pharming has significant influence but does not have control of BioConnection and is embargoed by a shareholders agreement between the shareholders of BioConnection from influencing any activity between the two parties which is in any significant way different from the relationship which existed between the two prior to the investment.
13.2 Investment in debt instruments designated as at FVTPL
The asset relates to the preference share as obtained as part of the agreement referred to above relating to BioConnection Investments B.V. The Board of Director\u2019s made an assessment on the accounting treatment of the preference share obtained. The Board concluded that the asset should be recognized as a financial asset (debt instrument) measured at initial recognition at fair value, subsequently measured at fair value through profit and loss. The fair value was calculated based on a commonly accepted valuation method, the option pricing model (\"OPM\"), which considers the share classes as call options on the total shareholders\u2019 equity value according to
the rights and preferences of each class of equity. The payoff profile of the share classes was analyzed through a portfolio of call options, with the total equity value of a company as the underlying asset of the options and specific terms for each option calibrated to mirror, in aggregate, the payoff profile of the share classes. Relying on the forward-looking Black-Scholes-Merton (\"BSM\") financial instrument pricing framework, the OPM effectively captures the full range of potential outcomes for the share classes at exit. The OPM takes into consideration the full spectrum of risks in terms of future potential upside or downside but does not require explicit estimates of the possible future outcomes. The BSM model is commonly used to price assets on financial markets and allows to estimate the theoretical value of a call option, using six key parameters, namely the underlying equity value, strike price, time to maturity, risk free rate, expected volatility of the underlying equity and dividend yield on the underlying equity, which is a Level 3 input in terms of IFRS 13. Significant increases or decreases in equity value, volatility and time to maturity and below assumptions in isolation would result in a significantly lower or higher fair value assessment.
The following assumptions were used in the Black-Scholes model to determine the fair value of the asset:
2022 | 2021 | |
Expected time to maturity | 5 years | |
Volatility | 55% | \u2014% |
Risk-free interest rate | 2.51% | \u2014% |
The carrying amount of this investment has changed as follows:
Amounts in US$ \u2018000 | 2022 | 2021 |
1 January | \u2014 | \u2014 |
Investment | 7,933 | \u2014 |
Fair value changes | (1,185) | \u2014 |
Currency translation | 79 | \u2014 |
Balance at December 31 | 6,827 | \u2014 |
Sensitivity analysis
To illustrate the exposure of the carrying value of the investment to further fair value movements as a result of changes in the economic environment, a sensitivity analysis of fair value has been prepared over the key drives most affected by the current uncertainties. It is possible that there will be movements in these key inputs after December 31, 2022. While it is unlikely that these reported inputs would
move in isolation, these sensitivities have been performed independently to illustrate the impact each individual input has on the reported fair value and they do not represent management's estimate at December 31, 2022.
The main assumptions in determination of the equity value are shown in below table
Preference share BioConnection (in million US$) | |||||
Revenue level | Fair value | Discount rate | Fair value | EBITDA margin | Fair value |
-10.0% | 5.8 | -2.0% | 7.4 | -5.0% | 6.2 |
-5.0% | 6.3 | -1.0% | 7.0 | -2.5% | 6.5 |
Base case | 6.8 | Base case | 6.8 | Base case | 6.8 |
+5.0% | 7.3 | +1.0% | 6.6 | +2.5% | 7.1 |
+10.0% | 7.6 | +2.0% | 6.4 | +5.0% | 7.4 |
The impact of the remaining variables on the Black-Scholes model are shown in below table:
Preference share BioConnection (in million US$) | |||
Time to maturity | Fair value | Volatility | Fair value |
- 2 years | 8.2 | -10.0% | 7.8 |
- 1 year | 7.5 | -5.0% | 7.3 |
Base case | 6.8 | Base Case | 6.8 |
+ 1 year | 6.3 | +5.0% | 6.4 |
+ 2 years | 5.8 | +10.0% | 6.0 |
13.1 Investments accounted for using the equity method
The investment in BioConnection BV (BioConnection) announced in April 2019 provides the Company with significant influence over BioConnection, and as such has been treated as an associate of the Group.
As at December 31, 2022, the asset relates to an investment in the ordinary shares of BioConnection Investments B.V. During the second quarter of 2022, Pharming entered into a share purchase agreement, following receipt of an offer for all shares in BioConnection by Gimv, a European investment company listed on Euronext Brussels. The existing shareholders (including Pharming) reached agreement with Gimv on the sale of all issued and outstanding shares to a new holding company (BioConnection Investments B.V.) incorporated by Gimv, followed by a partial re-investment by existing shareholders of the purchase price in the share capital of BioConnection Investments B.V. The re-investment relates to the purchase of ordinary shares and a preference share. The transaction diluted Pharming\u2019s stake in BioConnection
from 43,85% in 2021 to 22,98% in 2022. Furthermore, as part of this transaction, the financial guarantee recognized in 2019, was released.
The Board of Directors made an assessment on the accounting treatment of the agreement and concluded that the sale of the BioConnection ordinary shares and purchase of the BioConnection Investments B.V. ordinary shares shall be considered as a dilution of an existing equity stake in an investment accounted for using the equity method. Hence Pharming recognized the dilution of its equity stake as a reduction of the carrying amount of the investment accounted for using the equity method. The preference share is valued as an investment in debt instruments designated as at fair value with changes through profit and loss (FVTPL). As a result of this transaction, Pharming has received one-off net cash proceeds of US$7.3 million (EUR6.9 million) and recognized a gain of US$12.2 million.
BioConnection has a share capital consisting solely of ordinary shares, which are held directly by a small group of shareholders. The proportion of ownership interest is the same as the proportion of voting rights held.
Name of entity | Place of business | % of ownership interest | Nature of relationship | Measurement method | |
2022 | 2021 | ||||
BioConnection Investment B.V. | Oss, NL | 22.98 | 43.85 | Associate | Equity |
Amounts in US$ \u2018000 | |
Carrying value at January 1, 2021 | 7,118 |
Share in net profit | 694 |
Amortization of financial guarantee | (33) |
Currency translation | (578) |
Carrying value at December 31, 2021 | 7,201 |
Share in net profit | (1,083) |
Release of financial guarantee | (153) |
Dilution of equity stake | (2,991) |
Currency translation | (473) |
Carrying value at December 31, 2022 | 2,501 |
Financial information of BioConnection B.V. per December 31, 2021, is filed at the Dutch Chamber of Commerce under number 17180803 (www.kvk.nl).
Financial information of BioConnection as filed at the Dutch Chamber of Commerce, for the year 2021 is as follows:
Amounts in US$ \u2018000 | 31 December 2022 |
Total assets | 28,313 |
Total equity | 10,609 |
Net result | 1,725 |
13.2 Investment in debt instruments designated as at FVTPL
The asset relates to the preference share as obtained as part of the agreement referred to above relating to BioConnection Investments B.V. The Board of Director\u2019s made an assessment on the accounting treatment of the preference share obtained. The Board concluded that the asset should be recognized as a financial asset (debt instrument) measured at initial recognition at fair value, subsequently measured at fair value through profit and loss. The fair value was calculated based on a commonly accepted valuation method, the option pricing model (\"OPM\"), which considers the share classes as call options on the total shareholders\u2019 equity value according to
the rights and preferences of each class of equity. The payoff profile of the share classes was analyzed through a portfolio of call options, with the total equity value of a company as the underlying asset of the options and specific terms for each option calibrated to mirror, in aggregate, the payoff profile of the share classes. Relying on the forward-looking Black-Scholes-Merton (\"BSM\") financial instrument pricing framework, the OPM effectively captures the full range of potential outcomes for the share classes at exit. The OPM takes into consideration the full spectrum of risks in terms of future potential upside or downside but does not require explicit estimates of the possible future outcomes. The BSM model is commonly used to price assets on financial markets and allows to estimate the theoretical value of a call option, using six key parameters, namely the underlying equity value, strike price, time to maturity, risk free rate, expected volatility of the underlying equity and dividend yield on the underlying equity, which is a Level 3 input in terms of IFRS 13. Significant increases or decreases in equity value, volatility and time to maturity and below assumptions in isolation would result in a significantly lower or higher fair value assessment.The following assumptions were used in the Black-Scholes model to determine the fair value of the asset:
2022 | 2021 | |
Expected time to maturity | 5 years | |
Volatility | 55% | \u2014% |
Risk-free interest rate | 2.51% | \u2014% |
The carrying amount of this investment has changed as follows:
Amounts in US$ \u2018000 | 2022 | 2021 |
1 January | \u2014 | \u2014 |
Investment | 7,933 | \u2014 |
Fair value changes | (1,185) | \u2014 |
Currency translation | 79 | \u2014 |
Balance at December 31 | 6,827 | \u2014 |
Sensitivity analysis
To illustrate the exposure of the carrying value of the investment to further fair value movements as a result of changes in the economic environment, a sensitivity analysis of fair value has been prepared over the key drives most affected by the current uncertainties. It is possible that there will be movements in these key inputs after December 31, 2022. While it is unlikely that these reported inputs would
move in isolation, these sensitivities have been performed independently to illustrate the impact each individual input has on the reported fair value and they do not represent management's estimate at December 31, 2022.
The main assumptions in determination of the equity value are shown in below table
Preference share BioConnection (in million US$) | |||||
Revenue level | Fair value | Discount rate | Fair value | EBITDA margin | Fair value |
-10.0% | 5.8 | -2.0% | 7.4 | -5.0% | 6.2 |
-5.0% | 6.3 | -1.0% | 7.0 | -2.5% | 6.5 |
Base case | 6.8 | Base case | 6.8 | Base case | 6.8 |
+5.0% | 7.3 | +1.0% | 6.6 | +2.5% | 7.1 |
+10.0% | 7.6 | +2.0% | 6.4 | +5.0% | 7.4 |
The impact of the remaining variables on the Black-Scholes model are shown in below table:
Preference share BioConnection (in million US$) | |||
Time to maturity | Fair value | Volatility | Fair value |
- 2 years | 8.2 | -10.0% | 7.8 |
- 1 year | 7.5 | -5.0% | 7.3 |
Base case | 6.8 | Base Case | 6.8 |
+ 1 year | 6.3 | +5.0% | 6.4 |
+ 2 years | 5.8 | +10.0% | 6.0 |
13.2 Investment in debt instruments designated as at FVTPL
The asset relates to the preference share as obtained as part of the agreement referred to above relating to BioConnection Investments B.V. The Board of Director\u2019s made an assessment on the accounting treatment of the preference share obtained. The Board concluded that the asset should be recognized as a financial asset (debt instrument) measured at initial recognition at fair value, subsequently measured at fair value through profit and loss. The fair value was calculated based on a commonly accepted valuation method, the option pricing model (\"OPM\"), which considers the share classes as call options on the total shareholders\u2019 equity value according to
the rights and preferences of each class of equity. The payoff profile of the share classes was analyzed through a portfolio of call options, with the total equity value of a company as the underlying asset of the options and specific terms for each option calibrated to mirror, in aggregate, the payoff profile of the share classes. Relying on the forward-looking Black-Scholes-Merton (\"BSM\") financial instrument pricing framework, the OPM effectively captures the full range of potential outcomes for the share classes at exit. The OPM takes into consideration the full spectrum of risks in terms of future potential upside or downside but does not require explicit estimates of the possible future outcomes. The BSM model is commonly used to price assets on financial markets and allows to estimate the theoretical value of a call option, using six key parameters, namely the underlying equity value, strike price, time to maturity, risk free rate, expected volatility of the underlying equity and dividend yield on the underlying equity, which is a Level 3 input in terms of IFRS 13. Significant increases or decreases in equity value, volatility and time to maturity and below assumptions in isolation would result in a significantly lower or higher fair value assessment.The following assumptions were used in the Black-Scholes model to determine the fair value of the asset:
2022 | 2021 | |
Expected time to maturity | 5 years | |
Volatility | 55% | \u2014% |
Risk-free interest rate | 2.51% | \u2014% |
The carrying amount of this investment has changed as follows:
Amounts in US$ \u2018000 | 2022 | 2021 |
1 January | \u2014 | \u2014 |
Investment | 7,933 | \u2014 |
Fair value changes | (1,185) | \u2014 |
Currency translation | 79 | \u2014 |
Balance at December 31 | 6,827 | \u2014 |
Sensitivity analysis
To illustrate the exposure of the carrying value of the investment to further fair value movements as a result of changes in the economic environment, a sensitivity analysis of fair value has been prepared over the key drives most affected by the current uncertainties. It is possible that there will be movements in these key inputs after December 31, 2022. While it is unlikely that these reported inputs would
move in isolation, these sensitivities have been performed independently to illustrate the impact each individual input has on the reported fair value and they do not represent management's estimate at December 31, 2022.
The main assumptions in determination of the equity value are shown in below table
Preference share BioConnection (in million US$) | |||||
Revenue level | Fair value | Discount rate | Fair value | EBITDA margin | Fair value |
-10.0% | 5.8 | -2.0% | 7.4 | -5.0% | 6.2 |
-5.0% | 6.3 | -1.0% | 7.0 | -2.5% | 6.5 |
Base case | 6.8 | Base case | 6.8 | Base case | 6.8 |
+5.0% | 7.3 | +1.0% | 6.6 | +2.5% | 7.1 |
+10.0% | 7.6 | +2.0% | 6.4 | +5.0% | 7.4 |
The impact of the remaining variables on the Black-Scholes model are shown in below table:
Preference share BioConnection (in million US$) | |||
Time to maturity | Fair value | Volatility | Fair value |
- 2 years | 8.2 | -10.0% | 7.8 |
- 1 year | 7.5 | -5.0% | 7.3 |
Base case | 6.8 | Base Case | 6.8 |
+ 1 year | 6.3 | +5.0% | 6.4 |
+ 2 years | 5.8 | +10.0% | 6.0 |
13.3 Investments in equity instruments designated as at Fair Value Through Other Comprehensive Income\u00a0
The Group holds 1,0 percent of the ordinary share capital of Orchard Therapeutics, a global gene therapy leader. The shares were acquired as of July 1, 2021, as part of strategic collaboration between Pharming Group N.V. and Orchard Therapeutics to research, develop, manufacture and commercialize OTL-105, a newly disclosed investigational ex-vivo autologous hematopoietic stem cell (HSC) gene therapy for the treatment of hereditary angioedema (HAE), a life-threatening rare disorder that causes recurring swelling attacks in the face, throat, extremities and abdomen.
