Vectura's growing recurring revenues cushion blow of bigger loss
Respiratory drug device specialist Vectura reported a wider first-half loss as its revenues moved towards recurring sources amid fewer milestone payments.
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On revenue of £78.8m in the six months to 30 June, which was up 7% year on year, operating loss widened to £41.3m from £24.1m.
Recurring revenues, however, were up 26% to £71m where they represent 90% of total turnover versus 76% a year ago, with non-recurring revenue of £7.8m down from £17.6m in the prior period.
Adjusted earnings before interest, tax, depreciation and amortisation of £18.9m was down 12.1%, but adjusted EBITDA based on recurring revenue rocketed to £11.1m from £3.9m.
Cash stood at £90.5m at the half-year point, down from £92.5m over the six months reflecting £4.9m of outflows for prior year tax, while the second half will benefit from the receipt of £4.1m of royalties and $5.0m signing payment from Sandoz for a license and development agreement for a generic version of a major inhaled combination therapy for asthma and chronic obstructive pulmonary disease.
The biggest event during the period was perhaps the complete response letter in May that Vectura and partner Hikma received from the US Food & Drug Administration in relation to the pair's proposed generic version of Advair Diskus, which is likely to require significant amendments to the drug application.
Vectura, as device and drug formulation designer, and Hikma, as the drug maker, have said a number of the questions raised have been clarified and resolved, leading management to expect to be able to "confirm the regulatory timetable before the end of 2017".
With discussions ongoing, most analysts seem to assume the application will be re-filed in the first half of next year.
Last month, Vectura also announced an exclusive global agreement with Dynavax for the clinical application of Vectura's proprietary smart nebuliser technology to deliver Dynavax's investigational immunotherapeutic agent to lung cancer patients.
Vectura also on Wednesday announced a "major" new development programme for a tiotropium bromide dry powder inhaler for COPD, accelerated through the licensing of technology from Pulmatrix.
Following the announcement with Sandoz, this is the second partnering deal from the new generics programmes that were announced since last year's Skypharma merger.
Chief executive James Ward-Lilley called it a "robust" set of results that was in line with internal expectations for the full year.
"We continue to make significant headway with both our pipeline and business development. There is a productive dialogue and progress being made with the FDA following receipt of the major CRL for our VR315 Advair generic in the US, concluding a number of open questions. Along with our partner Hikma, we remain confident of the approvability of the product."
Vectura shares, which had already fallen by more than a third since topping 150p in April, fell another 10% on Wednesday to 98.1p.
Analyst Mike van Dulken at Accendo Markets suggested one reason for the extra oomph in the share price drop was to do with the language used in the Risk & Uncertainties statement in the interim results.
Last month Hikma said the discussions with the FDA had confirmed the initial assessment that "there are no material issues regarding the substitutability of the proposed device".
Prior to that, Vectura had only highlighted the risks attached to the drug as "disruption to the launch of VR315 (US)".
Van Dulken noted that the interims saw this formally downgraded to a statement that "Issues raised by the US FDA in their Complete Response Letter for VR315 (US) are not resolved. Failure to resolve these issues at all or in a timely manner will result in a loss of potential future revenues for the group as well as additional funds for investment.”
While Vectura said it and Hikma are confident the issues raised in the letter will be addressed and the product approved as an AB rated substitutable product, van Dulken said "pipeline uncertainty is never good - especially for smaller companies for whom success and/or failure can hinge on a select few drugs compared to more diverse revenue streams at bigger pharma counterparts".