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Masthead Executive Leadership 200x300 - Frontage Holdings Announces 2020 Annual Results

Frontage Holdings Announces 2020 Annual Results

Revenue increased by 25.3% to US$125.8 million year-on-year, while strong growth of 48.3% for the second half year

Net profit decreased by 5.4% year-on-year to US$17.4, while strong growth of 42.9% for the second half year

Adjusted net profit decreased by 4.7% year-on-year to US$20.4, while strong growth of 66.7% for the second half year

Contracted future revenue increased by 57.1% to US$172.0 million

Capacity and capabilities of Service offerings were significantly expanded by organic growth and acquisitions both in North America and China

 

Hong Kong, March 29, 2021 – Frontage Holdings Corporation (“Frontage”, “Frontage Holdings” or “the Group”, stock code: 1521.HK), a Contract Research Organization (“CRO”) providing integrated, science-driven research, analytical and development services with presence in both North America and China, today announces its audited annual results for the year ended December 31, 2020.

 

Financial Highlights

 

  • Revenue increased by 25.3% year-on-year to US$125.8 million, while increased by 48.3% year-on-year to US$75.2 million for the second half year
  • Revenue from operations in North America increased by 20.7% year-on-year to US$87.9 million (growth of 34.6% year-on-year for the second half year). Excluding the impact of currency translation, revenue from operations in China increased by 36.6% to RMB259.9 million (growth of 83.4% year-on-year for the second half year).
  • Gross profit margin was 33.0% (37.1% in 2019), improved from 28.9% for the first half year to 35.7% for the second half year. Specifically, Gross profit margin in North America was 29.5% (33.0% in 2019), improved from 24.6% for the first half year to 33.0% for the second half year. Gross profit margin in China was 41.0% (48.1% in 2019), also improved from 40.0% for the first half year to 41.6% for the second half year.
  • EBITDA and Adjusted EBITDA reached US$34.0 million and US$35.0 million, representing a 14.9% and 7.4% growth, respectively. EBITDA and adjusted EBITDA margins were 27.1% and 27.8% respectively.
  • Net profit decreased by 5.4% year-on-year to US$17.4 million, while increased by 42.9% year-on-year to US$13.0 million for the second half year. Net profit margin was 13.8% (18.4% in 2019), while significantly improved from 8.8% for the first half year to 17.2% for the second half year.
  • Adjusted net profit decreased by 4.7% year-on-year to US$20.4 million, while increased by 66.7% year-on-year to US$15.5 million for the second half year. Adjusted net profit margin was 16.2% (21.3% in 2019), while significantly improved from 9.7% for the first half year to 20.6% for the second half year.

 

 

Operational Highlights

 

  • Recorded US$172 million contract future revenue as of December 31, 2020, representing a 51.7% growth compared to US$109.5 million as of December 31, 2019
  • The capabilities of bioanalytical and biologics segment were expanded by adding central laboratory services, which include clinical collection kits, central laboratory testing, sample tracking, local lab normalization, biorepository, logistics, scientific operations, advanced therapy services, clinical, PK/PD, and COVID-19 testing. The kits-related logistic service and COVID-19 testing services launched successfully in November 2020 at Exton, PA facility. The rest of these services expected to be fully operational by the third quarter of 2021. Central laboratory services were also under construction in Shanghai, China.
  • Capabilities in organic synthesis, medicinal chemistry and process research and development was expanded by acquisition of Acme Biosciences, Inc. (“Acme”) in July 2020.
  • Expanded our services offerings in several important areas by creating a highly specialized Quantitative Whole Body Autoradiography (“QWBA”) center of excellence (“COE”) and expanding our genomics capabilities, including DNA sequencing services at Exton, PA facility, developing genetic toxicology and safety pharmacology and full IND-enabling panel of in vivo & vitro studies at Concord, Ohio facility.
  • Capabilities of DMPK, especially expertise in transporter assay and drug-induced liver injury was expanded by acquisition of Biotranex, LLC (“Biotranex”) in March 2020
  • Construction for the new laboratory facility of approximately 71,000 sq.ft used for expanding CMC, bioanalytical, and central laboratory services in Exton, PA is substantially complete. The facility is targeted to be operational within the second quarter of 2021
  • Initiated the design for a new 25,000 sq. ft. facility space in Hayward, California to expand bioanalytical capabilities. The facility is expected to be partially operational by the fourth quarter of 2021
  • Completed the upgrade of the existing bioanalytical lab facility of approximately 16,000 sq.ft in Shanghai, China, dedicated to the bioanalytical support of biologic services including proteins, cell and gene therapy, and biomarkers
  • Initiated the construction for the 215,000 sq. ft. research facility in Suzhou, China, which will be used to conduct DMPK and non-GLP/GLP toxicology studies. The new facility is expected to be operational and to provide DMPK and non-GLP toxicology services within the fourth quarter of 2021
  • Initiated the construction for the 83,000 sq. ft. facility in Suzhou, China to expand CMC and GMP clinical trial material manufacturing capabilities. The facility is expected to be partially operational by the fourth quarter of 2021.
  • A new research facility of approximately 67,000 sq.ft used for bioanalytical in biologics, central laboratory services and drug activity screening was rented in Lin-Gang Special Area, Shanghai, China. The design process of the facility has been initiated
  • Initiated the construction of a new GMP kilo laboratory in Acme’s Shanghai site which is anticipated to be completed by the end of the second quarter of 2021. The new laboratory will enable the Group to provide GMP API manufacturing services, thereby enhancing Chemistry unit’s range of chemistry services from discovery to development, milligram to kilogram, and medicinal chemistry to API synthesis
  • Employees headcount grew to 1,002 as of December 31, 2020 compared to 736 as of December 31, 2019