Under the terms of the collaboration, Pharming has been granted worldwide rights to OTL-105 and will be responsible for clinical development, regulatory filings,
and commercialization of the investigational gene therapy, including associated costs. Orchard will lead the completion of IND-enabling activities and oversee manufacturing of OTL-105 during pre-clinical and clinical development, which will be funded by Pharming. In addition, both companies will explore the application of non-toxic conditioning regimen for use with OTL-105 administration. As part of the agreement, Orchard is eligible to receive up to US$189.5 million in development, regulatory and sales milestones as well as mid-single to low double-digit royalty payments on future worldwide sales.
Management does not consider that the Group is able to exercise significant influence over Orchard Therapeutics as the other 99,0 percent of the ordinary share capital is publicly traded at the Nasdaq stock exchange (Nasdaq: ORTX).
Name of entity | Place of business | % of ownership interest | Nature of relationship | Measurement method | |
2022 | 2021 | ||||
Orchard Therapeutics Plc. | London, UK | 1.00% | 1.00% | Investment | Fair value |
The fair value as at December 31, 2022 was determined on the basis of the trading price as at that date.
Amounts in US$ \u2018000 | Carrying amount |
1 January 2021 | \u2014 |
Initial recognition | 4,589 |
Fair value adjustments through OCI | (3,077) |
Currency translation | (63) |
Carrying value at December 31, 2021 | 1,449 |
Initial recognition | \u2014 |
Fair value adjustments through OCI | (950) |
Currency translation | (96) |
Carrying value at December 31, 2022 | 403 |
13.2 Investment in debt instruments designated as at FVTPL
The asset relates to the preference share as obtained as part of the agreement referred to above relating to BioConnection Investments B.V. The Board of Director\u2019s made an assessment on the accounting treatment of the preference share obtained. The Board concluded that the asset should be recognized as a financial asset (debt instrument) measured at initial recognition at fair value, subsequently measured at fair value through profit and loss. The fair value was calculated based on a commonly accepted valuation method, the option pricing model (\"OPM\"), which considers the share classes as call options on the total shareholders\u2019 equity value according to
the rights and preferences of each class of equity. The payoff profile of the share classes was analyzed through a portfolio of call options, with the total equity value of a company as the underlying asset of the options and specific terms for each option calibrated to mirror, in aggregate, the payoff profile of the share classes. Relying on the forward-looking Black-Scholes-Merton (\"BSM\") financial instrument pricing framework, the OPM effectively captures the full range of potential outcomes for the share classes at exit. The OPM takes into consideration the full spectrum of risks in terms of future potential upside or downside but does not require explicit estimates of the possible future outcomes. The BSM model is commonly used to price assets on financial markets and allows to estimate the theoretical value of a call option, using six key parameters, namely the underlying equity value, strike price, time to maturity, risk free rate, expected volatility of the underlying equity and dividend yield on the underlying equity, which is a Level 3 input in terms of IFRS 13. Significant increases or decreases in equity value, volatility and time to maturity and below assumptions in isolation would result in a significantly lower or higher fair value assessment.The following assumptions were used in the Black-Scholes model to determine the fair value of the asset:
2022 | 2021 | |
Expected time to maturity | 5 years | |
Volatility | 55% | \u2014% |
Risk-free interest rate | 2.51% | \u2014% |
The carrying amount of this investment has changed as follows:
Amounts in US$ \u2018000 | 2022 | 2021 |
1 January | \u2014 | \u2014 |
Investment | 7,933 | \u2014 |
Fair value changes | (1,185) | \u2014 |
Currency translation | 79 | \u2014 |
Balance at December 31 | 6,827 | \u2014 |
Sensitivity analysis
To illustrate the exposure of the carrying value of the investment to further fair value movements as a result of changes in the economic environment, a sensitivity analysis of fair value has been prepared over the key drives most affected by the current uncertainties. It is possible that there will be movements in these key inputs after December 31, 2022. While it is unlikely that these reported inputs would
move in isolation, these sensitivities have been performed independently to illustrate the impact each individual input has on the reported fair value and they do not represent management's estimate at December 31, 2022.
The main assumptions in determination of the equity value are shown in below table
Preference share BioConnection (in million US$) | |||||
Revenue level | Fair value | Discount rate | Fair value | EBITDA margin | Fair value |
-10.0% | 5.8 | -2.0% | 7.4 | -5.0% | 6.2 |
-5.0% | 6.3 | -1.0% | 7.0 | -2.5% | 6.5 |
Base case | 6.8 | Base case | 6.8 | Base case | 6.8 |
+5.0% | 7.3 | +1.0% | 6.6 | +2.5% | 7.1 |
+10.0% | 7.6 | +2.0% | 6.4 | +5.0% | 7.4 |
The impact of the remaining variables on the Black-Scholes model are shown in below table:
Preference share BioConnection (in million US$) | |||
Time to maturity | Fair value | Volatility | Fair value |
- 2 years | 8.2 | -10.0% | 7.8 |
- 1 year | 7.5 | -5.0% | 7.3 |
Base case | 6.8 | Base Case | 6.8 |
+ 1 year | 6.3 | +5.0% | 6.4 |
+ 2 years | 5.8 | +10.0% | 6.0 |
13.2 Investment in debt instruments designated as at FVTPL
The asset relates to the preference share as obtained as part of the agreement referred to above relating to BioConnection Investments B.V. The Board of Director\u2019s made an assessment on the accounting treatment of the preference share obtained. The Board concluded that the asset should be recognized as a financial asset (debt instrument) measured at initial recognition at fair value, subsequently measured at fair value through profit and loss. The fair value was calculated based on a commonly accepted valuation method, the option pricing model (\"OPM\"), which considers the share classes as call options on the total shareholders\u2019 equity value according to
the rights and preferences of each class of equity. The payoff profile of the share classes was analyzed through a portfolio of call options, with the total equity value of a company as the underlying asset of the options and specific terms for each option calibrated to mirror, in aggregate, the payoff profile of the share classes. Relying on the forward-looking Black-Scholes-Merton (\"BSM\") financial instrument pricing framework, the OPM effectively captures the full range of potential outcomes for the share classes at exit. The OPM takes into consideration the full spectrum of risks in terms of future potential upside or downside but does not require explicit estimates of the possible future outcomes. The BSM model is commonly used to price assets on financial markets and allows to estimate the theoretical value of a call option, using six key parameters, namely the underlying equity value, strike price, time to maturity, risk free rate, expected volatility of the underlying equity and dividend yield on the underlying equity, which is a Level 3 input in terms of IFRS 13. Significant increases or decreases in equity value, volatility and time to maturity and below assumptions in isolation would result in a significantly lower or higher fair value assessment.The following assumptions were used in the Black-Scholes model to determine the fair value of the asset:
2022 | 2021 | |
Expected time to maturity | 5 years | |
Volatility | 55% | \u2014% |
Risk-free interest rate | 2.51% | \u2014% |
The carrying amount of this investment has changed as follows:
Amounts in US$ \u2018000 | 2022 | 2021 |
1 January | \u2014 | \u2014 |
Investment | 7,933 | \u2014 |
Fair value changes | (1,185) | \u2014 |
Currency translation | 79 | \u2014 |
Balance at December 31 | 6,827 | \u2014 |
Sensitivity analysis
To illustrate the exposure of the carrying value of the investment to further fair value movements as a result of changes in the economic environment, a sensitivity analysis of fair value has been prepared over the key drives most affected by the current uncertainties. It is possible that there will be movements in these key inputs after December 31, 2022. While it is unlikely that these reported inputs would
move in isolation, these sensitivities have been performed independently to illustrate the impact each individual input has on the reported fair value and they do not represent management's estimate at December 31, 2022.
The main assumptions in determination of the equity value are shown in below table
Preference share BioConnection (in million US$) | |||||
Revenue level | Fair value | Discount rate | Fair value | EBITDA margin | Fair value |
-10.0% | 5.8 | -2.0% | 7.4 | -5.0% | 6.2 |
-5.0% | 6.3 | -1.0% | 7.0 | -2.5% | 6.5 |
Base case | 6.8 | Base case | 6.8 | Base case | 6.8 |
+5.0% | 7.3 | +1.0% | 6.6 | +2.5% | 7.1 |
+10.0% | 7.6 | +2.0% | 6.4 | +5.0% | 7.4 |
The impact of the remaining variables on the Black-Scholes model are shown in below table:
Preference share BioConnection (in million US$) | |||
Time to maturity | Fair value | Volatility | Fair value |
- 2 years | 8.2 | -10.0% | 7.8 |
- 1 year | 7.5 | -5.0% | 7.3 |
Base case | 6.8 | Base Case | 6.8 |
+ 1 year | 6.3 | +5.0% | 6.4 |
+ 2 years | 5.8 | +10.0% | 6.0 |
Inventories mainly include batches RUCONEST\u00ae and work in progress available for production of RUCONEST\u00ae.
Amounts in US$ \u2018000 | 2022 | 2021 |
Finished goods | 12,460 | 9,853 |
Work in progress | 29,553 | 16,911 |
Raw materials | 313 | 546 |
Balance at December 31 | 42,326 | 27,310 |
Changes in the adjustment to net realizable value:
Amounts in US$ \u2018000 | 2022 | 2021 |
Balance at January 1 | (2,448) | (646) |
Addition to impairment | (164) | (2,342) |
Release of impairment | 312 | 20 |
Usage of impairment | 195 | 407 |
Currency translation | 134 | 113 |
Balance at December 31 | (1,971) | (2,448) |
The inventory valuation at 31\u00a0December 2022 of US$42.3 million is stated net of an impairment of US$2.0 million (2021: US$2.4 million). The impairment primarily relates to products no longer eligible for commercial sales.
Inventories are available for use in commercial, preclinical and clinical activities. Estimates have been made with
respect to the ultimate use or sale of product, taking into account current and expected sales as well as preclinical and clinical programs. These estimates are reflected in the additions to the impairment. The releases to the impairment relate to amendments to the estimates as a result of the fact that actual sales can differ from forecasted sales and the fact that vials allocated to preclinical and clinical programs
can be returned to inventory. The costs of vials used in preclinical and clinical programs are presented under the research and development costs.
Cost of inventories included in the cost of sales in 2022 amounted US$17.4 million (2021: US$19.1\u00a0million). The main portion of inventories at 31\u00a0December 2022 have expiration dates starting beyond 2023 and are all expected to be sold and/or used before expiration.
Pharming management has assessed the different production stages, including the classification of Pharming\u2019s goods at every separate stage. Based on the assessment, Pharming management concluded that applying a
reclassification would result in providing more reliable and relevant information about Pharming\u2019s inventory and production processes. As a result, the skimmed milk used in the production of RUCONEST\u00ae will be classified as work in progress rather than raw materials as part of the production is already performed. Furthermore, the products that still have to be labelled are classified as work in progress rather than finished goods
There is no impact on the total amount of inventory at hand, nor the primary financial statements. The table below shows a summary of the disclosure impact of the inventory reclassification in the prior year closing balance.
Amounts in US$'000 | December 31, 2021 | Adjustment | December 31, 2021 |
Finished Goods | 13,560 | (3,707) | 9,853 |
Work in Progress | 9,606 | 7,305 | 16,911 |
Raw Materials | 4,144 | (3,598) | 546 |
Total inventory | 27,310 | \u2014 | 27,310 |
Amounts in US$ \u2018000 | 2022 | 2021 |
Restricted cash (non-current) | 1,099 | 812 |
Restricted cash (current) | 213 | 227 |
Cash and cash equivalents | 207,342 | 191,924 |
Total restricted cash, cash and cash equivalents | 208,654 | 192,963 |
Cash is free at disposal of the Company, except for restricted cash, which amounts to US$1.3 million in 2022 (2021: US$1.0 million). Restricted cash (current), which amounts US$0.2 million in 2022 (2021: US$0.2 million), includes the value of banker\u2019s guarantees issued with respect to (potential) commitments towards third parties which is considered to be of a short-term nature.
Amounts in US$ \u2018000 | 2022 | 2021 |
Restricted cash (non-current) | 1,099 | 812 |
Restricted cash (current) | 213 | 227 |
Cash and cash equivalents | 207,342 | 191,924 |
Total restricted cash, cash and cash equivalents | 208,654 | 192,963 |
Cash is free at disposal of the Company, except for restricted cash, which amounts to US$1.3 million in 2022 (2021: US$1.0 million). Restricted cash (current), which amounts US$0.2 million in 2022 (2021: US$0.2 million), includes the value of banker\u2019s guarantees issued with respect to (potential) commitments towards third parties which is considered to be of a short-term nature.
