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Frontage Holdings Announces 2022 Interim Results

Frontage Holdings Announces 2022 Interim Results

 

Revenue increased by 39.7% year-on-year to US$118.9 million

Net profit increased by 44.0% year-on-year to US$13.1 million

Adjusted net profit increased by 29.7% year-on-year to US$18.8 million

Contract future revenue increased by 44.4% year-on-year to US$315.3 million

 

Hong Kong, August 25, 2022 – 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 unaudited interim results for the six months ended June 30, 2022.

 

 Financial Highlights

  • Though our operations in China experienced adverse effects on delivery efficiency caused by COVID-19 primarily in Shanghai in the first half of 2022, the Group as a whole, maintained a rapid growth. Revenue of the Group increased by 39.7% year-on-year to US$118.9 million.
  • Gross profit of the Group increased by 48.8% year-on-year to US$44.2 million. Gross profit margin of the Group was also improved from 34.8% in the first half of 2021 to 37.2% in the first half of 2022.
  • Net profit increased by 44.0% year-on-year to US$13.1 million. Excluding non-operating items (the share-based compensation expenses, amortization of acquired intangible assets from mergers and acquisitions, and gain or loss arising from financial liabilities measured as fair value through profit or loss), adjusted net profit increased by 29.7% year-on-year to US$18.8 million. Net profit and adjusted net profit margins were 11.0% and 15.8%, compared to 10.6% and 17.1% same period last year, respectively.
  • EBITDA increased by 51.2% year-on-year to US$32.5 million. Excluding the share-based compensation expenses and gain or loss arising from financial liabilities measured as fair value through profit or loss, adjusted EBITDA increased by 35.0% to US$34.7 million. EBITDA and adjusted EBITDA margin were 27.3% and 29.2%, compared to 25.3% and 30.1% same period last year, respectively.

 

Operational Highlights

  • Contract future revenue achieved to US$315.3 million as at June 30, 2022, representing an increase of 44.4% compared to US$218.4 million as at June 30, 2021 and an increase of 30.4% compared to US$241.8 million as at December 31, 2021.
  • Proactively developed integrated drug discovery and development services platform for more projects, especially for innovative drugs by enhancing existing capabilities and introducing new service offerings such as compound screening, DMPK, safety and toxicology and central laboratory to our portfolio of services in China. As a result, contract future revenue from projects pertaining to innovative drugs contributed nearly 80% of our contract future revenue as at June 30, 2022 in China, continuously increased from approximately 65% as at December 31, 2021 and approximately 50% as at December 31, 2020.
  • Expanded our services offerings to strengthen integrated drug discovery and development platform:
  • The new state-of-the-art 25,000 sq. ft. facility in Hayward, CA has been operational since May 2022, which further expanded our bioanalytical, biologics bioassay, and biomarker services in North America.
  • Expanded capacities and capabilities in pharmacological safety assessment and toxicology services through the acquisition of Experimur, a CRO located in Chicago, U.S. provides full service, GLP-compliant toxicology and related non-clinical development services in Jan 2022.
  • Further grew our central laboratory unit both in Exton, PA and Shanghai facilities. In addition to sample management and kits-related logistic services, several laboratory testing platforms such as blood, biochemical immunity, flow cytometry detection and pathological detection has been established and related testing services has been offered, which strengthened our capabilities to support clinical trial.
  • The new 67,000 sq. ft. research facility in Shanghai Lin-Gang Special Area, which used for bioanalytical in biologics, central laboratory and DMPK services, has been partially operational in the first half of 2022. Expanded large molecules bioanalysis with more than 20,000 sq. ft space in the facility will be offered by September 2022.
  • The new 215,000 sq. ft. research facility in Suzhou used for conducting DMPK and non-GLP/GLP toxicology studies in China has been operational since Jan 2022, which significantly expanded our service offerings in preclinical research. DMPK team has relocated into the facility, through which service capabilities are broadened and an integrated seamless global DMPK services are offered. Meanwhile, preparation work related to GLP and AAALAC certification application as well as performing GLP verification test are well organized and progressed.
  • A new 34,000 sq. ft. drug screening facility in Wuhan became operational, along with the addition of services such as electrophysiological testing platform and animal pharmacodynamic model validation, expanded our capabilities in in-vitro and in-vivo pharmacodynamic screening services.
  • A 7,000 sq. ft. GMP kilo laboratory and a 17,000 sq. ft. medicinal chemistry facility in Acme Shanghai site became fully operational in the first half of 2022, which expanded our chemistry service capacity in the field of new drug discovery and enhanced expertise from discovery to development, milligram to kilogram, and medicinal chemistry to API synthesis.
  • Facility expansions in the construction to further strengthen the integrated service platform:
  • The construction of our new 89,000 sq. ft. facility in Suzhou is nearing completion and this facility is expected to become operational by the fourth quarter of 2022. In addition to the enhanced manufacturing capacity of our CMC formulation R&D analytical services, this facility will include an oral formulation workshop, sterile injection workshop, topical formulation workshop, and analytical testing laboratory which will augment our capability in clinical trial sample/material production in various dosage forms such as injections, semi-solid preparations and eye drops.
  • Expanded capacities and capability in early drug discovery by way of renting a 200,000 sq. ft. in Biolake, Wuhan in Feb 2022, to provide one-stop R&D services for small molecule innovative drugs, from target screening to preclinical research. The facility is expected to be partially operational by the first quarter of 2023.
  • Cheng Hong Pharma, an associate company, initiated the construction of CDMO plant for API manufacture on a facility with 12-acre land. Building construction for first stage is completed and now is under equipment installation. With the addition of the investment and facilities, we extend the chemistry from Kilo labs to commercial CDMO service, which enable us to provide the full spectrum of chemistry service.
  • With the expansion of our service offerings and capacities, employees headcount increased to 1,505 as of June 30,2022 (660 employees located in North America and 845 employees located in China) from 1,322 as ofDecember 31, 2021 and 1,133 as of June 30, 2021.

