ANALYSIS-Cash key for Pharming as it seeks to milk key drug

* Company faces possible early redemption of debt

* Priority to launch Ruconest across Europe

* Shares pressured on concerns for share issue

By Aaron Gray-Block

AMSTERDAM, July 2 (Reuters) - Dutch biotech Pharming needs to tell investors quickly how it is going to fund the roll-out of its lead drug as its stock takes a battering despite a regulatory boost.

Pharming's risk profile improved sharply last week when its drug Ruconest, an angioedema drug derived from rabbit milk, was recommended for approval by the European Medicines Agency (EMA) and shares jumped.

But the stock has since fallen about 35 percent on worries about a possible share issue and convertible debt of 10.9 million euros which carries an early redemption option on Oct. 31.

Analysts warn early redemption could wipe out the cash the company raised with a recent share issue, thrusting Pharming back to a "zero cash game" on the cusp of its product launch.

"It could be worse or much better once we get to November," said KBC Securities analyst Jan De Kerpel said.

Rabo Securities analyst Fabian Smeets agreed the coming three to six months will be the most difficult for the company.

"After that everyone will have cooled down," said Smeets, who expects the firm to issue shares. "Only if the stock price falls further will it be a spiral, a self-fulfilling prophecy."

Chief Executive Sijmen de Vries said the firm has a standby equity arrangement amounting to 23 million euros with Yorkville Advisers.

It is also due a milestone payment from European distributor Sweden's Orphan Biovitrum if it wins European marketing approval for Ruconest as expected in September.

De Vries added much of the future depends on whether Pharming will be forced to redeem the convertible debt early.

There is still a chance though that bondholders will opt to hold on to their bonds until maturity in 2012 or Pharming could also enter into a settlement to convert the debt into shares.

Either way, AEK analyst Bernd Hilhorst said the company needs to provide the market greater guidance on its finances and to focus on resolving the debt outstanding.

Ruconest treats hereditary angioedema, known for acute attacks of a painful swelling of the skin, intestine, mouth and throat. It is made using milk from genetically modified rabbits that contains a human protein to control inflammation.

Pharming will compete against Shire, which won approval for its drug FIRAZYR in 2008, while Dyax, CSL Behring and Viropharma Inc are other rivals.

"BUY" ON RUCONEST HOPES

Despite funding fears, five analysts now rate Pharming "strong buy" or "buy", up from one "buy" rating and four "hold" ratings 90 days ago, Starmine data shows.

Rabo Securities' Smeets, who rates the stock "buy" says there is long-term value in Pharming and the superiority of Ruconest "clears the way for high market share."

Ruconest "works faster, better and longer, with much less side effects than all other products," Smeets said.

Including Ruconest sales from Europe and an expected follow-up launch in the U.S., Smeets has forecast sales will jump to 30.8 million euros in 2012 from an estimated 5.6 million this year. He still expects a 2.5 million euro net loss in 2012.

The SmartEstimate from Starmine, which places more weight on recent estimates by top-rated analysts, says Pharming will not break even on an earnings per share (EPS) basis until 2012. Some analysts suggest it could even take longer.

ABSOLUTE NECESSITY

Pharming issued 12 million euros in shares at 0.12 euros per share in May at a steep 70 percent discount, but defended the discount by stressing it offered the best chance of success.

In answers to questions from the Dutch shareholders association VEB, Pharming said the success of the share issue was an "absolute necessity" given the company's weak cash position and that a rights issue would have been too risky.

It also noted that biotech investors had become "very reticent" towards supporting Pharming's financial needs and although a source close to the deal said the issue was "a very smooth operation," Pharming's shareholder base is changing.

Dutch fund Van Herk says it "virtually" no longer has any shares, but did not say if it was diluted or exited the stock.

Still, Pharming's risk profile has dramatically improved with the positive EMA ruling. The move towards a European launch could also help Pharming secure a distribution deal in the larger United States market and a new milestone payment.

But KBC analyst De Kerpel still warns a roll-out across Europe could take up to two years.

"It will take at least three or five years before this product is up and running," he added. (Editing by Sitaraman Shankar)