Amounts in US$ \u2018000 | 2022 | 2021 |
Restricted cash (non-current) | 1,099 | 812 |
Restricted cash (current) | 213 | 227 |
Cash and cash equivalents | 207,342 | 191,924 |
Total restricted cash, cash and cash equivalents | 208,654 | 192,963 |
Cash is free at disposal of the Company, except for restricted cash, which amounts to US$1.3 million in 2022 (2021: US$1.0 million). Restricted cash (current), which amounts US$0.2 million in 2022 (2021: US$0.2 million), includes the value of banker\u2019s guarantees issued with respect to (potential) commitments towards third parties which is considered to be of a short-term nature.
Amounts in US$ \u2018000 | 2022 | 2021 |
Trade receivables | 20,964 | 18,076 |
Prepaid expenses | 2,288 | 2,392 |
Value added tax | 1,453 | 2,486 |
Other receivables | 1,117 | 2,363 |
Taxes and social securities | 1,797 | 4,666 |
Balance at December 31 | 27,619 | 29,983 |
Trade receivables are amounts due from customers for goods sold in the ordinary course of business. They are generally due for settlement within 30-60 days and therefore are all classified as current. The Company\u2019s outstanding trade receivables are mainly related to the sales in the U.S. The decrease in trade receivables relates to timing of customer orders and payments around year-end
The Company did not recognize any expected credit losses. Pharming measures the loss allowance for trade receivables at an amount equal to lifetime ECL. The expected credit losses on trade receivables are estimated using a provision
Recognition and movements of the convertible bonds were as follows:
Amounts in US$ \u2018000 | 2022 | 2021 |
Balance at January 1 | 140,886 | 151,767 |
Interest paid (cash flow) | (3,952) | (4,448) |
Amortization transaction cost | 784 | 849 |
Accrued interest | 3,952 | 4,447 |
Currency translation | (8,284) | (11,729) |
Balance at December 31 | 133,386 | 140,886 |
- Current portion | 1,768 | 1,879 |
- Non-current portion | 131,618 | 139,007 |
On January 21, 2020, the Company issued \u20ac125 million aggregate principal amount of 3.00% convertible bonds due 2025. The bonds were issued at par and bear interest at a rate of 3.00% per annum payable semi-annually in arrears in equal installments. Unless previously converted, redeemed or purchased and cancelled, the bonds will mature on January 21, 2025.
The bonds are convertible into the Company\u2019s ordinary shares at an initial conversion price of \u20ac2.0028. This initial conversion price is subject to customary adjustment provisions. The number of ordinary shares initially underlying the bonds is 62,412,622. Any adjustment to the conversion price resulting in an increase in the number of conversion shares may require the Company to obtain further authorization from the Company\u2019s shareholders to issue shares, grant rights to subscribe for shares and exclude preemptive rights. The Company has the option to redeem all, but not some only, of the outstanding bonds in cash at par plus accrued interest at any time, (a) if, on or after February 13, 2023, the parity value on each of at least 20 trading days in a period of 30 consecutive trading days shall have exceeded 130% of the principal amount or (b) if, at any time, 85% or more of the aggregate principal amount of the bonds originally issued shall have been previously converted and / or repurchased and cancelled.
The convertible bonds are comprised of two components. The first component is a financial liability, which represents our contractual obligation to deliver cash or another financial asset for payment of interest and principal, if not
converted. The second component is an equity instrument as it represents a written call option granting the holder the right, for a specified period of time, to convert it into a fixed number of the Company\u2019s ordinary shares.
The fair value of the consideration in respect of the liability components is measured at the fair value of a similar liability that does not have any associated equity conversion option (IFRS 9 paragraph 5.1.1). This is the liability component\u2019s carrying amount at initial recognition.
Amounts in US$ \u2018000 | 2022 | 2021 |
Accounts payable | 8,753 | 7,599 |
Taxes and social security | 2,099 | 1,505 |
Other accruals | 12,809 | 7,614 |
Other payables | \u2014 | 34 |
Accruals for employees | 12,139 | 8,850 |
Accruals for rebates and discounts | 10,490 | 11,111 |
Accrual for production | 8,175 | 5,760 |
Balance at December 31 | 54,465 | 42,473 |
Amounts in US$ \u2018000 | 2022 | 2021 |
Non-current | ||
Financial guarantee contracts | \u2014 | 165 |
Total non-current | \u2014 | 165 |
Total | \u2014 | 165 |
Amounts in US$ \u2018000 | 2022 | 2021 |
Trade receivables | 20,964 | 18,076 |
Prepaid expenses | 2,288 | 2,392 |
Value added tax | 1,453 | 2,486 |
Other receivables | 1,117 | 2,363 |
Taxes and social securities | 1,797 | 4,666 |
Balance at December 31 | 27,619 | 29,983 |
Trade receivables are amounts due from customers for goods sold in the ordinary course of business. They are generally due for settlement within 30-60 days and therefore are all classified as current. The Company\u2019s outstanding trade receivables are mainly related to the sales in the U.S. The decrease in trade receivables relates to timing of customer orders and payments around year-end
The Company did not recognize any expected credit losses. Pharming measures the loss allowance for trade receivables at an amount equal to lifetime ECL. The expected credit losses on trade receivables are estimated using a provision
Amounts in US$ \u2018000 | 2022 | 2021 |
Trade receivables | 20,964 | 18,076 |
Prepaid expenses | 2,288 | 2,392 |
Value added tax | 1,453 | 2,486 |
Other receivables | 1,117 | 2,363 |
Taxes and social securities | 1,797 | 4,666 |
Balance at December 31 | 27,619 | 29,983 |
Trade receivables are amounts due from customers for goods sold in the ordinary course of business. They are generally due for settlement within 30-60 days and therefore are all classified as current. The Company\u2019s outstanding trade receivables are mainly related to the sales in the U.S. The decrease in trade receivables relates to timing of customer orders and payments around year-end
The Company did not recognize any expected credit losses. Pharming measures the loss allowance for trade receivables at an amount equal to lifetime ECL. The expected credit losses on trade receivables are estimated using a provision
Amounts in US$ \u2018000 | 2022 | 2021 |
Trade receivables | 20,964 | 18,076 |
Prepaid expenses | 2,288 | 2,392 |
Value added tax | 1,453 | 2,486 |
Other receivables | 1,117 | 2,363 |
Taxes and social securities | 1,797 | 4,666 |
Balance at December 31 | 27,619 | 29,983 |
Trade receivables are amounts due from customers for goods sold in the ordinary course of business. They are generally due for settlement within 30-60 days and therefore are all classified as current. The Company\u2019s outstanding trade receivables are mainly related to the sales in the U.S. The decrease in trade receivables relates to timing of customer orders and payments around year-end
The Company did not recognize any expected credit losses. Pharming measures the loss allowance for trade receivables at an amount equal to lifetime ECL. The expected credit losses on trade receivables are estimated using a provision
Share-based compensation
Share-based compensation within equity includes those transactions with third parties, the former Board of Management and employees in which payment is based in shares or options, based on current or future performance. For 2022 these transactions were valued at US$6.4 million and for 2021 at US$9.1 million (see note 21).
The remuneration policy for the Board of Directors was adopted by our shareholders on December 11, 2020, and governs the remuneration of both the Executive and the Non-Executive Directors (hereafter referred to as the \"Remuneration Policy\"). In accordance with Dutch law, the policy has to be submitted to our shareholders for adoption every four years.
The Policy refers to an undefined number of Executive Directors and Non-Executive Directors. Since May 19, 2021, the Board of Directors is composed of one Executive Director (i.e., the CEO) and seven Non-Executive Directors. In case of future appointments of additional Executive Directors, the Policy shall also be applicable to the remuneration packages for these additional Directors, if any, in accordance with the terms thereof. Therefore, any reference below to Executive Director in the singular also includes the plural, and vice-versa, subject to more restrictive deviations in the Policy and except for specific references to the CEO.
The remuneration packages of the individual Directors are determined by the Board of Directors, without the involvement of the Executive Director in the deliberations and decision-making concerning his own remuneration, and each time within the restrictions set by the remuneration policy.
Arrangements in the form of shares or rights to subscribe for shares will each time remain subject to the approval of the shareholders at the General Meeting, notwithstanding the adopted policy. On December 11, 2020, the shareholders approved the proposals that were submitted accordingly for the new long-term incentive program for the Executive Director, as described in the Remuneration Policy, and the one-off transition arrangement for the implementation of that new program. Our shareholders also authorized the Board of Directors, for a period of eighteen months, as the company body authorized to grant and issue the ordinary shares to the Executive Director under the new long-term incentive program and the one-off transition arrangement, respectively, and to exclude any preemptive rights of existing shareholders in connection with these issuances.
The total expense recognized in 2022 for share-based payment plans amounts to US$6.4 million (2021: US$9.1 million).
The total expenses for share-based payment plans in 2022 is specified as follows:
Share-based compensation (in U.S.$ '000) | 2022 | 2021 |
Employee options | 2,390 | 4,262 |
Long term incentive plan | 3,528 | 4,793 |
Restricted stock units | 474 | \u2014 |
Balance at December 31 | 6,392 | 9,055 |
The employee options expense decreased due to vesting of the majority options for the board of directors relating to historic option plans and a change in the employee share-based compensation plans where for 2022 RSU's have been granted instead of employee options. As mentioned above, options for board of director's are not included in any new granted share-based compensation plans. The remainder of the decrease is caused by currency translation effects.
Long-term incentive plan expenses decreased due to a release of the share-based compensation provision relating to leavers during 2022. The remainder of the decrease is caused by currency translation effects.
The restricted stock units relates to the new 2022 share-based compensation plan for (senior) management of the company. The RSU's were granted as of October 26, 2022, and is an equity settled compensation plan vesting in four equal yearly tranches. The expenses represents the fair value of the granted RSU's for the year 2022 as of the grant date.
21.1 Models and assumptions
IFRS 2 describes a hierarchy of permitted valuation methods for share-based payment transactions. If possible, an entity should use market prices at measurement date to determine the fair value of its equity instruments. If market prices are unavailable, as is the case with Pharming\u2019s option plans and long-term incentive plan, the entity shall estimate the fair value of the equity instruments granted. A valuation technique should be used to estimate the value or price of those equity instruments as it would have been at the measurement date in an arm\u2019s length transaction between knowledgeable, willing parties.
The valuation technique shall be consistent with generally accepted valuation methodologies for pricing financial instruments and shall incorporate all factors and assumptions that knowledgeable market participants would consider in setting the price.
Whatever pricing model is selected, it should, as a minimum, take into account the following elements:
\u2022The exercise price of the option;
\u2022The expected time to maturity of the option;
\u2022The current price of the underlying shares;
\u2022The expected volatility of the share price;
\u2022The dividends expected on the shares;
\u2022The risk-free interest rate for the expected time to maturity of the option.
Models and assumptions option plans
The costs of option plans are measured by reference to the fair value of the options at the grant date of the option.
The six elements above are all incorporated in the Black-Scholes model used to determine the fair value of options. The exercise price of the option and the share price are known at grant date. Volatility is based on the historical end-of-month closing share prices over a period prior to the option grant date being equal to the expected option life, with a minimum of 3 years. It is assumed no dividend payments are expected.
The total number of shares with respect to which options may be granted pursuant to the option plans accumulated, shall be determined by Pharming, but shall not exceed 10% of all issued and outstanding shares of Pharming on a diluted basis. Shares transferred or to be transferred, upon exercise of options shall be applied to reduce the maximum number of shares reserved under the plans. Unexercised options can be re-used for granting of options under the option plans.
Pharming may grant options to a member of the Executive Committee or an employee:
\u2022At the time of a performance review;
\u2022Only in relation to an individual: a date within the first month of his or her employment;
\u2022In case of an extraordinary achievement;
\u2022In case of a promotion to a new function within Pharming.
The option exercise price is the price of the Pharming shares on the stock exchange on the trading day prior to the date of grant. Vested options can be exercised at any time within five years following the date of grant. Unexercised options shall be deemed lapsed and shall cease to exist automatically after five years. Exercise of options is subject to compliance with laws and regulations in the Netherlands. Exercise of options is including withholding taxes. Each option is equal to one share unless otherwise stated. Options are not applicable for early retirement.
The following assumptions were used in the Black-Scholes model to determine the fair value of options at grant date:
2022 | 2021 | |
Expected time to maturity | 1-4 years | 1-4 years |
Volatility | 36% - 50% | 47% - 57% |
Risk-free interest rate | (0.48%) - 2.49% | (0.52%) - (0.03%) |
Option plan employees
Article 2.1 of the option plan for employees\u2019 states: \u2018Pharming may grant options to any employee. The criteria for the granting of the options up to December 11, 2020, was determined by the Board of Supervisory Directors of Pharming, at its sole discretion. Up to December 11, 2020, the Board of Management proposed (i) whether the criteria for granting an option have been met by a potential participant and (ii) the number of options to be granted. As from December 11, 2020, the execution of the Company\u2019s remuneration policy and other benefits policies and incentive programs, as approved by the Board of Directors (to the extent required), for all staff members of the Company and its subsidiaries, excluding the CEO and the other members of the Executive Committee, is delegated to the Chief Executive Officer.
Article 4.4 of the employee option plan deals with the vesting scheme of employee options and reads as follows: \u2018in case of the termination of the employment of a participant, except for retirement and death, Pharming at its sole discretion is entitled to decide that the options of the participant shall lapse. The following schedule shall apply for the cancellation:
\u2022In the event of termination of employment within one year as of a date of grant, all options shall lapse;
\u2022In the event of termination of employment after the first year as of a date of grant, all options, less 1/4 of the number of options shall be lapsed. The number of options to be cancelled decreases for each month that the employment continued for more than one year as of that date of grant by 1/48 of the number of options granted of that date of grant.