 

Management Comments

Dr. Song Li, Founder, Chairman and CEO of Frontage Holdings, commented: “During the first half of 2022, despite our operations in China especially in Shanghai was adversely effected by COVID-19 disruptions, the Group as a whole, maintained rapid growth. Our revenue increased 39.7% year-over-year, net profit and adjusted net profit increased 44.0% and 29.7% year-over-year, respectively. Our contract future revenue also achieved a record high of US$315.3 million as at June 30, 2022, which represents an increase of 44.4% over the past 12 months. Our performance during the first half of 2022 underscores that our global presence and integrated drug discovery and development platform continued to drive rapid growth for our company and allow us to better serve clients worldwide.

During the period of physical lockdown and shutdown of our facilities in Shanghai in the second quarter, our teams in China demonstrated resilience and continued to employ various mitigation measures to minimize the adverse impacts on our ongoing projects, customer relationships, and procurement of supplies and materials. Since June 1, 2022, with the gradual lifting of Shanghai’s lockdown policy, we have resumed work and production, and the delivery efficiency and capacity utilization rate of our various facilities in Shanghai have returned to normal levels. Meanwhile, we are continuing our efforts to develop our services platform in China. Various state-of-the-art research facilities in Shanghai Lin-Gang, Suzhou, Wuhan were put into use in the first half of 2022 as scheduled, along with new service offerings such as drug screening, DMPK, safety and toxicology and central laboratory etc., were introduced to our portfolio of services, which enabled us to provide comprehensive drug discovery and development services for our clients.

Looking forward, we will adhere to the implementation of the integrated service strategy based on our existing advantages, targeting to build up a one-stop business platform with high quality covering from early drug discovery to support drug development services, so as to provide customers with comprehensive drug R&D services to the greatest extent. We will also continue to improve our unique internationalization strategy represented by the same quality system standards in the globe, fully taking advantage of our business layouts in both North America and China, sharing of cutting-edge technology, project experience, quality system and other positive resources on the basis of independent operations in the two areas, so as to improve customers’ satisfaction and make us the preferred partner for biopharmaceutical companies all over the world.

 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 basic and diluted earnings per share (excluding the share-based compensation expenses, amortization of acquired intangible assets from mergers and acquisitions and gain or loss arising from financial liabilities measured as fair value through profit or loss) 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.