 

 

Management Comments

 

Dr. Song Li, Founder, Chairman and CEO of Frontage Holdings, commented: “2020 has been a challenging year for all of us. When the COVID-19 pandemic began early in 2020, we immediately implemented a number of mitigation measures to protect the safety, health, and well-being of our employees, while permitting our critical business operations to continue in a safe manner. Although the COVID-19 pandemic presented challenges for our operations, we continued our growth as a full-service CRO by relying on our robust scientific knowledge base, technical expertise and reputation for high quality services. In particular, with a strong recovery for our global operations during the second half year, our revenue, net profit and adjusted net profit for the second half year of 2020 increased by 48.3%, 42.9% and 66.7% compared to the same period of 2019. We were also pleased that our contract future revenue reached a record high of US$172.0 million as at December 31, 2020, representing an increase of 57.1% compared to US$109.5 million as at December 31, 2019, which evidenced that there has been ongoing strong demand for our services.

 

In 2020, We expanded our service offerings in several important areas. Central laboratory services were added in our operations in North America. The kits-related logistic service and COVID-19 testing services launched successfully in November 2020 at our Exton, PA facility, the rest of central laboratory services is expected to be fully operational by the third quarter of 2021. We also initiated the construction of our central laboratory services in Shanghai, China. Our highly experienced central laboratory team successfully developed COVID-19 RT- PCR and IgM testing methods at our headquarters in Exton, PA. These platforms have proven to be highly reliable and are nationally recognized as essential tools in managing the spread of the novel coronavirus. We established a highly requested QWBA COE, and developed full service human radiolabeled Absorption, Metabolism, and Excretion (“hAME”) study capability, as well as genomics capabilities, including DNA sequencing services at our Exton PA facility. We also established genetic toxicology and safety pharmacology and full IND-enabling panel of in vivo & vitro studies at our Concord, Ohio facility.

 

Several facilities were completed or in the process of construction to expand our capacities and capabilities in different aspects. In China, We completed the upgrade of the existing bioanalytical lab facility of approximately 16,000 sq.ft in Shanghai, dedicated to the bioanalytical support of biologic services including proteins, cell and gene therapy, and biomarkers. We initiated the construction for the 215,000 sq. ft. facility in Suzhou, which will be used to conduct DMPK and non-GLP/GLP toxicology studies in Suzhou. Another 83,000 sq. ft. facility which will be used for CMC and GMP clinical trial material manufacturing is also under construction in Suzhou. To date, We also initiated the design process for a new research facility of approximately 67,000 sq.ft, which used for bioanalytical in biologics, central laboratory services and drug activity screening in Lin-Gang Special Area, Shanghai. In the US, We substantially completed the construction for the new laboratory facility of approximately 71,000 sq.ft in Exton, PA，which is used for expanding CMC, bioanalytical, and central laboratory services in North America. The facility is targeted to be operational within the second quarter of 2021. We also initiated the design for a new 25,000 sq. ft. facility space in Hayward, California to expand bioanalytical capabilities. We believe that capacities and capabilities for our service offerings will be further expanded with all these facilities put into operation in the near future.