Models and assumptions Long Term Incentive Plan
For the long-term incentive plan, the following elements of Pharming and/or the peer group are included in order to
determine the fair value of long-term incentive plan share awards, using Monte Carlo simulation:
\u2022Start and end date of performance period;
\u2022The grant date;
\u2022The share prices;
\u2022Exchange rates;
\u2022Expected volatilities;
\u2022Expected correlations;
\u2022Expected dividend yields;
\u2022Risk free interest rates.
Volatilities are based on the historical end-of-month closing share prices over the 3 years.
Correlations are based on 3 years of historical correlations based on end-of-month closing quotes, taking into account exchange rates. Expected dividend yields for peers and risk-free interest rates (depending on the currency) are obtained from Bloomberg.
Under the LTIP, restricted shares are granted conditionally each year with shares vesting based on the market condition in which the total shareholder return performance of the Pharming share is compared to the total shareholder return of a peer group of other European biotech companies.
During 2022, there were no LTIP grants other than the grants for the executive directors as disclosed below.
Long Term Incentive Plan for the Executive Directors
As part of the Remuneration Policy, the Long Term Incentive Program is applicable to Executive Directors and has been aligned with prevailing \"best practices\" and is performance related only. For the Executive Directors, the on-target value of the shares to be awarded under the newly designed LTI Program, as described in the remuneration policy, is set at 300% of the gross annual salary for the CEO (representing 50% below the lowest quartile of the U.S. benchmark group and just below the top quartile of the EU benchmark group for the executive directors) and 200% for other Executive Directors and Officers (representing between 20 and 30% below the lowest quartile of the U.S. benchmark group and just in the top quartile of the EU benchmark group for the Executive Directors).
EU and U.S. benchmark group:
Company Location | Location |
Europe | |
Alliance Pharma | Chippenham, United Kingdom |
Allergy Therapeutics | Worthing, United Kingdom |
Autolus Therapeutics | London, United Kingdom |
Basilea Pharmaceutica | Basel, Switzerland |
Bavarian Nordic | Hellerup, Denmark |
BioGaia | Stockholm, Sweden |
Biotest | Dreieich, Germany |
Camurus | Lund, Sweden |
Cosmo Pharmaceuticals | Dublin, Ireland |
Innate Pharma | Marseille, France |
Merus | Utrecht, Netherlands |
Mithra Pharmaceuticals | Liege, Belgium |
Myoivant Science | London, United Kingdom |
Oxford Biomedica | Oxford, United Kingdom |
uniQure | Amsterdam, Netherlands |
Valneva | Nantes, France |
Zealand Pharma | Copenhagen, Denmark |
U.S. | |
Aerie Pharmaceuticals | Durham, NC |
Anika Therapeutics | Bedford, MA |
Clovis Oncology | Boulder, CO |
Coherus BioSciences | Redwood City, CA |
Collegium Pharmaceutical | Stoughton, MA |
Enanta Pharmaceuticals | Watertown, MA |
Heron Therapeutics | San Diego, CA |
Intercept Pharmaceuticals | Morristown, NJ |
Ironwood Pharmaceuticals | Boston, MA |
Karyopharm Therapeutics | Newton, MA |
Ligand Pharmaceuticals | San Diego, CA |
MannKind | Danbury, CT |
Radius Health | Waltham, MA |
Rigel Pharmaceuticals | South San Francisco, CA |
Supernus Pharmaceuticals | Rockville, MD |
Travere Therapeutics | San Diego, CA |
Vanda Pharmaceuticals | Washington, DC |
The maximum value of the shares that can vest under the LTI program is set at 450% of the gross annual salary for the CEO and 300% for other Executive Directors and Officers. Executive Directors are required to retain the shares awarded under the LTI program for a minimum of five years from the date of grant.
The shares granted to the Executive Directors under the LTI program will vest in three years after the grant date, subject to the achievement of the targets set by the Board of Directors, upon proposal of the Remuneration Committee, for the three-year performance period (i.e., double-trigger vesting), their relative weightings and the pay-out limits. All shares awarded will be subject to a retention period of five years from the date of grant (i.e., two years after vesting), in accordance with the best practice provisions of the DCGC.
The performance objectives include the Total Shareholder Return (40% weighing) and the achievement of long-term strategy oriented objectives (60% weighing). The peer group used to determine the Total Shareholder Return is composed of the companies included in the AScX Index and the NASDAQ Biotechnology Index, represented by the
IBB ETF, respectively, equally weighted, at the time of the determination.
The thresholds and payout percentages for the LTI program are given by the following table, as to be determined for each of the AScX and IBB indices separately (each weighted at 50% of pay-out):
TSR equal to index | 80% pay-out |
TSR 10% above index | 90% pay-out |
TSR 20% above index | 100% pay-out |
TSR 40% above index | 110% pay-out |
TSR 60% above index | 120% pay-out |
TSR 80% above index | 130% pay-out |
TSR 100% above index | 150% pay-out |
TSR below index | 0% pay-out |
The range of assumptions used in the Monte Carlo simulation to determine the fair value of long-term incentive plan share awards at grant date were:
2022 | 2021 | |
Volatilities | 46% | 49% |
Risk-free interest rates | 0.61% | -0.554%--0.416% |
Dividend yields | 0.00% | 0.00% |
Restricted Stock Units
This Plan is effective as of October 26, 2022, and shall be executed in compliance with the Articles of Association and applicable law and concerns Pharming's (senior) management. The RSU plans are not applicable for the board of directors, nor the executive committee. For each participant, the RSU\u2019s granted to them will vest in four equal tranches of twelve months, provided that at the time of vesting such participant is still an employee. No performance criteria are applicable to this plan. The fair value of the grant is, in line with IFRS 2, the actual share price at date of the grant (October 26, 2022), being EUR 0,97. A total of 4.931.000 RSU's were granted with a total expense of US$5.0 million (US$ yearly average exchange rate = 1.0543). This expense will be charged to Pharming's results over the vesting for the following tranches:
a.a first tranche of 25% of the RSU\u2019s granted, vesting twelve months after the Vesting Commencement Date;
b.a second tranche of 25% of the RSU\u2019s granted, vesting two years after the Vesting Commencement Date;
c.a third tranche of 25% of the RSU\u2019s granted, vesting three years after the Vesting Commencement Date; and
d.a fourth tranche of 25% of the RSU\u2019s granted, vesting four years after the Vesting Commencement Date.
One-off transition arrangement for the Chief Executive Officer
The implementation of the new three-year vesting scheme under the LTIP has a major impact on the current
remuneration packages of existing Executive Directors for the period 2020-2023, as the Executive Directors\u2019 current packages feature annual option and share grants. The share-based compensation under the existing packages and plans over this three-year period would have resulted in three option grants, with guaranteed vesting of a total of 8,400,000 options for the CEO on the basis of continued tenure over the three-year period. In addition, the CEO would have been eligible for three annual restricted share grants pursuant to the LTIP of up to 30% of the base salary.
To mitigate the described impact, the Company has agreed to a one-off transition arrangement with the CEO as approved at the General Meeting of Shareholders on December 11, 2020. This one-off transition arrangement provides for (i) the conversion of the total number of 8,400,000 options for the CEO (i.e., the total number of share options that was expected to be granted in 2021, 2022 and 2023 without the arrangement) into one grant for a total number of 4,200,000 shares for 2020, which vesting will be governed by the performance-based criteria of the new LTI program, and (ii) the vesting of the performance shares in three annual tranches in the first quarter of 2021, 2022 and 2023, subject to the performance-based criteria of the new LTI program for Executive Directors as described above in the Long Term Incentive Plan for the Executive Directors paragraph.
In addition, the grant and each of the three potential vestings of the granted shares under the Long-term Incentive One-Off Arrangement is subject to:
i.a five-year retention period for the granted shares;
ii.the annual pro-rata satisfaction upon vesting of the set long-term performance targets, as determined by the Board of Directors; and
iii.the other terms and conditions applicable to the LTI Program pursuant to the Remuneration Policy for the Board of Directors dated December 11, 2020.
Pursuant to the one-off transition arrangement, the CEO has waived all his rights for the grant of restricted shares and option rights, respectively, under the LTIP and the existing option plans for the financial year 2020. On December 22, 2020, a total number of 4,200,000 (restricted) shares was granted to the CEO in accordance with the terms of the one-off transition arrangement.
21.2 Option plans
An overview of activity in the number of options for the year 2022 is as follows (please also refer to note 27 in respect of movements since the reporting date)(note that the dollar weighted average exercise price is translated using the closing exchange rate for the respective year (2022: 1:1,0667)):
2022 | 2021 | |||
Number | Weighted Average Exercise Price (US$) | Number | Weighted Average Exercise Price (US$) | |
Balance at January 1 | 52,789,478 | 0.911 | 50,106,488 | 0.909 |
Forfeited | (3,660,928) | 0.847 | (946,738) | 1.046 |
Granted | 4,801,938 | 0.902 | 12,081,000 | 0.931 |
Exercised | (6,333,687) | 0.599 | (8,451,272) | 0.520 |
Balance at December 31 | 47,596,801 | 0.897 | 52,789,478 | 0.911 |
- Vested | 8,687,584 | 0.844 | 21,388,237 | 0.833 |
- Unvested | 38,909,217 | 0.910 | 31,401,241 | 0.966 |
Exercised options 2022
In 2022 a total of 6,333,687 options have been exercised with an average exercise price of US$0.60. In 2021 a total of 8,451,272 options have been exercised with an average exercise price of US$0.52.
All options outstanding at 31\u00a0December 2022 are exercisable with the exception of the unvested options granted to the employees still in service. The 2022 share
options for the employees vest after one year under the condition the employees are still in service at vesting date.
Exercise prices of options outstanding at 31\u00a0December 2022 and the exercise values are in the following ranges (note that the exercise value in US$ is translated using the closing exchange rate for the respective year (2022: 1:1,0667)):
2022 | 2021 | |||
Exercise prices in US$ | Number | Exercise value | Number | Exercise value |
0.28 - 0.57 | 0 | \u2014 | 3,482,428 | 1,322 |
0.57 \u2013 0.85 | 26,796,675 | 21,847 | 12,290,925 | 10,155 |
0.85 \u2013 2.83 | 20,800,126 | 20,895 | 37,016,125 | 36,646 |
Balance at December 31 | 47,596,801 | 42,742 | 52,789,478 | 48,123 |
Granted options
In 2022, the Company granted 4,801,938 options to employees with a weighted average exercise price of US$0.90; fair values for options granted in 2022 were in the range of US$0.092 - US$0.489. In 2021, the Company granted 12,081,000 options to employees with a weighted average exercise price of US$0.93; fair values for options granted in 2021 were in the range of US$0.891 - US$1.292
21.3 Long Term Incentive Plan
An overview of the number of LTIP shares granted in 2019-2022 and in total as well as the fair value per share award is as follows (note that the fair value per share award in US$ is translated using the closing exchange rate for the respective year (2022: 1:1,0667)):
Participant category | 2019 | 2020 | 2021 | 2022 | Total |
Non Executive members of the Board of Directors | 205,000 | \u2014 | \u2014 | \u2014 | 205,000 |
Executive Members of the Board of Directors | 201,050 | \u2014 | 1,337,888 | 2,363,455 | 3,902,393 |
Executive Committee | 326,807 | 105,000 | 6,301,400 | 5,816,083 | 12,549,290 |
Senior managers | 1,830,000 | 930,000 | 812,500 | \u2014 | 3,572,500 |
Total | 2,562,857 | 1,035,000 | 8,451,788 | 8,179,538 | 20,229,183 |
Fair value per share award (US$) | 0.387 | 0.923 | 0.887 | 0.517 |
The following table provides an overview of LTIP shares granted, forfeited or issued in 2019-2022 as well as the number of LTIP shares reserved at 31\u00a0December 2022:
Participant category | Granted | Issued | Forfeited / Unvested | Reserved at December 31, 2022 |
Non Executive members of the Board of Directors | 205,000 | (18,000) | (187,000) | 0 |
Executive Members of the Board of Directors | 3,902,393 | (20,306) | (180,744) | 3,701,343 |
Executive Committee | 12,549,290 | (440,934) | (3,260,738) | 8,847,618 |
Senior managers | 3,572,500 | (180,616) | (2,059,384) | 1,332,500 |
Total | 20,229,183 | (659,856) | (5,687,866) | 13,881,461 |
21.4 Restricted Stock Units
The fair value of the grant is, in line with IFRS 2, the actual share price at date of the grant (October 26, 2022), being EUR 0,97 (US$1,035, translated at the closing exchange rate of 1:1,0667). A total of 4.931.000 RSU's were granted with a total expense of US$5.0 million (US$ yearly average exchange rate = 1.0543).
21.5 Transition arrangement for the Chief Executive Officer
On December 22, 2020, a total number of 4,200,000 (restricted) shares was granted to the CEO in accordance with the terms of the one-off transition arrangement. These shares will vest in three equal annual tranches in 1Q 2021, 1Q 2022 and 1Q 2023, subject to the pro-rata achievement of the long-term targets under the new LTI program.
The second year of the 3-year performance period for the 2021 share grant pursuant to the LTI one-off transition arrangement, ended on December 31, 2021. Accordingly the Board of Directors, upon a recommendation of the Remuneration Committee, determined in the first quarter of 2022 the vesting of the second annual tranche of the total number of 4,200,000 shares conditionally granted to the Chief Executive Officer (i.e., 1,400,000 shares).
The shares will not vest until the first quarter of 2024, applying the targets set at the start of the three year performance period in 2021.
