August 25, 2021

Frontage Holdings Announces 2021 Interim Results

Revenue increased by 67.9% to US$85.1 million

Net profit increased by 102.2% to US$9.1 million

Adjusted net profit increased by 163.6% to US$14.5 million

Contract future revenue increased by 57.3% to US$218.4 million

Capacity and capabilities were firmly expanded by organic growth and strategic acquisitions

 

Hong Kong, August 25, 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 unaudited interim results for the six months ended June 30, 2021.

 

 

Financial Highlights

 

• Revenue increased by 67.9% year-on-year to US$85.1 million. Revenue from operations in North America increased by 53.8% year-on-year to US$56.3 million, while revenue from operations in China increased by 104.3% year-on-year to US$28.8 million. Specifically, revenue from projects pertaining to innovative drugs contributed over 50% of revenue from operations in China in the first half of 2021
• Gross profit increased by 103.4% year-on-year to US$29.7 million. Gross profit from operations in North America increased by 114.4% year-on-year to US$19.3 million, while Gross profit from operations in China increased by 83.9% year-on-year to US$10.3 million. Gross profit margin was 28.9% in the first half of 2021, improved from 28.9% same period last year.
• EBITDA increased by 80.7% year-on-year to US $21.5 million. Adjusted EBITDA increased by 112.4% to US$25.7 million. EBITDA and adjusted EBITDA margin were 25.3% and 30.1%, improved from 23.4% and 24.0% in the first half 2020
• Net profit increased by 102.2% year-on-year to US $9.1 million. Adjusted net profit increased by 163.6% to US$14.5 million. Net profit and adjusted net profit margins were 10.6% and 17.1% improved from 8.8% and 10.9% in the first half 2020
• Recorded US$218.4 million contract future revenue as at June 30, 2021, representing an increase of 57.3% compared to US$138.8 million as at June 30, 2020 and an increase of 27.0% compared to US$172.0 million as at December 31, 2020. Specifically, contract future revenue from projects pertaining to innovative drugs contributed over 60% of our contract future revenue as at June 30, 2021 in China, continuously increased from approximately 50% as at December 31, 2020 and approximately 45% as at June 30, 2020

 

 

 

Operational Highlights

 

• The new laboratory facility of approximately 71,000 sq. ft in Exton, PA became operational from second quarter of 2021. Capacity of CMC, Bioanalytical and Biologics, and Central Laboratory services in North America were significantly expanded.
• Finalized the design and continued the construction for a new 25,000 sq. ft. facility space in Hayward, CA to expand bioanalytical and biologics capabilities. The facility is expected to be partially operational by the fourth quarter of 2021
• Expanded our services offerings in several important areas, such as rapidly progressing the establishment of Central Laboratory service both in Exton, PA and Shanghai facilities； providing full-service human Absorption, Metabolism, and Excretion (“hAME”) studies with radiolabeled compounds at the clinical site in Secaucus, NJ；developing genetic toxicology and safety pharmacology service offerings at Concord, Ohio facility; offering a comprehensive range of microbiological development and quality control testing services at Exton, PA facility and enhancing genomic services through acquisition of Ocean Ridge Bioscience (“Ocean Ridge”)
• Expanded capabilities in providing ADME profiling services and to capture growth opportunities in the West Coast of the U.S. through the acquisition of Quintara Discovery, Inc (“Quintara”)
• Substantially completed the construction of a 7,000 sq. ft. GMP kilo laboratory in Acme’s Shanghai site which will provide GMP API manufacturing services, thereby enhancing Chemistry unit’s discovery expertise from discovery to development, milligram to kilogram, and medicinal chemistry to API synthesis. In addition, construction of a 17,000 sq. ft. medicinal chemistry facility in Shanghai was also initiated and expected to be operational by the fourth quarter of 2021
• Continued 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 facility is expected to be completed by the end of 2021
• Initiated the construction of an 89,000 sq. ft. facility in Suzhou to expand the manufacturing capacity of CMC and GMP clinical trial samples. The facility is expected to be partially operational in the first half of 2022.
• Finalized the design and commenced the construction of the newly-rented 67,000 sq. ft. research facility in Shanghai Lin-Gang Special Area used for bioanalytical in biologics, central laboratory and DMPK services. The facility is expected to be operational in the first half of 2022.
• Employees headcount grew to 1,133 as of June 30, 2021 compared to 1,002 as of
  December 31, 2020 and 736 as of June 30, 2020

