2. Accounting policies

Basis of preparation

The condensed consolidated interim financial statements of the Group have been prepared in accordance with IAS 34 Interim Financial Reporting. They do not include all of the information required in annual financial statements in accordance with International Financial Reporting Standards (”IFRS”) and should be read in conjunction with the annual consolidated financial statements for the year ended December 31, 2019. Selected explanatory notes are included to explain events and transactions that are significant to an understanding of the Group’s financial position and performance since the last annual financial statements. The accounting policies used in the preparation of the interim financial information are the same as those used in the Group’s audited financial statements for the year ended December 31, 2019 and those which are expected to be used in the financial statements for the year ending December 31, 2020.

Results for the three-month period ended March 31, 2020 are not necessarily indicative of the results that may be expected for the financial year ending December 31, 2020.

Basis of going concern

Having considered the Group’s current financial position and cash flow projections, the Board of Directors believes that the Group will be able to continue in operational existence for at least the next 12 months from the date of approval of these condensed consolidated interim financial statements and that it is appropriate to continue to prepare the condensed consolidated interim financial statements on a going concern basis.

A key consideration for the impact on going concern is the acquisition of Aegerion, which was completed in September 2019. This acquisition represents a significant step forward for Amryt and has created value for Amryt with immediate effect post-deal close through enhanced scale of the combined Group, which Amryt believes has the potential to drive revenues and deliver operational synergies through a combination of medical, commercial, clinical, development and regulatory infrastructure. Additionally, Amryt completed a US$60,000,000 fundraising as part of the acquisition of Aegerion.

Since a novel strain of coronavirus (SARS-CoV-2) causing a disease referred to as COVID-19 was first reported in December 2019, the disease has spread across the world, including countries in which we have patients and in which we have planned or active clinical trial sites.  The outbreak and government measures taken in response have had a significant impact, both direct and indirect, on all businesses and commerce as supply chains have been disrupted, facilities and production have been suspended and demand for certain goods and services has spiked while demand for other goods and services has fallen.  As COVID-19 continues to spread around the globe, Amryt may experience disruptions that could affect its business, preclinical studies and clinical trials.

Amryt provides therapeutic products to Homozygous Familial Hypercholesterolemia (”HoFH”) and lipodystrophy patients globally on a recurring basis. Once lomitapide (for the treatment of HoFH) or metreleptin (for the treatment of lipodystrophy) is prescribed by physicians, patients are typically on treatment over a long period of time with repeat prescriptions for each patient. To date the Company has seen minimal impact of the COVID-19 pandemic on the business given the majority of revenues are recurring in nature and the Company has a strong cash position and resources to support the Company’s ability to continue as a going concern.

Basis of consolidation

The condensed consolidated interim financial statements comprise the financial statements of the Group for the three months ended March 31, 2020. Subsidiaries are entities controlled by the Company. Where the Company has control over an investee, it is classified as a subsidiary. The Company controls an investee if all three of the following elements are present: power over an investee, exposure or rights to variable returns from its involvement with the investee and the ability to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.

Subsidiaries are fully consolidated from the date that control commences until the date that control ceases. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Intergroup balances and any unrealized gains or losses, income or expenses arising from intergroup transactions are eliminated in preparing the consolidated financial statements.

Presentation of balances

The condensed consolidated interim financial statements are presented in U.S. dollars (”US$”) which is the functional currency and presentation currency of the Group.

The following table discloses the major exchange rates of those currencies other than the functional currency of US$ that are utilized by the Group:

(€ = Euro; £ = Pounds Sterling, CHF = Swiss Franc, SEK = Swedish Kroner, NOK = Norwegian Kroner, DKK = Danish Kroner)

Changes in accounting policies and disclosures

There are no new standards and amendments to IFRS effective as of January 1, 2020 that are relevant to the Group.

Critical accounting judgements and key sources of estimation uncertainty

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and amounts reported in the financial statements and accompanying notes. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

The significant estimates, assumptions or judgements, applied in the condensed consolidated interim financial statements were the same as those applied in the Group’s audited financial statements for the year ended December 31, 2019.

Principal accounting policies

The condensed consolidated interim financial statements have been prepared in accordance with the accounting policies adopted in the Group’s audited financial statements for the year ended December 31, 2019.

3. Segment information

The Group is a global, commercial-stage biopharmaceutical company dedicated to commercializing and developing novel therapeutics to treat patients suffering from serious and life-threatening rare diseases.