The performance on both the TSR and the strategic corporate objectives, applying the respective weightings, leads to the following vesting level under the One-Off Transition Arrangement for the CEO (i.e., second annual tranche of 1,4000,000 shares):
Metric definition | Achievement | Weighting | Vesting level |
TSR | 115% | 40% | 46% |
Strategic Objectives | 90% | 60% | 54% |
Total | 100% | 100% |
Amounts in US$ \u2018000 | Legal Reserve Currency translation reserve (CTA) | Legal Reserve Capitalized development cost | Legal Reserve participating interest | Reserve Fair value revaluation | Total |
Balance at January 1, 2021 | 19,037 | 4,955 | 622 | \u2014 | 24,614 |
Movements in the year | (15,072) | (4,553) | 694 | (2,283) | (21,214) |
Balance at December 31, 2021 | 3,965 | 402 | 1,316 | (2,283) | 3,400 |
Movements in the year | (10,349) | \u2014 | (1,083) | (705) | (12,137) |
Balance at December 31, 2022 | (6,384) | 402 | 233 | (2,988) | (8,737) |
The other reserves concern the reserve fair value revaluation, reserve participating interest, currency translation differences of foreign investments and capitalized development expenses.
Adjustments to the reserve participating interest relate to the undistributed profits of the participating interest.
Adjustments to the currency translation reserve reflect the effect of translating Euro operations denominated in Euro since their functional currency is different from the reporting currency.
The legal reserves for capitalized development expenses as of 31\u00a0December 2022 (US$0.4 million) shows no activity compared to 2021 (US$0.4 million), as there were no internally developed capitalized costs for 2022.
Recognition and movements of the convertible bonds were as follows:
Amounts in US$ \u2018000 | 2022 | 2021 |
Balance at January 1 | 140,886 | 151,767 |
Interest paid (cash flow) | (3,952) | (4,448) |
Amortization transaction cost | 784 | 849 |
Accrued interest | 3,952 | 4,447 |
Currency translation | (8,284) | (11,729) |
Balance at December 31 | 133,386 | 140,886 |
- Current portion | 1,768 | 1,879 |
- Non-current portion | 131,618 | 139,007 |
On January 21, 2020, the Company issued \u20ac125 million aggregate principal amount of 3.00% convertible bonds due 2025. The bonds were issued at par and bear interest at a rate of 3.00% per annum payable semi-annually in arrears in equal installments. Unless previously converted, redeemed or purchased and cancelled, the bonds will mature on January 21, 2025.
The bonds are convertible into the Company\u2019s ordinary shares at an initial conversion price of \u20ac2.0028. This initial conversion price is subject to customary adjustment provisions. The number of ordinary shares initially underlying the bonds is 62,412,622. Any adjustment to the conversion price resulting in an increase in the number of conversion shares may require the Company to obtain further authorization from the Company\u2019s shareholders to issue shares, grant rights to subscribe for shares and exclude preemptive rights. The Company has the option to redeem all, but not some only, of the outstanding bonds in cash at par plus accrued interest at any time, (a) if, on or after February 13, 2023, the parity value on each of at least 20 trading days in a period of 30 consecutive trading days shall have exceeded 130% of the principal amount or (b) if, at any time, 85% or more of the aggregate principal amount of the bonds originally issued shall have been previously converted and / or repurchased and cancelled.
The convertible bonds are comprised of two components. The first component is a financial liability, which represents our contractual obligation to deliver cash or another financial asset for payment of interest and principal, if not
converted. The second component is an equity instrument as it represents a written call option granting the holder the right, for a specified period of time, to convert it into a fixed number of the Company\u2019s ordinary shares.
The fair value of the consideration in respect of the liability components is measured at the fair value of a similar liability that does not have any associated equity conversion option (IFRS 9 paragraph 5.1.1). This is the liability component\u2019s carrying amount at initial recognition.
Amounts in US$ \u2018000 | 2022 | 2021 |
Accounts payable | 8,753 | 7,599 |
Taxes and social security | 2,099 | 1,505 |
Other accruals | 12,809 | 7,614 |
Other payables | \u2014 | 34 |
Accruals for employees | 12,139 | 8,850 |
Accruals for rebates and discounts | 10,490 | 11,111 |
Accrual for production | 8,175 | 5,760 |
Balance at December 31 | 54,465 | 42,473 |
Amounts in US$ \u2018000 | 2022 | 2021 |
Accounts payable | 8,753 | 7,599 |
Taxes and social security | 2,099 | 1,505 |
Other accruals | 12,809 | 7,614 |
Other payables | \u2014 | 34 |
Accruals for employees | 12,139 | 8,850 |
Accruals for rebates and discounts | 10,490 | 11,111 |
Accrual for production | 8,175 | 5,760 |
Balance at December 31 | 54,465 | 42,473 |
Amounts in US$ \u2018000 | 2022 | 2021 |
Accounts payable | 8,753 | 7,599 |
Taxes and social security | 2,099 | 1,505 |
Other accruals | 12,809 | 7,614 |
Other payables | \u2014 | 34 |
Accruals for employees | 12,139 | 8,850 |
Accruals for rebates and discounts | 10,490 | 11,111 |
Accrual for production | 8,175 | 5,760 |
Balance at December 31 | 54,465 | 42,473 |
In connection with the listing of our ADSs on Nasdaq, we converted our two-tier board structure into a one-tier board structure, with a single board of directors consisting of the executive director and non-executive directors. The new structure became effective on December 11, 2020. Since that date, the Board of Directors is jointly responsible for the management of the Company. The daily management of the Company and the execution of the strategy are entrusted to the CEO, as the only Executive Director. The CEO is supported by the non-statutory Executive Committee in the execution of his tasks and responsibilities. The Non-Executive Directors share statutory management responsibility, but shall focus
on the supervision on the policy and functioning of the performance of the duties by the Executive Director and the Company's general state of affairs. The Non-Executive Directors would focus on the supervision on the policy and functioning of the performance of the duties by the Executive Directors and the Company\u2019s general state of affairs.
Dr. S. de Vries is the Company\u2019s sole Executive member of the Board of Directors and is continuing to be the Chief Executive Officer.
The Board of Directors has the following members:
Name | Position | |
Mr. P. Sekhri | Chair of the Board of Directors and Non-Executive Board Member | |
Ms. D. Jorn | Vice Chair of the Board of Directors and Non-Executive Board Member | |
Ms. B. Yanni | Non-Executive Board Member | |
Dr. M. Pykett | Non-Executive Board Member | |
Ms. J. van der Meijs | Non-Executive Board Member | Appointed 19 May 2021 |
Mr. L. Kruimer | Non-Executive Board Member | Appointed 19 May 2021 |
Mr. S. Baert | Non-Executive Board Member | Appointed 19 May 2021 |
Dr. S. de Vries | Executive Board Member and Chief Executive Officer |
Non-Executive members Board of Directors
Remuneration
For 2022 the annual compensation of the non-executive members of the Board of Directors was as follows:
Responsibility | Cash in Euro's | Ordinary shares in Euro's * | Cash in US Dollars | Ordinary shares in US Dollars * |
Chair of the Board of Directors | 65,000 | 40,000 | 68,530 | 42,172 |
Non-Executive Director | 45,000 | 30,000 | 47,444 | 31,629 |
Chair Audit Committee | 9,000 | 9,489 | ||
Member Audit Committee | 3,000 | 3,163 | ||
Chair Remuneration Committee | 6,000 | 6,326 | ||
Member Remuneration Committee | 3,000 | 3,163 | ||
Chair Governance Committee | 6,000 | 6,326 | ||
Member Governance Committee | 3,000 | 3,163 |
* All shares to be valued at the 20 day VWAP preceding the Annual General Meeting of Shareholders, without further restrictions or grant.
An additional compensation of \u20ac1,000 (US$1,054) per day in case of extraordinary activities, as determined by the Chair of the Board of Directors. Compensation of the Non-Executive members of the Board of Directors for 2022 and 2021 was as follows:
Amounts in US$ \u2018000 | Year | Cash | Share-Based Payment | Total |
Mr. Paul Sekhri | 2022 | 72 | 42 | 114 |
2021 | 77 | 55 | 132 | |
Mr. Barrie Ward | 2022 | \u2014 | \u2014 | \u2014 |
2021 | 23 | 20 | 43 | |
Mr. Juergen Ernst | 2022 | \u2014 | \u2014 | \u2014 |
2021 | \u2014 | 6 | 6 | |
Mr. Aad de Winter | 2022 | \u2014 | \u2014 | \u2014 |
2021 | 26 | 21 | 47 | |
Ms. Deborah Jorn | 2022 | 55 | 32 | 87 |
2021 | 64 | 42 | 106 | |
Ms. Barbara Yanni | 2022 | 53 | 32 | 85 |
2021 | 60 | 36 | 96 | |
Dr. Mark Pykett | 2022 | 50 | 32 | 82 |
2021 | 57 | 36 | 93 | |
Ms. Jabine van der Meijs | 2022 | 57 | 32 | 89 |
2021 | 47 | 24 | 71 | |
Mr. Leonard Kruimer | 2022 | 57 | 32 | 89 |
2021 | 47 | 24 | 71 | |
Mr. Steven Baert | 2022 | 55 | 32 | 87 |
2021 | 45 | 24 | 69 | |
Total | 2022 | 399 | 234 | 633 |
2021 | 446 | 288 | 734 |
Shares
At 31\u00a0December 2022, the Non-Executive members of the Board of Directors held the following numbers of shares:
December 31, 2022 | Ordinary shares |
Mr. Paul Sekhri | 486,037 |
Ms. Deborah Jorn | 98,778 |
Ms. Barbara Yanni | 83,187 |
Dr. Mark Pykett | 83,187 |
Ms. Jabine van der Meijs | 58,349 |
Mr. Leonard Kruimer | 58,349 |
Mr. Steven Baert | 58,349 |
Total | 926,236 |
All shares held by the Non-Executive members of the Board of Directors are unrestricted.
Loans or guarantees
During the year 2022, the Company has not granted loans or guarantees to any member of the Non- Executive members of the Board of Directors. No loans or guarantees to Non-Executive members of the Board of Directors were outstanding at 31\u00a0December 2022.
Executive members Board of Directors
Remuneration
The Executive Board Member is entitled to the following remuneration packages:
I)Fixed remuneration: annual base salary;
II)Variable remuneration: the variable remuneration components are (a) an annual bonus in cash as a percentage of the fixed component (short-term incentive) and (b) a (share- based) long-term incentive;
III)Others: contribution pension premiums, travel allowance and holiday allowance.
The one-off transition arrangement as identified herein above provides for (i) the grant to the Chief Executive Officer, of a total number of 4,200,000 shares for the financial year 2020, and (ii) the vesting of these shares in three annual tranches in the first quarters of 2021, 2022 and 2023, respectively.
Compensation was as follows and includes the entire year 2022, up to December 31, 2022:
Amounts in US$ \u2018000 | Fixed remuneration | Short term variable: annual bonus | Share-based payments | Post-employment benefits | Other | TOTAL |
Dr. Sijmen de Vries | 2022: 636 | 2022: 394 | 2022: 1,221 | 2022: 112 | 2022: 34 | 2022: 2,396 |
* Due to a disclosure error in 2021 caused by the incorrect apportionment of the fair value share-based payment expense over the vesting period, the restated 2021 share-based payments remuneration disclosure of Dr. S. de Vries is US$1.6 million compared to previously reported share-based payments of US$1.3 million.
Options
The following table gives an overview of movements in number of option holdings of the individual members of the executive board of directors in 2022, the exercise prices and expiration dates up to December 31, 2022 (note that the exercise price in US$ is translated using 2022 closing exchange rate (1:1,0667)):
January 1, 2022 | Granted 2022 | Exercised 2022 | Forfeited / expired 2022 | December 31, 2022 | Exercise price (US$) | Expiration date | |
Dr. Sijmen de Vries | 2,800,000 | \u2014 | \u2014 | \u2014 | 2,800,000 | 0.859 | 22 May 2024 |
Shares
At December 31, 2022, the executive members of the board held the following numbers of shares:
Shares held | As at December 31, 2022 |
Dr. Sijmen de Vries | 7,434,383 |
Long term Incentive Plan
Year | Granted | Settled | Forfeited / Unvested | 12/31/2022 | |
Dr. Sijmen de Vries | 2022 | 2,363,455 | \u2014 | \u2014 | 2,363,455 |
2021 | 1,337,888 | \u2014 | \u2014 | 1,337,888 | |
2020 | \u2014 | \u2014 | \u2014 | \u2014 | |
2019 | 201,050 | (20,306) | (180,744) | 0 |
Loans or guarantees
During the year 2022, no loans or guarantees have been granted to the Executive members of the Board of Directors. No loans or guarantees to the Executive member of the Board of Directors were outstanding at 31\u00a0December 2022.
Related parties\u2019 disclosure relates mainly to key management compensation and to transactions with the associated company Bioconnection B.V.
Key management includes members of the Board of Directors:
Amounts in US$ \u2018000 | 2022 | 2021 |
Salaries and other short-term employee benefits | 1,463 | 1,522 |
Post-employment benefits | 112 | 120 |
Share-based compensation | 1,455 | 1,882* |
Total | 3,030 | 3,524 |
*2021 figure restated. See disclosure note 22. Board of Directors to the consolidated financial statements.
All direct transactions with members of the Board of Directors have been disclosed in notes 21 and 22 of these financial statements. At December 31, 2022, the Company had no payable balance to members to the Board of Directors (2021: US$ 0.1 million).