 

In addition to our organic growth and expansion, we also expanded our business through acquisitions. In March 2020, we further expanded our capability of DMPK, especially expertise in transporter assay and drug-induced liver injury by acquisition of Biotranex in Monmouth Junction, New Jersey. In July 2020, we stepped into drug discovery service by acquisition of Acme, a company provides synthetic & medicinal chemistry and process research & development services for biopharmaceutical companies specializing in drug discovery and development, which has operations in the San Francisco Bay Area, California and Shanghai, China. Following the acquisition, we initiated the construction of a new GMP kilo laboratory in Acme Shanghai site, which will enable us to provide GMP API manufacturing services, thereby enhancing our chemistry services from discovery to development, milligram to kilogram, and medicinal chemistry to API synthesis.

 

In 2020, We also invested significantly in personnel to bring additional capacities and capabilities to our organization. We grew our employee headcount from 712 at the end of 2019 to 1,002 as of December 31, 2020, across 18 sites in three countries. Moreover, we added several experienced personnel intended to facilitate further expansion of our platform. We believe our efforts to expand our pool of talent, particularly in hiring additional research scientist staff, will allow us to maintain our high service standards, industry leading expertise and reputation for quality and innovation.

 

The global economy faced unprecedented challenges in 2020 due to the COVID-19 pandemic, but we believe the resilience of our business model has enabled us to weather these challenges well. This resilience was the result of comprehensive business continuity plans that enabled us to keep our operating sites open and adequately staffed; the global scale, broad scientific capabilities, and flexible outsourcing solutions that we are able to offer customers, and the commitment of our global employees. We also benefited from persistent customer demand across many of our businesses, driven by robust biotech funding and continued innovation that is generating scientific breakthroughs across multiple therapeutic areas, including for COVID-19 therapeutics. We intend to leverage our existing strengths and spare no effort in improving our scientific expertise, quality and customer support, organic growth and targeted acquisitions, geographical expansion, operational efficiency, so as to pursue a range of opportunities arising from the growing demand for CRO services.”

 

 

2020 Annual Results

 

Revenue increased by 25.3% year-on-year to US$125.8 million in 2020. The outbreak of COVID-19 and the subsequent quarantine measures as well as the travel restrictions imposed by many countries has limited the full capacity of our employees performing laboratory services and lowered our delivery efficiency during the first half of 2020. During the second half of 2020, with countrywide “lock-down” policy gradually lifted in North America and all Chinese cities had substantially eased or lifted domestic travel restrictions and resumed normal social activities, work and production due to the pandemic being under better control in China, we have been actively taking measures to ensure our facilities continue to operate at a stable utilization rate and normalize our operations. This can be exemplified by the strong revenue growth by 48.3% from US$50.7 million for the second half of 2019 to US$75.2 million for the second half of 2020.

 

Revenue from operations in North America increased by 20.7% year-on-year to US$87.9 million in 2020 (growth of 34.6% year-on year to US$51.4 million for the second half of 2020). Excluding the impact of currency translation, the revenue from operations in China increased by 36.6% year-on-year from RMB190.3 million in 2019 to RMB259.9 million in 2020 (growth of 83.4% year-on-year to RMB160.8 million for the second half of 2020). The growth of revenue from operations in North America was mainly attributable to (i) marketing efforts made by the Group, resulting in robust marketing performance in North America; and (ii) positive synergies effect brought by the acquisition of RMI, BRI and Biotranex. The revenue increase in the China market was mainly due to (i) the expansion of CMC capabilities and business in China; (ii) the thriving large molecules business in China; and (iii) revenue generated from newly acquired chemistry service due to the acquisition of Acme.

 

Gross profit increased by 11.3% year-on-year to US$41.5 million while gross profit margin was 33.0%, compared to 37.1% in 2019. Gross profit margin in North America and China were 29.5% and 41.0%, compared to 33.0% and 48.1% in 2019, respectively. The decrease in the gross profit margin were mainly attributable to the COVID-19 pandemic. However, the impact has been reduced from the second half of 2020 onwards, as we have been actively taking measures to ensure our facilities in North America continue to operate at a stable utilization rate and normalize our operations, resulting in the recovery of gross profit margin for the second half of 2020. In particular, the gross profit margin in North America increased from 24.6% for the first half of 2020 to 33.0% for the second half of 2020. The gross profit margin in China increased from 40.0% for the first half of 2020 to 41.6% for the second half of 2020. Moreover, the Group newly acquired chemistry service contributed a relatively lower gross profit margin. In addition, such decrease is attributable to the expansion of our capacities in North America and China to support the business growth.