The Group currently operates as one business segment, pharmaceuticals, and is focused on the development and commercialization of two commercial products and two development products. The Group derives its revenues primarily from one source, the pharmaceutical sector with high unmet medical need.

The Group’s Chief Executive Officer, Joseph Wiley, is currently the Company’s chief operating decision maker (”CODM”). The Group does not operate any separate lines of business or separate business entities with respect to its products. Accordingly, the Group does not accumulate discrete financial information with respect to separate service lines and does not have separate reportable segments.

The following table summarizes total revenues from external customers by product and by geographic region, based on the location of the customer. Revenues represent the revenue from the Group for the three months ended March 31, 2020 and 2019. Revenue in the three months ended March 31, 2020 include revenues from the acquired Aegerion Group and associated products and regions.

Major Customers

For the three months ended March 31, 2020, one customer accounted for 55% of the Group’s net revenues and accounted for 39% of the Group’s March 31, 2020 accounts receivable balance. For the three months ended March 31, 2019, the Group generated over 72% of its lomitapide revenue in Italy, the Netherlands and Greece. The largest lomitapide customer in the three months ended March 31, 2019 was a distributor in Italy.

4. Share based payments

On July 10, 2019, the shareholders of the Company approved a resolution to give authority to the Company to undertake a consolidation of the existing ordinary shares in the capital of the Company under which every 6 existing ordinary shares were consolidated into one ordinary share.

Under the terms of the Company’s Employee Share Option Plan, options to purchase 17,154,554 shares were outstanding at March 31, 2020. Under the terms of this plan, options are granted to officers, consultants and employees of the Group at the discretion of the Remuneration Committee. A total of 2,687,000 share options were granted to employees in the three-month period ended March 31, 2020. For the year ended December 31, 2019, a total of 11,330,641 share options were granted to directors and employees. 

Outstanding warrants at March 31, 2020 and December 31, 2019 consisted of 17,196,273 zero cost warrants with no expiration date that were issued to Aegerion creditors in connection with the acquisition of Aegerion. The remaining warrants consisting of 345,542 warrants were issued in connection with the admission to the AIM in 2016.

The number and weighted average exercise price (in Sterling pence) of share options and warrants per ordinary share is as follows:

Fair value is estimated at the date of grant using the Black-Scholes pricing model, taking into account the terms and conditions attached to the grant. The following are the inputs to the model for the equity instruments granted during the year:

In the three months ended March 31, 2020, a total of 2,687,000 share options exercisable at a weighted average price of £1.235 were granted. The fair value of share options granted in the three months ended March 31, 2020 was £3,318,445/US$4,249,000. The share options outstanding as at March 31, 2020 have a weighted remaining contractual life of 6.08 years with exercise prices ranging from £0.76 to £1.55.

The 2016 warrants outstanding as at March 31, 2020 have a weighted remaining contractual life of 1.05 years with an exercise price of £1.44.

The value of share options charged to the Consolidated Statement of Comprehensive Loss during the three-month period is as follows:

5. Business combinations and asset acquisitions

Acquisition of Aegerion Pharmaceuticals

On May 20, 2019, Amryt entered into a Restructuring Support Agreement (as subsequently amended on June 12, 2019) and Plan Funding Agreement pursuant to which, among other matters, Amryt agreed to the acquisition of Aegerion, a former wholly-owned subsidiary of Novelion. On May 20, 2019, Aegerion and its U.S. subsidiary, Aegerion Pharmaceuticals Holdings, Inc., filed voluntary petitions under Chapter 11 of Title 11 of the U.S. Code in the Bankruptcy Court. On September 24, 2019, Amryt completed the acquisition of Aegerion. Amryt acquired Aegerion upon its emergence from bankruptcy in an exchange for ordinary shares and zero cost warrants in Amryt. Amryt issued 85,092,423 effective shares at US$1.793 per share, which is made up of 77,027,423 ordinary shares and 8,065,000 zero cost warrants, to acquire Aegerion for a value of US$152,615,000.

The acquired goodwill is attributable principally to the profit generating potential of the businesses, the assembled workforce and benefits arising from embedded infrastructure, that are expected to be achieved from integrating the acquired businesses into the Group’s existing business. No amount of goodwill is expected to be deductible for tax purposes.

The initial assignment of fair values to identifiable net assets acquired has been performed on a provisional basis due to the relative size of the acquisition and the timing of the transaction. Any amendments to these fair values within the twelve-month timeframe from the date of acquisition will be disclosed in the consolidated financial statements for the year ending December 31, 2020, as stipulated by IFRS 3 Business combinations.

