News

April 28, 2022

Frontage Holdings Announces 2021 Annual Results

Hong Kong, March 28, 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 audited annual results for the year ended December 31, 2021.

Financial Highlights

• Revenue increased by 46.6% year-on-year to US$184.4 million. Revenue from operations in North America increased by5% year-on-year to US$125.3 million, while revenue from operations in China increased by 55.9% year-on-year to US$59.1 million. Specifically, revenue from projects pertaining to innovative drugs contributed over 50% of revenue from operations in China in 2021
• Gross profit increased by 60.7% year-on-year to US$66.7 million. Gross profit from operations in North America increased by 71.2% year-on-year to US$44.5 million, while Gross profit from operations in China increased by 43.2% year-on-year to US$22.2 million. Gross profit margin was improved from 0% in 2020 to 36.2% in 2021
• Net profit increased by 8.6% year-on-year to US$9 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 58.6% to US$32.2 million. Adjusted net profit margins was improved from 16.2% in 2020 to 17.5% in 2021
• EBITDA increased by 51.8% year-on-year to US$6 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 73.7% to US$60.8 million. adjusted EBITDA margin was improved from 27.8% in 2020 to 33.0% in 2021

Operational Highlights

1.Recorded US$241.8 million contract future revenue as at December 31, 2021, representing an increase of 40.6% compared to US$172.0 million as at December 31, 2020. Specifically, contract future revenue from projects pertaining to innovative drugs contributed over 65% of our contract future revenue as at December 31, 2021 in China, continuously increased from approximately 50% as at December 31, 2020 and below 45% as at December 31, 2019

2.Expanded our services offerings to strengthen integrated drug discovery and development platform through organic growth:

• Completed the establishment of central laboratory unit both in Exton, PA and Shanghai facilities. Central laboratory related services were offered from 2021
• DMPK in North America offered a full suite of services including QWBA, metabolite ID/profiling, mass balance, IND-enabling ADME, Transporters, in vitro ADME screening, PK studies, as well as offered full-service human Absorption, Metabolism, and Excretion (“hAME”) studies with radiolabeled compounds at the clinical site in Secaucus, NJ.; Developed genetic toxicology and safety pharmacology service offerings at Concord, Ohio facility
• 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 are significantly expanded; A comprehensive range of microbiological development and quality control testing services at a newly established microbiology lab are offered; Capability in biologics bioassays, biomarker research, and gene/cell therapy (GCT) is expanded by relocating biomarker and biologics teams to the new lab
• Completed the construction for 25,000 sq. ft. facility in Hayward, CA to expand bioanalytical and biologics capabilities. The facility became operational in March 2022
•  Completed the construction for the 215,000 sq. ft. research facility in Suzhou, which used for conducting DMPK and non-GLP/GLP toxicology studies in China. The facility has been partially operational in the first quarter of 2022; DMPK in China expanded to over 30 scientific and technical personnel and has relocated to the new facility, through which service capabilities are broadened and an integrated seamless global DMPK services are offered
• Completed the construction of a 7,000 sq. ft. GMP kilo laboratory and a 17,000 sq. ft. medicinal chemistry facility in Acme Shanghai site, which expanded 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
• Completed the construction of the 67,000 sq. ft. research facility in Shanghai Lin-Gang Special Area, which used for bioanalytical in biologics, central laboratory and DMPK services. The facility has been partially operational in the first quarter of 2022
• Offered numbers of services such as the first clinical residual samples detection for the patch in China with newly established semi-solid formulation and transdermal experimental analysis platform in Suzhou

3.Expanded our services capacities and capabilities through strategic acquisitions:

• Enhanced genomic services through acquisition of Ocean Ridge in Apr 2021
• 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 in June 2021
• Expanded capabilities in vitro pharmacodynamic screening and evaluation in early drug discovery through acquisition of Heyan Biotech in Sep 2021
• Expanded capacities and capabilities in pharmacological safety assessment and toxicology services through the acquisition of Experimur in Jan 2022

4. Facility expansions in the construction to further strengthen the integrated service platform:

• Continued 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 operational by the third quarter of 2022
• Initiated the construction of a new 34,000-sq. ft. compound screening facility, which is expected to be operational in the second half of 2022, to expand capabilities in in vitro pharmacodynamic screening and pharmacological pharmacodynamic evaluation in early drug discovery
• Expanded capability in early drug discovery by way of renting a 200,000 sq. ft. in Wuhan East Lake Science City 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 operational in 2023

4.Number of employees increased to 1,322 as of December 31,2021 from 1,002 as of
December 31, 2020. Employees located in North America and China grew to 567 and 755 as of December 31, 2021 from 463 and 539 as of December 31, 2020, respectively.