Amounts in US$ \u2018000 | 2022 | 2021 |
Non-current | ||
Financial guarantee contracts | \u2014 | 165 |
Total non-current | \u2014 | 165 |
Total | \u2014 | 165 |
Amounts in US$ \u2018000 | 2022 | 2021 |
Non-current | ||
Financial guarantee contracts | \u2014 | 165 |
Total non-current | \u2014 | 165 |
Total | \u2014 | 165 |
Material agreements
At the end of 2022 the Company had several agreements with third parties related to the manufacturing of RUCONEST\u00ae and leniolisib and development of new products. In these agreements certain minimum volumes are committed. Total potential liabilities under these agreements are approximately US$73.8 million (2021: US$97.3 million), of which US$20.8 million relates to 2023 and US$53.0 million relates to 2024 and further. All expenditures relate to the cost of goods.
Leniolisib milestone commitments
In August 2019, Pharming entered into a development collaboration and license agreement with Novartis to develop and commercialize leniolisib, a small molecule phosphoinositide 3-kinase delta (P13K\u03b4) inhibitor being developed by Novartis to treat patients with Activated Phosphoinositide 3-kinase Delta Syndrome (APDS). In November 2022, Pharming submitted regulatory filings to the FDA and EMA for the purpose to commercialize leniolisib. On March 24, 2023, Pharming received FDA approval for the commercialization of leniolisib in the United States of America. Pharming is preparing its first leniolisib sale in the second quarter of 2023. We anticipate that the CHMP will issue its opinion on the leniolisib MAA in the second half of 2023 and expect European marketing authorisation approximately two months later.
As a result of the FDA approval and the expected EMA approval, it is expected that the first commercial sale of leniolisib will be made which triggers milestone payments for a maximum amount of US$20 million to Novartis. Furthermore, Pharming is committed to certain milestone payments based on actual worldwide annual sales. The total commitment equals US$180 million when yearly net sales reach US$500 million. The first milestone equals US$5 million when yearly net sales reach US$50 million.
In addition to these milestone payments, the Company has agreed to pay royalty fees to Novartis. These royalties are calculated as a fixed percentage over net sales, growing to a maximum of 18% when net sales exceed US$300 million. These royalty payments have a term of 10 years. The minimum royalty liability of 12% is applicable for sales up
until US$150 million. The timing of the milestone payments, except for the milestones related to the first commercial sale in the U.S. and Europe, and royalty payments is uncertain as these are highly dependent on the enrollment of new patients for leniolisib. After the FDA approval of March 24, 2023, Pharming has obtained a FDA Priority review voucher. As part of the agreement with Novartis, Novartis has the right to purchase this voucher from Pharming for an amount of 20% of the average sale price of similar transactions. This right expires within three years after the receipt of the voucher.", "dimensions": { "concept": "ifrs-full:DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory", "language": "en", "entity": "scheme:724500DCJ9MPG74JEH91", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f-393": { "value": "Commitments and contingenciesMaterial agreements
At the end of 2022 the Company had several agreements with third parties related to the manufacturing of RUCONEST\u00ae and leniolisib and development of new products. In these agreements certain minimum volumes are committed. Total potential liabilities under these agreements are approximately US$73.8 million (2021: US$97.3 million), of which US$20.8 million relates to 2023 and US$53.0 million relates to 2024 and further. All expenditures relate to the cost of goods.
Leniolisib milestone commitments
In August 2019, Pharming entered into a development collaboration and license agreement with Novartis to develop and commercialize leniolisib, a small molecule phosphoinositide 3-kinase delta (P13K\u03b4) inhibitor being developed by Novartis to treat patients with Activated Phosphoinositide 3-kinase Delta Syndrome (APDS). In November 2022, Pharming submitted regulatory filings to the FDA and EMA for the purpose to commercialize leniolisib. On March 24, 2023, Pharming received FDA approval for the commercialization of leniolisib in the United States of America. Pharming is preparing its first leniolisib sale in the second quarter of 2023. We anticipate that the CHMP will issue its opinion on the leniolisib MAA in the second half of 2023 and expect European marketing authorisation approximately two months later.
As a result of the FDA approval and the expected EMA approval, it is expected that the first commercial sale of leniolisib will be made which triggers milestone payments for a maximum amount of US$20 million to Novartis. Furthermore, Pharming is committed to certain milestone payments based on actual worldwide annual sales. The total commitment equals US$180 million when yearly net sales reach US$500 million. The first milestone equals US$5 million when yearly net sales reach US$50 million.
In addition to these milestone payments, the Company has agreed to pay royalty fees to Novartis. These royalties are calculated as a fixed percentage over net sales, growing to a maximum of 18% when net sales exceed US$300 million. These royalty payments have a term of 10 years. The minimum royalty liability of 12% is applicable for sales up
until US$150 million. The timing of the milestone payments, except for the milestones related to the first commercial sale in the U.S. and Europe, and royalty payments is uncertain as these are highly dependent on the enrollment of new patients for leniolisib. After the FDA approval of March 24, 2023, Pharming has obtained a FDA Priority review voucher. As part of the agreement with Novartis, Novartis has the right to purchase this voucher from Pharming for an amount of 20% of the average sale price of similar transactions. This right expires within three years after the receipt of the voucher.", "dimensions": { "concept": "ifrs-full:DisclosureOfCommitmentsExplanatory", "language": "en", "entity": "scheme:724500DCJ9MPG74JEH91", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f-394": { "value": "Financial risk managementGeneral
Pharming is exposed to several financial risks: market risks (being currency risk and interest rate risk), credit risks and liquidity risks. The Board of Directors and the Executive Committee are responsible for the management of currency, interest, credit and liquidity risks and as such ultimately responsible for decisions taken in this field.
Capital risk management
The Company manages its capital to ensure that it will be able to continue as a going concern. This includes a regular review of cash flow forecasts and, if deemed appropriate, subsequent raising of funds through execution of equity and/or debt transactions. In doing so, the Board of Directors' and Executive Committees' strategy is to achieve a capital structure which takes into account the best interests of all stakeholders. Pharming\u2019s capital structure includes cash and cash equivalents, debt and equity. Compared to last year there have been no significant changes in risk management policies.
Currency risk
This is the risk that the fair value of assets, liabilities and especially the future cash flows of financial instruments will fluctuate because of changes in foreign exchange rates. Pharming\u2019s policy for the management of foreign currency risks is aimed at protecting the operating profit and positions held or recorded in foreign currencies, in particular of the United States dollar (U.S. dollar). Certain payments and sales of RUCONEST\u00ae in the U.S. are being and will be received in US dollar. In 2022 repayments and interest payments of the loans were made in US dollar. Some direct payments of U.S. activities are carried in U.S.
dollar through the Dutch entities. At 31\u00a0December 2022 the Group\u2019s cash and cash equivalents, including restricted cash, amounted to US$208.7 million. This balance consists of cash assets denominated in euros for a total amount of US$150.3 million or \u20ac140.9 million (applying an exchange rate EUR/US$ at 31\u00a0December 2022 of 1.0667) and cash assets in U.S. dollars for a total amount of US$58.4 million. The U.S. dollar cash balance will be used for the commercialization activities of the U.S. organization and to cover the operating costs of the activities in the EU and RoW.
Cash and cash equivalents (including restricted cash), accounts receivables and inventories denominated in USD amounted in total US$82.1 million (\u20ac77.0 million), respectively US$23.8 million (\u20ac22.3 million) for the trade and other payables denominated in USD. Pharming performed a sensitivity analysis by applying an adjustment to the spot rate at year-end. As the balance of the cash and cash equivalents (including restricted cash) accounts receivables, inventories, trade and other payables, denominated in USD, at year-end is US$58.3 million, a 10% strengthening or weakening of the euro versus US dollar would have an impact of US$5.8 million on the Group\u2019s gain (weakening of the euro) or loss (strengthening of the euro).
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Pharming\u2019s interest rate risk policy is aimed at minimizing the interest rate risks associated with the financing of the Company and thus at the same time optimizing the net interest costs. This policy translates into a certain desired profile of fixed-interest and floating interest positions, including those generated by cash and cash equivalents and those paid on finance lease liabilities. As the interest rate on the convertible bond is a fixed percentage, Pharming concluded that the total risk on interest is not material.
The issue of the Convertible Bonds due 2025 at a fixed interest rate of 3.00% p.a. replacing the Company\u2019s previous debt facility has rendered this concern obsolescent. The interest on the vast majority of the Company\u2019s financial instruments is now not variable with market interest rates. More information on the Convertible Bonds due 2025 can be found in note 18.
Credit risk
Credit risk is defined as the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge obligations. Pharming manages credit risk exposure through the selection of financial institutions having a high credit rating, using credit rating reports issued by institutions such as Standard & Poor\u2019s and Moody\u2019s. The exposure to credit risk at 31\u00a0December 2022 is represented by the carrying amounts of cash and cash equivalents and trade and other receivables.
The carrying amounts of the cash and cash equivalents (including restricted cash) as at 31\u00a0December 2022 amounted to US$208.7 million and was held through financial institutions with a BB+ to A rating or better from Standard & Poor\u2019s, Baa3 to A1 ratings from Moody\u2019s and BBB+ to A ratings from Fitch.
Trade and other receivables at 31\u00a0December 2022 amounted to US$27.6 million. As at the date of these financial statements, these amounts have largely been settled, including receipts in cash and receipt of goods and services in exchange of prepaid expense items. Based on the credit ratings of cash and cash equivalents (including restricted cash) as well as the position taken with respect to trade and other receivables, the Company considers that this risk is adequately managed.
Liquidity risk
The liquidity risk refers to the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. Pharming\u2019s objective is to maintain a minimum level and certain ratio of cash and cash equivalents (including short-term deposits). The strategy of the Company is to repay its obligations through generation of cash income from operating activities such as product sales and licensing agreements. In case such cash flows are insufficient, the Company relies on financing cash flows as provided through the issuance of shares or incurring financial liabilities. Note 3 of these financial statements more extensively describes the Company\u2019s going concern assessment.
The following table presents the financial liabilities at year-end 2022, showing the remaining undiscounted contractual amounts due including nominal interest. Liabilities denominated in foreign currency have been converted at the exchange rate at 31\u00a0December 2022.
Maturity profile of financial liabilities:
Amounts in US$\u2019000 | 2023 | 2024 | 2025 | 2026 | 2027 and onwards | Total | Prior year total |
Trade and other payables | 54,465 | \u2014 | \u2014 | \u2014 | \u2014 | 54,465 | 42,473 |
Other financial liabilities | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | 165 |
Lease Liabilities | 4,644 | 4,397 | 3,583 | 3,583 | 24,484 | 40,691 | 23,496 |
Convertible Bonds | 4,000 | 4,000 | 135,338 | \u2014 | \u2014 | 143,338 | 156,550 |
Total | 63,109 | 8,397 | 138,921 | 3,583 | 24,484 | 238,494 | 222,684 |
Fair value estimation
The Company uses the following hierarchy for determining the fair value of financial instruments measured at fair value:
\u2022Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities;
\u2022Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices);
\u2022Level 3: Inputs for the asset or liability that are not based on observable market data or which are based on the probability of future events occurring (that is, unobservable inputs).
The following table presents the assets that are measured at fair value at year-end 2022 and 2021:
2022 | 2021 | |||||
Amounts in US$\u2019000 | Level 1 | Level 3 | Total | Level 1 | Level 3 | Total |
Investments in equity instruments designated as at FVTOCI | 403 | \u2014 | 403 | 1,449 | \u2014 | 1,449 |
Investments in debt instruments designated as at FVTPL | \u2014 | 6,827 | 6,827 | \u2014 | \u2014 | \u2014 |
Balance at December 31 | 403 | 6,827 | 7,230 | 1,449 | \u2014 | 1,449 |
The following table presents the liabilities that are measured at fair value at year-end 2022 and 2021:
2022 | 2021 | |||
Amounts in US$\u2019000 | Level 3 | Total | Level 3 | Total |
Other financial liabilities | \u2014 | \u2014 | 165 | 165 |
Balance at December 31 | \u2014 | \u2014 | 165 | 165 |
The following table includes carrying values and the estimated fair values of financial instruments:
Amounts in US$ \u2018000 | 2022 | 2021 | ||
Carrying value | Fair value | Carrying value | Fair value | |
Assets: | ||||
Cash and cash equivalents, including restricted cash | 208,654 | 208,654 | 192,963 | 192,963 |
Trade and other receivables | 27,619 | 27,619 | 29,983 | 29,983 |
Liabilities: | ||||
Convertible Bond | 133,386 | 133,386 | 140,886 | 140,886 |
Lease Liabilities | 33,308 | 33,308 | 20,875 | 20,875 |
Other financial liabilities | \u2014 | \u2014 | 165 | 165 |
Trade and other payables | 54,465 | 54,465 | 42,473 | 42,473 |
The above fair values of financial instruments are based on internal calculations. Cash and cash equivalents, trade and other receivables as well as trade and other payables are stated at carrying amount, which approximates the fair value in view of the short maturity of these instruments. The fair values of finance lease liabilities (both non-current and current portion) are based on arm\u2019s length transactions.
The table sets out an analysis for each of the period presented of the net position of Loans and borrowings,
and Cash and cash equivalents, showing the remaining undiscounted contractual amounts due including nominal interest.