Contingent Value Rights

Related to the transaction, Amryt issued Contingent Value Rights (”CVRs”) pursuant to which up to US$85,000,000 may become payable to Amryt’s shareholders and optionholders, who were on the register prior to the completion of the acquisition on September 20, 2019, if certain approval and revenue milestones are met in relation AP101, Amryt’s lead product candidate. If any such milestone is achieved, Amryt may elect to pay the holders of CVRs by the issue of Amryt shares or loan notes. If Amryt elects to issue Loan Notes to holders of CVRs, it will settle such loan notes in cash 120 days after their issue. If none of the milestones are achieved, scheme shareholders and optionholders will not receive any additional consideration under the terms of the CVRs. In these circumstances, the value of each CVR would be zero.

The terms of the CVRs are as follows:

·      The total CVR payable is up to US$85,000,000

·      This is divided into three milestones which are related to the success of AP101 (the Group’s lead development asset, currently in Phase 3 clinical trials)

·      FDA approval

o  US$35,000,000 upon FDA approval

o  100% of the amount due if approval is obtained before December 31, 2021, with a sliding scale on a linear basis to zero if before July 1, 2022

·      EMA approval

o  US$15,000,000 upon EMA approval

o  100% of the amount due if approval is obtained before December 31, 2021, with a sliding scale on a linear basis to zero if before July 1, 2022

·      Revenue targets

o  US$35,000,000 upon AP101 revenues exceeding US$75,000,000 in any 12-month period prior to June 30, 2024

·      Payment can, at the Board’s discretion, be in the form of either:

o  120-day loan notes (effectively cash), or

o  Shares valued using the 30 day / 45-day VWAP.

The CVRs were contingent on the successful completion of the acquisition and, accordingly, have been based on fair value as at September 24, 2019. In the Company-only accounts, the fair value of these CVRs have been classified as a financial liability in the Consolidated Statement of Financial Position and debited to cost of investment in subsidiary. On consolidation, given that CVRs were issued to legacy Amryt shareholders in their capacity as owners of the identified acquirer as opposed to the seller in the transaction, management concluded that the most appropriate classification would be to recognize the CVR as a distribution on consolidation instead of goodwill.

Fair value Measurement of CVRs

As at March 31, 2020, the fair value of the CVRs was estimated to be US$50,861,000 (December 31, 2019: US$49,413,000). The value of the potential payout was calculated using the probability expected returns method. Using this method, the potential payment amounts were multiplied by the probability of achievement and discounted to present value (see Note 14, Fair value measurement and financial risk management, for fair value hierarchy applied). The probability adjusted present values took into account published orphan drug research data and statistics which were adjusted by management to reflect the specific circumstances applicable to the type of product acquired in the Amryt GmbH transaction. A discount rate of 16.5% (December 31, 2019: 16.5%) was used in the calculation of the fair value of the CVR for the three months ended March 31, 2020. Management was required to make certain estimates and assumptions in relation to revenue forecasts, timing of revenues and probability of achievement of commercialization of AP101. However, management notes that, due to issues outside their control (i.e. regulatory requirements and the commercial success of the product), the timing of when such revenue targets may occur may change. Such changes may have a material impact on the assessment of the fair value of the CVRs.

Amryt reviews this contingent consideration on a regular basis as the probability adjusted fair values are being unwound as financing expenses in the Consolidated Statement of Comprehensive Loss over the life of the obligation. Contingent consideration is reviewed on a quarterly basis and the appropriate finance charge is booked in the consolidated statement of income on a quarterly basis. The Group expects to read out top-line data from the Phase 3 trial of AP101 in Epidermolysis Bullosa (”EB”) in the second half of 2020, followed by applications for approval from the FDA and the EMA, if top-line data is positive. Coupled with this, management has completed its annual forecast and revenues and costs reflect these current expectations.

The total non-cash finance charge recognized in the Condensed Consolidated Statement of Comprehensive Loss for the year ended March 31, 2020 is US$1,448,000 (March 31, 2019: US$nil).