Management Comments

Dr. Song Li, Founder, Chairman and CEO of Frontage Holdings, commented: “2021 was a year of substantial growth and accomplishment for Frontage. Despite the slowdown of the global economy growth and a persistent global pandemic, Frontage has shown exceptional resilience in reaching our goals and in validating our strategy of focusing on client and employee satisfaction, employees’ health and safety, operational excellence, organic expansion and acquisitions, and sustainable long-term growth. Through strong execution and the continuous improvement of our operational process, we achieved most of our goals set for the year and enhanced our potential for future growth. Our revenue increased by 46.6% year on year to US$184.4 million, and excluding non-operating items, our adjusted net profit increased by 58.6% to US$32.2 million. We were also pleased that our contract future revenue reached a record high of US$241.8 million as at December 31, 2021, which evidenced that there has been ongoing strong demand for our services.

During 2021, We are continuing our efforts to expand capacities and capabilities to build up and strengthen an integrated drug discovery and development platform through organic growth and strategic acquisitions. We invested resources in medicinal chemistry, drug screening and ADME/DMPK to strengthen our capabilities in drug discovery. We also broadened our chemistry, preclinical research and CMC services targeting to offer a more comprehensive services in drug development. In addition, we completed the establishment of central laboratory service in North America and China, along with the improved integrated platform for bioanalytical and biologics, biomarker analysis technology and efficient operation in bioequivalence, significantly enhanced our position to provide clinical support and bioequivalence services in the industry.

Construction for a few of facilities was completed as scheduled both in North America and China. The renovation of new pharmaceutical analysis and clinical central labs in Exton, PA was completed in the first quarter of 2021. A total of 71,000-square-foot lab space has been fully operational since the second quarter of 2021. In addition, we finished the process of outfitting a new 25,000-square-foot bioanalytical lab in Haywood, CA, which became operational in the first quarter of 2022. The renovation of our Suzhou preclinical center (215,000-square-foot) and our Shanghai Lingang lab facility (67,000-square-foot) were finished in the fourth quarter of 2021. These facilities were partially operational in the first quarter of 2022. They will triple our capacity in China. We also completed the construction of a 7,000 sq. ft. GMP kilo laboratory and a new 17,000 sq. ft. medicinal chemistry facility in Acme Shanghai site, to expand our capabilities in GMP API manufacturing and chemistry service capacity in the field of new drug discovery.

In addition, we are continuing the construction of an 89,000 sq. ft. facility in Suzhou to expand the manufacturing capacity of CMC and GMP clinical trial samples. We also initiated the construction of a new 34,000-sq. ft. compound screening facility in Wuhan to expand capabilities in in-vitro pharmacodynamic screening and pharmacological pharmacodynamic evaluation in early drug discovery, and a 200,000 sq. ft.  research center in Wuhan East Lake Science City to provide one-stop R&D services for small molecule innovative drugs, from target screening to preclinical research. These facilities are expected to be operational from the second half of 2022 to 2023.

There are three companies that joined the Frontage family in 2021 – Ocean Ridge (specializes in DNA/RNA sequencing) in April 2021; Quintara (specializes in DMPK and ADME screening) in June 2021; Heyan Biotech (specializes in discovery and compound screening) in September 2021; We also invested in Chenghong Pharma, a company that engages in R&D, manufacturing and sales of APIs and advanced pharmaceutical intermediates for innovative and generic drugs in November 2021. These acquisitions and investments have extended our services into areas of DNA sequencing, drug discovery, and the manufacturing of API/Intermediates. In addition, we acquired Experimur, which engages in the provision of full GLP-compliant toxicology and related non-clinical development services in January 2022. These acquisitions enabled us to provide fully integrated preclinical and commercial solutions and expand our global service offering while also allowing us to achieve significant synergies and cost reductions.

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 1322 as of December 31, 2021, across 22 sites in three countries. We always believe the expanding pool of talent is the foundation of our sustainable development.

2022 is exactly Frontage’s 20th anniversary, the success and challenges that we have experienced in the past 20 years will help us learn in a way that bolsters the competitive strength of Frontage as we move forward. 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. At the same time, we will continue to improve our unique internationalization strategy represented by the same quality system standard globally including China and the United States, fully taking advantages of our business layout both in North America and China, sharing of cutting-edge technology, project experience, quality system and other 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.