Amounts in US$ \u2018000 | 2022 | 2021 |
Cash and cash equivalents | 208,654 | 192,963 |
Convertible bond - repayable within one year | (1,768) | (1,879) |
Convertible bond - repayable after one year | (131,618) | (139,007) |
Net debt | 75,268 | 52,077 |
Cash and cash equivalents | 208,654 | 192,963 |
Gross debt - fixed interest rates | (133,386) | (140,886) |
Gross debt - variable interest rates | \u2014 | \u2014 |
Net debt | 75,268 | 52,077 |
Reconciliation of liabilities arising from financing activities:
2021 | Cashflows | Non - Cash changes | 2022 | ||||||
Amounts in US$\u2019000 | Acquisition and disposal | Interest Expense Accrued | Amortized costs | Fair Value Changes | Foreign exchange effects and other | ||||
Convertible Bond | 140,886 | (3,952) | \u2014 | 3,952 | 784 | \u2014 | (8,284) | 133,386 | |
Other financial liabilities | 165 | \u2014 | (165) | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | |
Lease Liabilities | 20,875 | (3,311) | 16,248 | 718 | \u2014 | \u2014 | (1,222) | 33,308 | |
Derivative financial liabilities | \u2014 | \u2014 | \u2014 | \u2014 | |||||
Total liabilities from financing activities | 161,926 | (7,263) | 16,083 | 4,670 | 784 | \u2014 | (9,506) | 166,694 |
General
Pharming is exposed to several financial risks: market risks (being currency risk and interest rate risk), credit risks and liquidity risks. The Board of Directors and the Executive Committee are responsible for the management of currency, interest, credit and liquidity risks and as such ultimately responsible for decisions taken in this field.
Capital risk management
The Company manages its capital to ensure that it will be able to continue as a going concern. This includes a regular review of cash flow forecasts and, if deemed appropriate, subsequent raising of funds through execution of equity and/or debt transactions. In doing so, the Board of Directors' and Executive Committees' strategy is to achieve a capital structure which takes into account the best interests of all stakeholders. Pharming\u2019s capital structure includes cash and cash equivalents, debt and equity. Compared to last year there have been no significant changes in risk management policies.
Currency risk
This is the risk that the fair value of assets, liabilities and especially the future cash flows of financial instruments will fluctuate because of changes in foreign exchange rates. Pharming\u2019s policy for the management of foreign currency risks is aimed at protecting the operating profit and positions held or recorded in foreign currencies, in particular of the United States dollar (U.S. dollar). Certain payments and sales of RUCONEST\u00ae in the U.S. are being and will be received in US dollar. In 2022 repayments and interest payments of the loans were made in US dollar. Some direct payments of U.S. activities are carried in U.S.
dollar through the Dutch entities. At 31\u00a0December 2022 the Group\u2019s cash and cash equivalents, including restricted cash, amounted to US$208.7 million. This balance consists of cash assets denominated in euros for a total amount of US$150.3 million or \u20ac140.9 million (applying an exchange rate EUR/US$ at 31\u00a0December 2022 of 1.0667) and cash assets in U.S. dollars for a total amount of US$58.4 million. The U.S. dollar cash balance will be used for the commercialization activities of the U.S. organization and to cover the operating costs of the activities in the EU and RoW.
Cash and cash equivalents (including restricted cash), accounts receivables and inventories denominated in USD amounted in total US$82.1 million (\u20ac77.0 million), respectively US$23.8 million (\u20ac22.3 million) for the trade and other payables denominated in USD. Pharming performed a sensitivity analysis by applying an adjustment to the spot rate at year-end. As the balance of the cash and cash equivalents (including restricted cash) accounts receivables, inventories, trade and other payables, denominated in USD, at year-end is US$58.3 million, a 10% strengthening or weakening of the euro versus US dollar would have an impact of US$5.8 million on the Group\u2019s gain (weakening of the euro) or loss (strengthening of the euro).
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Pharming\u2019s interest rate risk policy is aimed at minimizing the interest rate risks associated with the financing of the Company and thus at the same time optimizing the net interest costs. This policy translates into a certain desired profile of fixed-interest and floating interest positions, including those generated by cash and cash equivalents and those paid on finance lease liabilities. As the interest rate on the convertible bond is a fixed percentage, Pharming concluded that the total risk on interest is not material.
The issue of the Convertible Bonds due 2025 at a fixed interest rate of 3.00% p.a. replacing the Company\u2019s previous debt facility has rendered this concern obsolescent. The interest on the vast majority of the Company\u2019s financial instruments is now not variable with market interest rates. More information on the Convertible Bonds due 2025 can be found in note 18.
Credit risk
Credit risk is defined as the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge obligations. Pharming manages credit risk exposure through the selection of financial institutions having a high credit rating, using credit rating reports issued by institutions such as Standard & Poor\u2019s and Moody\u2019s. The exposure to credit risk at 31\u00a0December 2022 is represented by the carrying amounts of cash and cash equivalents and trade and other receivables.
The carrying amounts of the cash and cash equivalents (including restricted cash) as at 31\u00a0December 2022 amounted to US$208.7 million and was held through financial institutions with a BB+ to A rating or better from Standard & Poor\u2019s, Baa3 to A1 ratings from Moody\u2019s and BBB+ to A ratings from Fitch.
Trade and other receivables at 31\u00a0December 2022 amounted to US$27.6 million. As at the date of these financial statements, these amounts have largely been settled, including receipts in cash and receipt of goods and services in exchange of prepaid expense items. Based on the credit ratings of cash and cash equivalents (including restricted cash) as well as the position taken with respect to trade and other receivables, the Company considers that this risk is adequately managed.
Liquidity risk
The liquidity risk refers to the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. Pharming\u2019s objective is to maintain a minimum level and certain ratio of cash and cash equivalents (including short-term deposits). The strategy of the Company is to repay its obligations through generation of cash income from operating activities such as product sales and licensing agreements. In case such cash flows are insufficient, the Company relies on financing cash flows as provided through the issuance of shares or incurring financial liabilities. Note 3 of these financial statements more extensively describes the Company\u2019s going concern assessment.
The following table presents the financial liabilities at year-end 2022, showing the remaining undiscounted contractual amounts due including nominal interest. Liabilities denominated in foreign currency have been converted at the exchange rate at 31\u00a0December 2022.
Maturity profile of financial liabilities:
Amounts in US$\u2019000 | 2023 | 2024 | 2025 | 2026 | 2027 and onwards | Total | Prior year total |
Trade and other payables | 54,465 | \u2014 | \u2014 | \u2014 | \u2014 | 54,465 | 42,473 |
Other financial liabilities | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | 165 |
Lease Liabilities | 4,644 | 4,397 | 3,583 | 3,583 | 24,484 | 40,691 | 23,496 |
Convertible Bonds | 4,000 | 4,000 | 135,338 | \u2014 | \u2014 | 143,338 | 156,550 |
Total | 63,109 | 8,397 | 138,921 | 3,583 | 24,484 | 238,494 | 222,684 |
Fair value estimation
The Company uses the following hierarchy for determining the fair value of financial instruments measured at fair value:
\u2022Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities;
\u2022Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices);
\u2022Level 3: Inputs for the asset or liability that are not based on observable market data or which are based on the probability of future events occurring (that is, unobservable inputs).
The following table presents the assets that are measured at fair value at year-end 2022 and 2021:
2022 | 2021 | |||||
Amounts in US$\u2019000 | Level 1 | Level 3 | Total | Level 1 | Level 3 | Total |
Investments in equity instruments designated as at FVTOCI | 403 | \u2014 | 403 | 1,449 | \u2014 | 1,449 |
Investments in debt instruments designated as at FVTPL | \u2014 | 6,827 | 6,827 | \u2014 | \u2014 | \u2014 |
Balance at December 31 | 403 | 6,827 | 7,230 | 1,449 | \u2014 | 1,449 |
The following table presents the liabilities that are measured at fair value at year-end 2022 and 2021:
2022 | 2021 | |||
Amounts in US$\u2019000 | Level 3 | Total | Level 3 | Total |
Other financial liabilities | \u2014 | \u2014 | 165 | 165 |
Balance at December 31 | \u2014 | \u2014 | 165 | 165 |
The following table includes carrying values and the estimated fair values of financial instruments:
Amounts in US$ \u2018000 | 2022 | 2021 | ||
Carrying value | Fair value | Carrying value | Fair value | |
Assets: | ||||
Cash and cash equivalents, including restricted cash | 208,654 | 208,654 | 192,963 | 192,963 |
Trade and other receivables | 27,619 | 27,619 | 29,983 | 29,983 |
Liabilities: | ||||
Convertible Bond | 133,386 | 133,386 | 140,886 | 140,886 |
Lease Liabilities | 33,308 | 33,308 | 20,875 | 20,875 |
Other financial liabilities | \u2014 | \u2014 | 165 | 165 |
Trade and other payables | 54,465 | 54,465 | 42,473 | 42,473 |
The above fair values of financial instruments are based on internal calculations. Cash and cash equivalents, trade and other receivables as well as trade and other payables are stated at carrying amount, which approximates the fair value in view of the short maturity of these instruments. The fair values of finance lease liabilities (both non-current and current portion) are based on arm\u2019s length transactions.
The table sets out an analysis for each of the period presented of the net position of Loans and borrowings,
and Cash and cash equivalents, showing the remaining undiscounted contractual amounts due including nominal interest.
Amounts in US$ \u2018000 | 2022 | 2021 |
Cash and cash equivalents | 208,654 | 192,963 |
Convertible bond - repayable within one year | (1,768) | (1,879) |
Convertible bond - repayable after one year | (131,618) | (139,007) |
Net debt | 75,268 | 52,077 |
Cash and cash equivalents | 208,654 | 192,963 |
Gross debt - fixed interest rates | (133,386) | (140,886) |
Gross debt - variable interest rates | \u2014 | \u2014 |
Net debt | 75,268 | 52,077 |
Reconciliation of liabilities arising from financing activities:
2021 | Cashflows | Non - Cash changes | 2022 | ||||||
Amounts in US$\u2019000 | Acquisition and disposal | Interest Expense Accrued | Amortized costs | Fair Value Changes | Foreign exchange effects and other | ||||
Convertible Bond | 140,886 | (3,952) | \u2014 | 3,952 | 784 | \u2014 | (8,284) | 133,386 | |
Other financial liabilities | 165 | \u2014 | (165) | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | |
Lease Liabilities | 20,875 | (3,311) | 16,248 | 718 | \u2014 | \u2014 | (1,222) | 33,308 | |
Derivative financial liabilities | \u2014 | \u2014 | \u2014 | \u2014 | |||||
Total liabilities from financing activities | 161,926 | (7,263) | 16,083 | 4,670 | 784 | \u2014 | (9,506) | 166,694 |
Currency risk
This is the risk that the fair value of assets, liabilities and especially the future cash flows of financial instruments will fluctuate because of changes in foreign exchange rates. Pharming\u2019s policy for the management of foreign currency risks is aimed at protecting the operating profit and positions held or recorded in foreign currencies, in particular of the United States dollar (U.S. dollar). Certain payments and sales of RUCONEST\u00ae in the U.S. are being and will be received in US dollar. In 2022 repayments and interest payments of the loans were made in US dollar. Some direct payments of U.S. activities are carried in U.S.
dollar through the Dutch entities. At 31\u00a0December 2022 the Group\u2019s cash and cash equivalents, including restricted cash, amounted to US$208.7 million. This balance consists of cash assets denominated in euros for a total amount of US$150.3 million or \u20ac140.9 million (applying an exchange rate EUR/US$ at 31\u00a0December 2022 of 1.0667) and cash assets in U.S. dollars for a total amount of US$58.4 million. The U.S. dollar cash balance will be used for the commercialization activities of the U.S. organization and to cover the operating costs of the activities in the EU and RoW.
Cash and cash equivalents (including restricted cash), accounts receivables and inventories denominated in USD amounted in total US$82.1 million (\u20ac77.0 million), respectively US$23.8 million (\u20ac22.3 million) for the trade and other payables denominated in USD. Pharming performed a sensitivity analysis by applying an adjustment to the spot rate at year-end. As the balance of the cash and cash equivalents (including restricted cash) accounts receivables, inventories, trade and other payables, denominated in USD, at year-end is US$58.3 million, a 10% strengthening or weakening of the euro versus US dollar would have an impact of US$5.8 million on the Group\u2019s gain (weakening of the euro) or loss (strengthening of the euro).
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Pharming\u2019s interest rate risk policy is aimed at minimizing the interest rate risks associated with the financing of the Company and thus at the same time optimizing the net interest costs. This policy translates into a certain desired profile of fixed-interest and floating interest positions, including those generated by cash and cash equivalents and those paid on finance lease liabilities. As the interest rate on the convertible bond is a fixed percentage, Pharming concluded that the total risk on interest is not material.
The issue of the Convertible Bonds due 2025 at a fixed interest rate of 3.00% p.a. replacing the Company\u2019s previous debt facility has rendered this concern obsolescent. The interest on the vast majority of the Company\u2019s financial instruments is now not variable with market interest rates. More information on the Convertible Bonds due 2025 can be found in note 18.
Currency risk
This is the risk that the fair value of assets, liabilities and especially the future cash flows of financial instruments will fluctuate because of changes in foreign exchange rates. Pharming\u2019s policy for the management of foreign currency risks is aimed at protecting the operating profit and positions held or recorded in foreign currencies, in particular of the United States dollar (U.S. dollar). Certain payments and sales of RUCONEST\u00ae in the U.S. are being and will be received in US dollar. In 2022 repayments and interest payments of the loans were made in US dollar. Some direct payments of U.S. activities are carried in U.S.
dollar through the Dutch entities. At 31\u00a0December 2022 the Group\u2019s cash and cash equivalents, including restricted cash, amounted to US$208.7 million. This balance consists of cash assets denominated in euros for a total amount of US$150.3 million or \u20ac140.9 million (applying an exchange rate EUR/US$ at 31\u00a0December 2022 of 1.0667) and cash assets in U.S. dollars for a total amount of US$58.4 million. The U.S. dollar cash balance will be used for the commercialization activities of the U.S. organization and to cover the operating costs of the activities in the EU and RoW.