 

Management Comments

 

Dr. Song Li, Founder, Chairman and CEO of Frontage Holdings, commented: “Despite the COVID-19 pandemic continued to evolve around the world, beginning from the third quarter of 2020, we experienced an increase in our delivery efficiency as strict “lock-down” policy gradually lifted and most industries resumed to work, which positively impacted our operations, which continued through the second half of 2020, as well as the first half of 2021. As a result, our revenue for the first half of 2021 increased by 67.9% to US$85.1 million from US$50.7 million for the same period of 2020. We are continuing to see strong demand across all of our businesses, which evidenced by our contract future revenue reached US$218.4 million as at June 30, 2021, representing an increase of 57.3% compared to US$138.8 million as at June 30, 2020.

 

We are continuing our efforts to expand capacities and capabilities in each business units through organic growth and strategic acquisitions. We rapidly progressed the establishment of Central Laboratory service both in Exton, PA and Shanghai facilities, successfully offered full-service hAME studies with radiolabeled compounds at the clinical site in Secaucus, NJ, developed genetic toxicology and safety pharmacology service offerings at Concord, Ohio facility, offered a comprehensive range of microbiological development and quality control testing services at Exton, PA facility, and enhanced genomic services through acquisition of Ocean Ridge Bioscience (“Ocean Ridge”). We expanded capabilities in providing ADME profiling services and to capture growth opportunities in the west coast of the US through the acquisition of Quintara Discovery, Inc (“Quintara”)

 

In China, in addition to enhancing our existing capabilities and expertise in Bioanalytical, Chemistry, CMC and Bioequivalence, we are actively engaged in introducing new service offerings such as DMPK、Safety and Toxicology and Central Laboratory to our comprehensive portfolio of services. Concurrently with our continual efforts in improving our Bioanalytical and Biologics unit, we expended noteworthy efforts in the development of our drug discovery and development services for innovative drugs. We are pleased to observe that the revenue from projects pertaining to innovative drugs has already contributed over 50% of our revenue in the first half of 2021 in China, and contract future revenue from innovative drugs contributed over 60% of our total contract future revenue as at June 30, 2021 in China., compared to around 50% as at December 31, 2020 and around 45% as at June 30, 2020.

 

During the first half of 2021, several facilities were completed or in the process of construction to expand our capacities and capabilities. In China, we substantially completed the construction of a 7,000 sq. ft. GMP kilo laboratory in Acme’s Shanghai site which will enable us to provide GMP API manufacturing services, and also initiated construction of a new 17,000 sq. ft. medicinal chemistry facility in the same site. The construction of 215,000 sq. ft. research facility in Suzhou, which will be used to conduct DMPK non-GLP/GLP toxicology studies in Suzhou is expected to be completed by the end of 2021. Another 89,000 sq. ft. facility in Suzhou, which will be used for CMC and GMP clinical trial material manufacturing is expected to be partially operational in the first half of 2022. We also finalized the design and commenced the construction for a new research facility of approximately 67,000 sq. ft., which used for bioanalytical in biologics, central laboratory and DMPK services in Shanghai Lin-Gang Special Area. In North America, the new laboratory facility of approximately 71,000 sq. ft in Exton, PA became operational from second quarter of 2021, through which significantly expanded our capacity of CMC, Bioanalytical and Biologics, and Central Laboratory services in North America. We finalized the design and commenced the construction for a new 25,000 sq. ft. facility space in Hayward, CA to expand bioanalytical capabilities. The facility is expected to be partially operational by the fourth quarter of 2021.

 

Along with expansion of our service offerings and capacity and capabilities, we continued to invest significantly in personnel to bring additional talents to our organization. We grew our employee headcount from 1002 at the end of 2020 to 1133 as of June 30, 2021, across 20 sites in three countries. The expanding pool of talent is the foundation of our sustainable development.

 

We are in the view of that the outbreak of the COVID-19 pandemic has raised public awareness for disease control and healthcare management, highlighted the significance of innovative drugs and generated additional market opportunities. With the growth aging population and the progress of science and technology, the global pharmaceutical market and the global pharmaceutical R&D investment are both expected to maintain a sustained growth. We intend to leverage our existing strengths and strategically extend the range of our services to offer customers a more integrated solution, so as to pursue opportunities from anticipated increase in outsourcing of the pharmaceutical industry and the related demand for our services.

 

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.