Acquisition of Amryt AG (previously ”Birken”)

Amryt DAC signed a conditional share purchase agreement to acquire Amryt AG on October 16, 2015 (”Amryt AG SPA”). The Amryt AG SPA was completed on April 18, 2016 with Amryt DAC acquiring the entire issued share capital of Amryt GmbH. The consideration included contingent consideration comprising milestone payments and sales royalties as follows:

·      Milestone payments of:

o  €10,000,000 on receipt of first marketing approval by the EMA of Episalvan, paid on the completion date (April 18, 2016);

o  Either (i) €5,000,000 once net ex-factory sales of Episalvan have been at least €100,000 or (ii) if no commercial sales are made within 24 months of EMA first marketing approval (being January 14, 2016), €2,000,000 24 months after receipt of such approval, which was paid in January 2018, and €3,000,000 following the first commercial sale;

o  €10,000,000 on receipt of marketing approval by the EMA or FDA of a pharmaceutical product containing Betulin as its API for the treatment of EB;

o  €10,000,000 once net ex-factory sales/net revenue in any calendar year exceed €50,000,000;

o  €15,000,000 once net ex-factory sales/ net revenue in any calendar year exceed €100,000,000;

·      Cash consideration of €150,000, due and paid on the completion date (April 18, 2016); and

·      Royalties of 9% on sales of Episalvan products for 10 years from first commercial sale;

Fair Value Measurement of Contingent Consideration

As of March 31, 2020, the fair value of the contingent consideration was estimated to be US$55,284,000 (December 31, 2019: US$53,048,000). The fair value of the royalty payments was determined using probability weighted revenue forecasts and the fair value of the milestone payments was determined using probability adjusted present values (see Note 14, Fair value measurement and financial risk management, for fair value hierarchy applied). The probability adjusted present values took into account published orphan drug research data and statistics which were adjusted by management to reflect the specific circumstances applicable to the type of product acquired in the Amryt GmbH transaction. A discount rate of 24.4% (December 31, 2019: 24.4%) was used in the calculation of the fair value of the contingent consideration for the three months ended March 31, 2020. Management was required to make certain estimates and assumptions in relation to revenue forecasts, timing of revenues and probability of achievement of commercialization of AP101. However, management noted that due to issues outside their control, the timing of when such revenue targets may occur may change. Such changes may have a material impact on the assessment of the fair value of the contingent consideration.

In January 2019, the Group received the results of an unblinded interim efficacy analysis for the Phase 3 trial of AP101 in EB. This analysis was conducted by an independent data safety monitoring committee and recommended that the trial should continue with an increase of 48 patients in the study to a total of 230 evaluable patients in order to be able to achieve 80% statistical power. In April 2020, given that the EASE study was already close to full enrollment, the Group announced that it had taken advice from an independent expert and concluded that the statistical impact of further patient recruitment would most likely be negligible.  Amryt therefore decided to close the EASE study to further enrollment. The Group expects to read out top-line data from this trial in the second half of 2020, followed by applications for approval from the FDA and the EMA, if top-line data is positive. Coupled with this, management has completed its annual forecast and revenues and costs have been amended to reflect current expectations. These factors have resulted in a change to the probability weighted revenue forecasts and the probability of the adjusted present values which are used in the calculation of the contingent consideration balance and impact the amount being unwound to the consolidated statement of comprehensive loss.

Amryt reviews the contingent consideration on a regular basis as the probability adjusted fair values are being unwound as financing expenses in the Consolidated Statement of Comprehensive Loss over the life of the obligation. The finance charge is being unwound as a financing expense in the Consolidated Statement of Comprehensive Loss on a quarterly basis.

The total non-cash finance charge recognized in the Consolidated Statement of Comprehensive Loss for the three months ended March 31, 2020 is US$2,906,000 (March 31, 2019: US$1,938,000).

6. Loss per share – basic and diluted

The weighted average number of shares in the loss per share (”LPS”) calculation, reflects the weighted average total actual shares of Amryt Pharma plc in issue at March 31, 2020, as adjusted (see below).

Issued share capital – ordinary shares of £0.06 each

The number of shares in issue at March 31, 2019 has been adjusted to reflect the share consolidation on July 10, 2019, whereby each ordinary shareholder received one ordinary share for every six shares held at that date.

The calculation of loss per share is based on the following:

The basic and diluted loss per share as at March 31, 2020 of US$0.19 (March 31, 2019: US$0.12) was calculated using the post consolidation number of ordinary shares in issue.

Where a loss has occurred, basic and diluted LPS are the same because the outstanding share options and warrants are anti-dilutive. Accordingly, diluted LPS equals the basic LPS. The share options and warrants outstanding as at March 31, 2020 totalled 34,696,369 (March 31, 2019: 3,596,398 as adjusted) and are potentially dilutive.