 

Net profit decreased by 5.4% year-on-year to US$17.4 million in 2020. Net profit margin decreased from 18.4% in 2019 to 13.8% in 2020. The decrease in the net profit and net profit margin was primarily due to the impact of the COVID-19 pandemic especially in the first half of 2020. The unprecedented nature of the global pandemic has presented significant challenges and uncertainties to the global economy and across industries, including healthcare. Our operations both in North America and China have been adversely impacted by the pandemic. However, with the strong recovery of our global operations, our net profit for the second half of 2020 increased by 42.9% year-on-year to US$13.0 million for the second half of 2020. Net profit margin improved from 8.8% for the first half of 2020 to 17.2% for the second half of 2020.

 

Adjusted net profit, (excluding the share-based compensation expense, listing expenses, gain on disposal of an associate, gain arising from fair value change of previously held interest in an associate and amortization of acquired intangible assets from merges and acquisitions) decreased by 4.7% year-on-year to US$20.4 million in 2020. Adjusted net profit margin decreased from 21.3% in 2019 to 16.2% in 2020. The decrease in adjusted net profit and adjusted net profit margin was primarily due to the impact of the COVID-19 pandemic especially in the first half of 2020. However, with the strong recovery for our global operations, our adjusted net profit for the second half of 2020 increased by 66.7% year-on-year to US$15.5 million for the second half of 2020. Adjusted net profit margin improved from 9.7% for the first half of 2020 to 20.6% for the second half of 2020.

 

Basic and diluted EPS in 2020 amounted to US$0.0085 and 0.0083, compared to US$0.0102 and 0.0099 in 2019.

 

Adjusted basic and diluted EPS in 2020 amounted to US$0.0100 and 0.0097, compared to US$0.0119 and 0.0115 in 2019.

 

About Frontage Holdings Corporation

 

Frontage Holdings Corporation is a fast-growing CRO in the provision of integrated, science-driven research, analytical and development services throughout the product discovery and development process to enable biopharmaceutical and life science companies to achieve their product development goals. The Company benefits greatly from having operations in both North America (including the U.S. and Canada) and China, and is well placed to capture growth opportunities in both markets.

 

Forward-Looking Statements

 

This presentation may contain certain “forward-looking statements” which are not historical facts, but instead are predictions about future events based on our beliefs as well as assumptions made by and information currently available to our management. Although we believe that our predictions are reasonable, future events are inherently uncertain and our forward-looking statements may turn out to be incorrect. Our forward-looking statements are subject to risks relating to, among other things, the ability of our service offerings to compete effectively and our ability to meet timelines for the expansion of our service offerings. Our forward-looking statements in this presentation speak only as of the date on which they are made, and we assume no obligation to update any forward-looking statements except as required by applicable law or listing rules. Accordingly, you are strongly cautioned that reliance on any forward-looking statements involves known and unknown risks and uncertainties. All forward-looking statements contained herein are qualified by reference to the cautionary statements set forth in this section.

 

Use of Adjusted Financial Measures

 

We have provided adjusted net profit, adjusted net profit margin, adjusted EBITDA, adjusted EBITDA margin and adjusted basic and diluted earnings per share (excluding the share-based compensation expenses, Listing expenses, gain on disposal of an associate, gain arising from fair value change of previously held interest in an associate and amortization of acquired intangible assets from merges and acquisitions) as additional financial measures, which are not required by, or presented in accordance with, the IFRS. We believe that the adjusted financial measures used in this presentation are useful for understanding and assessing underlying business performance and operating trends, and we believe that management and investors may benefit from referring to these adjusted financial measures in assessing our financial performance by eliminating the impact of certain unusual, non-recurring, non-cash and/or non-operating items that we do not consider indicative of the performance of our business. However, the presentation of these non-IFRS financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with the IFRS.  You should not view adjusted results on a stand-alone basis or as a substitute for results under IFRS, or as being comparable to results reported or forecasted by other companies.