Cash and cash equivalents (including restricted cash), accounts receivables and inventories denominated in USD amounted in total US$82.1 million (\u20ac77.0 million), respectively US$23.8 million (\u20ac22.3 million) for the trade and other payables denominated in USD. Pharming performed a sensitivity analysis by applying an adjustment to the spot rate at year-end. As the balance of the cash and cash equivalents (including restricted cash) accounts receivables, inventories, trade and other payables, denominated in USD, at year-end is US$58.3 million, a 10% strengthening or weakening of the euro versus US dollar would have an impact of US$5.8 million on the Group\u2019s gain (weakening of the euro) or loss (strengthening of the euro).
Credit risk
Credit risk is defined as the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge obligations. Pharming manages credit risk exposure through the selection of financial institutions having a high credit rating, using credit rating reports issued by institutions such as Standard & Poor\u2019s and Moody\u2019s. The exposure to credit risk at 31\u00a0December 2022 is represented by the carrying amounts of cash and cash equivalents and trade and other receivables.
The carrying amounts of the cash and cash equivalents (including restricted cash) as at 31\u00a0December 2022 amounted to US$208.7 million and was held through financial institutions with a BB+ to A rating or better from Standard & Poor\u2019s, Baa3 to A1 ratings from Moody\u2019s and BBB+ to A ratings from Fitch.
Trade and other receivables at 31\u00a0December 2022 amounted to US$27.6 million. As at the date of these financial statements, these amounts have largely been settled, including receipts in cash and receipt of goods and services in exchange of prepaid expense items. Based on the credit ratings of cash and cash equivalents (including restricted cash) as well as the position taken with respect to trade and other receivables, the Company considers that this risk is adequately managed.
Liquidity risk
The liquidity risk refers to the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. Pharming\u2019s objective is to maintain a minimum level and certain ratio of cash and cash equivalents (including short-term deposits). The strategy of the Company is to repay its obligations through generation of cash income from operating activities such as product sales and licensing agreements. In case such cash flows are insufficient, the Company relies on financing cash flows as provided through the issuance of shares or incurring financial liabilities. Note 3 of these financial statements more extensively describes the Company\u2019s going concern assessment.
The following table presents the financial liabilities at year-end 2022, showing the remaining undiscounted contractual amounts due including nominal interest. Liabilities denominated in foreign currency have been converted at the exchange rate at 31\u00a0December 2022.
Maturity profile of financial liabilities:
Amounts in US$\u2019000 | 2023 | 2024 | 2025 | 2026 | 2027 and onwards | Total | Prior year total |
Trade and other payables | 54,465 | \u2014 | \u2014 | \u2014 | \u2014 | 54,465 | 42,473 |
Other financial liabilities | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | 165 |
Lease Liabilities | 4,644 | 4,397 | 3,583 | 3,583 | 24,484 | 40,691 | 23,496 |
Convertible Bonds | 4,000 | 4,000 | 135,338 | \u2014 | \u2014 | 143,338 | 156,550 |
Total | 63,109 | 8,397 | 138,921 | 3,583 | 24,484 | 238,494 | 222,684 |
Fair value estimation
The Company uses the following hierarchy for determining the fair value of financial instruments measured at fair value:
\u2022Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities;
\u2022Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices);
\u2022Level 3: Inputs for the asset or liability that are not based on observable market data or which are based on the probability of future events occurring (that is, unobservable inputs).
The following table presents the assets that are measured at fair value at year-end 2022 and 2021:
2022 | 2021 | |||||
Amounts in US$\u2019000 | Level 1 | Level 3 | Total | Level 1 | Level 3 | Total |
Investments in equity instruments designated as at FVTOCI | 403 | \u2014 | 403 | 1,449 | \u2014 | 1,449 |
Investments in debt instruments designated as at FVTPL | \u2014 | 6,827 | 6,827 | \u2014 | \u2014 | \u2014 |
Balance at December 31 | 403 | 6,827 | 7,230 | 1,449 | \u2014 | 1,449 |
The following table presents the liabilities that are measured at fair value at year-end 2022 and 2021:
2022 | 2021 | |||
Amounts in US$\u2019000 | Level 3 | Total | Level 3 | Total |
Other financial liabilities | \u2014 | \u2014 | 165 | 165 |
Balance at December 31 | \u2014 | \u2014 | 165 | 165 |
The following table includes carrying values and the estimated fair values of financial instruments:
Amounts in US$ \u2018000 | 2022 | 2021 | ||
Carrying value | Fair value | Carrying value | Fair value | |
Assets: | ||||
Cash and cash equivalents, including restricted cash | 208,654 | 208,654 | 192,963 | 192,963 |
Trade and other receivables | 27,619 | 27,619 | 29,983 | 29,983 |
Liabilities: | ||||
Convertible Bond | 133,386 | 133,386 | 140,886 | 140,886 |
Lease Liabilities | 33,308 | 33,308 | 20,875 | 20,875 |
Other financial liabilities | \u2014 | \u2014 | 165 | 165 |
Trade and other payables | 54,465 | 54,465 | 42,473 | 42,473 |
The above fair values of financial instruments are based on internal calculations. Cash and cash equivalents, trade and other receivables as well as trade and other payables are stated at carrying amount, which approximates the fair value in view of the short maturity of these instruments. The fair values of finance lease liabilities (both non-current and current portion) are based on arm\u2019s length transactions.
The table sets out an analysis for each of the period presented of the net position of Loans and borrowings,
and Cash and cash equivalents, showing the remaining undiscounted contractual amounts due including nominal interest.
Amounts in US$ \u2018000 | 2022 | 2021 |
Cash and cash equivalents | 208,654 | 192,963 |
Convertible bond - repayable within one year | (1,768) | (1,879) |
Convertible bond - repayable after one year | (131,618) | (139,007) |
Net debt | 75,268 | 52,077 |
Cash and cash equivalents | 208,654 | 192,963 |
Gross debt - fixed interest rates | (133,386) | (140,886) |
Gross debt - variable interest rates | \u2014 | \u2014 |
Net debt | 75,268 | 52,077 |
Reconciliation of liabilities arising from financing activities:
2021 | Cashflows | Non - Cash changes | 2022 | ||||||
Amounts in US$\u2019000 | Acquisition and disposal | Interest Expense Accrued | Amortized costs | Fair Value Changes | Foreign exchange effects and other | ||||
Convertible Bond | 140,886 | (3,952) | \u2014 | 3,952 | 784 | \u2014 | (8,284) | 133,386 | |
Other financial liabilities | 165 | \u2014 | (165) | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | |
Lease Liabilities | 20,875 | (3,311) | 16,248 | 718 | \u2014 | \u2014 | (1,222) | 33,308 | |
Derivative financial liabilities | \u2014 | \u2014 | \u2014 | \u2014 | |||||
Total liabilities from financing activities | 161,926 | (7,263) | 16,083 | 4,670 | 784 | \u2014 | (9,506) | 166,694 |
Fair value estimation
The Company uses the following hierarchy for determining the fair value of financial instruments measured at fair value:
\u2022Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities;
\u2022Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices);
\u2022Level 3: Inputs for the asset or liability that are not based on observable market data or which are based on the probability of future events occurring (that is, unobservable inputs).
The following table presents the assets that are measured at fair value at year-end 2022 and 2021:
2022 | 2021 | |||||
Amounts in US$\u2019000 | Level 1 | Level 3 | Total | Level 1 | Level 3 | Total |
Investments in equity instruments designated as at FVTOCI | 403 | \u2014 | 403 | 1,449 | \u2014 | 1,449 |
Investments in debt instruments designated as at FVTPL | \u2014 | 6,827 | 6,827 | \u2014 | \u2014 | \u2014 |
Balance at December 31 | 403 | 6,827 | 7,230 | 1,449 | \u2014 | 1,449 |
The following table presents the liabilities that are measured at fair value at year-end 2022 and 2021:
2022 | 2021 | |||
Amounts in US$\u2019000 | Level 3 | Total | Level 3 | Total |
Other financial liabilities | \u2014 | \u2014 | 165 | 165 |
Balance at December 31 | \u2014 | \u2014 | 165 | 165 |
The following table includes carrying values and the estimated fair values of financial instruments:
Amounts in US$ \u2018000 | 2022 | 2021 | ||
Carrying value | Fair value | Carrying value | Fair value | |
Assets: | ||||
Cash and cash equivalents, including restricted cash | 208,654 | 208,654 | 192,963 | 192,963 |
Trade and other receivables | 27,619 | 27,619 | 29,983 | 29,983 |
Liabilities: | ||||
Convertible Bond | 133,386 | 133,386 | 140,886 | 140,886 |
Lease Liabilities | 33,308 | 33,308 | 20,875 | 20,875 |
Other financial liabilities | \u2014 | \u2014 | 165 | 165 |
Trade and other payables | 54,465 | 54,465 | 42,473 | 42,473 |
The above fair values of financial instruments are based on internal calculations. Cash and cash equivalents, trade and other receivables as well as trade and other payables are stated at carrying amount, which approximates the fair value in view of the short maturity of these instruments. The fair values of finance lease liabilities (both non-current and current portion) are based on arm\u2019s length transactions.
The table sets out an analysis for each of the period presented of the net position of Loans and borrowings,
and Cash and cash equivalents, showing the remaining undiscounted contractual amounts due including nominal interest.
Amounts in US$ \u2018000 | 2022 | 2021 |
Cash and cash equivalents | 208,654 | 192,963 |
Convertible bond - repayable within one year | (1,768) | (1,879) |
Convertible bond - repayable after one year | (131,618) | (139,007) |
Net debt | 75,268 | 52,077 |
Cash and cash equivalents | 208,654 | 192,963 |
Gross debt - fixed interest rates | (133,386) | (140,886) |
Gross debt - variable interest rates | \u2014 | \u2014 |
Net debt | 75,268 | 52,077 |
Reconciliation of liabilities arising from financing activities:
2021 | Cashflows | Non - Cash changes | 2022 | ||||||
Amounts in US$\u2019000 | Acquisition and disposal | Interest Expense Accrued | Amortized costs | Fair Value Changes | Foreign exchange effects and other | ||||
Convertible Bond | 140,886 | (3,952) | \u2014 | 3,952 | 784 | \u2014 | (8,284) | 133,386 | |
Other financial liabilities | 165 | \u2014 | (165) | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | |
Lease Liabilities | 20,875 | (3,311) | 16,248 | 718 | \u2014 | \u2014 | (1,222) | 33,308 | |
Derivative financial liabilities | \u2014 | \u2014 | \u2014 | \u2014 | |||||
Total liabilities from financing activities | 161,926 | (7,263) | 16,083 | 4,670 | 784 | \u2014 | (9,506) | 166,694 |
Basic earnings per share is calculated based on the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share is computed based on the weighted average number of ordinary shares outstanding including the dilutive effect of shares to be issued in the future under certain arrangements such as option plans and warrants issued. For 2022 and 2021, the basic and diluted profit (loss) per share is:
2022 | 2021 | |
Net profit (loss) attributable to equity owners of the parent (in US$\u2019000) | 13,674 | 15,996 |
Weighted average shares outstanding | 648,676,119 | 642,007,692 |
Basic profit (loss) per share (in US$) | 0.021 | 0.025 |
Weighted average diluted shares outstanding | 707,141,263 | 701,151,525 |
Diluted profit (loss) per share (in US$) | 0.019 | 0.023 |
The diluted net profit used in the calculation of dilutive profit per share amounts to US$13.7 million. Difference between the weighted average shares outstanding and the weighted average diluted shares outstanding used for basic profits calculations per share relates to restricted stock units (RSU), options, warrants and LTIP. The 62.412.622 average shares related to the convertible bonds are anti-dilutive and are therefore excluded from the weighted average number of ordinary shares for the purpose of diluted earnings per share.
Diluted shares
The composition of the number of shares and share rights outstanding as well as authorized share capital as per 31\u00a0December 2022 and the date of these financial statements is provided in the following table.
Movements of shares and other instruments between 31\u00a0December 2022 and 4 April 2023 are shown in the table below:
December 31, | Shares issued | Other | 4 April 2023 | |
Shares | 656,348,225 | 2,324,118 | \u2014 | 658,672,343 |
RSU | 4,931,000 | \u2014 | \u2014 | 4,931,000 |
Options | 47,596,801 | (756,191) | (762,000) | 46,078,610 |
Convertible bonds | 62,412,622 | \u2014 | \u2014 | 62,412,622 |
LTIP | 15,304,821 | (1,516,432) | 3,790,993 | 17,579,382 |
Issued | 786,593,469 | 51,495 | 3,028,993 | 789,673,957 |
Available for issue | 93,406,531 | (51,495) | -3,028,993 | 90,326,043 |
Authorized share capital | 880,000,000 | \u2014 | \u2014 | 880,000,000 |
Leniolisib FDA Approval
In August 2019, Pharming entered into a development collaboration and license agreement with Novartis to develop and commercialize leniolisib, a small molecule phosphoinositide 3-kinase delta (P13K\u03b4) inhibitor being developed by Novartis to treat patients with Activated Phosphoinositide 3-kinase Delta Syndrome (APDS). In November 2022, Pharming submitted regulatory filings to the FDA and EMA for the purpose to commercialize leniolisib. On March 24, 2023, Pharming received FDA approval for the commercialization of leniolisib in the United States of America. Pharming is preparing its first leniolisib sale in the second quarter of 2023. We anticipate that the CHMP will issue its opinion on the leniolisib MAA in the second half of 2023 and expect European marketing authorisation approximately two months later. For further details, refer to note 25 of the consolidated financial statements.