Good day, and welcome to the Almirall's Full Year twenty nineteen Financial Results and Business Update Presentation. Today's conference is being recorded. At this time, I would like to turn the conference over to Pablo Giverson. Please go ahead, sir.
Thank you, Jody. Good morning, everyone. Welcome to the Amirault Full Year twenty nineteen Financial Results Conference Call. This presentation was released earlier this morning and is available on our corporate website. Presenting today, we have Peter Gunther, Chief Executive Officer Mike McKellan, Executive Vice President, CFO and Bhushan Havak, Executive Vice President, Research and Development, CSO.
Peter will make some introductory remarks about the year and later come back to sum up. Bhushan will update you on our pipeline, and Mike will provide you with detail on the financials and 2020 outlook. After that, we will open up for a Q and A session. Before we move ahead, I would like to remind you that certain statements that we will make in this presentation are forward looking statements. These forward looking statements reflect Almirall judgment and analysis only as of today, and results may differ materially from current expectations based on a number of factors affecting our businesses.
So with that, I will pass you over to our CEO, Peter Wouter.
Thanks a lot, Pablo, for the introduction and good morning to everyone on the call. 2019 has been a very strong year for Albionale, both from a financial perspective and in terms of pipeline progress. We had a strong business momentum driven by our growth drivers, and we are pleased to have delivered our upgraded EBITDA guidance, which we provided at half one. I will give you additional information later in this presentation on the growth drivers. Notable late stage pipeline progress included lebrikizumab commencing phase three clinical trials, and we expect to announce the complete filing of tirbanibulin before the end of the quarter.
Additionally, as you are aware from our announcements at the beginning of the year, we have signed an option agreement to acquire Bionist Therapeutics, a clinical stage biopharmaceutical company. And we have signed two strategic collaboration agreements with 23andMe to license rights to other bispecific monoclonal antibody and WuXi Biologics for multiple bispecific antibodies targeting dermatology diseases. We have announced the acquisition of the China rights of Seysara, and we will initiate phase three later this year. I will elaborate a bit more on this in my presentation. Furthermore, critical to any organization is the capability and people within, and we are pleased that we continue to attract key talent to Almirall like Volkert Hochelmi, chief medical officer, who has started in January, joining us from Celgene.
As I mentioned, we are pleased to deliver a strong set of financials and achieve our upgraded EBITDA guidance following good performances from key brands and improved product mix driving an increase in gross margin. Almirall starts 2020 with a good credit rating, reflecting our operational flexibility and healthy balance sheet, whilst we actively pursue other acquisitions and late stage in licensing opportunities that align with our corporate strategy. Taking a step back in our transformation journey over the last two years, I think it's fair to say that Almirall is fundamentally a different company than what it was a couple of years ago. There has been and will continue to be a transformation of the business. New Almirall, if I may call it like that, starts with the launch of Skilarence in October 17, which was our first launch in psoriasis in Europe.
We then made the first in licensing deal for a new mode of action in actinic keratosis, which is a precancerous and very frequent disease in medical dermatology. At that time, it was in phase two, and I'll come back to you shortly on where the product is now. A very important turning point was the acquisition of the medical dermatology portfolio of Allergan in The US in August 2018, which came with an innovative novel antibiotic for moderate to severe acne. As you know, I'm talking about Seysara, which was then launched in January 2019. We had our first launch of a biologic in Europe with ILUMETRI.
Then very significant in our view, we entered into an option deal with Dermira to acquire the European rights on lebrikizumab, an anti IL-thirteen for the treatment of atopic dermatitis. When we saw what we thought to be very interesting data, we exercised the option giving us unrestricted access to what we think has best in disease potential in this indication. And of course, recently Lilly acquired Dermira, which we view very positively for Almirall. Firstly, it validates the hypothesis that indeed lebrikizumab is a very interesting molecule. And secondly, with the power of Lilly behind this brand in terms of medical affairs, evidence generation, evidence dissemination, life cycle management, etcetera, which of course also ought to be very helpful to us in Europe.
We announced a number of deals at the beginning of the year, Vioness and 23andMe, which Bhushan will elaborate on later. So this is really where we are today, focusing on these launches and building a real pipeline of innovation for severe unmet medical needs in medical dermatology. Going forward, we are excited about and working towards key launches of future growth drivers with the launch of tirbanibulin in Europe and The US in 2021. The following years, we will be expanding Seysara's geography by submitting in 2023 in China and launching lepipizemab in Europe in 2023. All this points towards significant midterm value to be unlocked.
Now turning to the launches, we are very pleased to see the performance of our recent launches. Skilarence has completed the European rollout, achieving good penetration and captured significant market share in the key markets of Germany and Holland within the fumarate class. ILUMETRI has performed well in the last quarter of the year with strong unit growth quarter on quarter. We are encouraged by this momentum, which we expect to continue after having negotiated the final price with the GBA in Germany. Seysara finished the year with 6% TRx market share.
From the January, we changed our PAP program and we have seen an expected decline in TRx, which is totally aligned with our internal expectations. I will give you more details on this later. In 02/2019, we had 6,200 dermatologists prescribing Seysara and a total of more than 200,000 prescriptions. Turning to skill events, Germany and Holland are clearly showing very strong market shares. You can see from the slides those impacts of those two launches with quite immediate impact.
Moving forward, you should take into account a more gradual pace due to the very high shares in these two key markets of now 80 to 90%, meaning that our room room to grow additional share is limited in those two key countries. In DMF naive countries, the market penetration requires more time and indication, therefore expect a more gradual increase going forward. Moving to ILUMETRI, as you know, this is an IL-twenty three p nineteen inhibitor, and is our first biologic in psoriasis in Europe. Psoriasis carries a high disease burden, and patients can have a very significantly impacted quality of life. In such cases, therefore, it is important that any therapy provides long term control.
A short term fix is not what is needed here, and patients need a long term treatment strategy to reduce this disease burden and improve their quality of life. You can see from the slide that anti IL twenty three is clearly conquering the market. We are zooming in here on the dynamic segment of the market. There are compelling reasons for that. The anti IL-twenty three class has a strong efficacy profile with the key attributes being a proven lasting efficacy with convenient dosing and with no significant safety concerns.
Now, if we zoom in to the ILUMETRI performance, we are pleased with the performance of ILUMETRI in Q4. You can see the patient data in Germany quarter on quarter, and you see that we are actually tracking very nicely with the uptake, Despite the launch of a new competitor anti IL-twenty three, we continue to gain patients with ILUMETRI. We even saw an acceleration in q four. So this is certainly a very competitive space, but we think that we have a very good product in the right class. The majority of patients require clinically meaningful and reliable long term control, and are less concerned by rapid onset of action.
In this context, ILUMETY has demonstrated clinically meaningful disease control by absolute and relative PASI, with eight out of ten patients staying on therapy for five years. Importantly, this was achieved without any new or emerging safety signal. With a highly favorable and very differentiated cost benefit ratio, ILUMETY can be considered the therapy of choice for the vast majority of patients that cannot be controlled by conventional systemic therapies. Seysara, our antibiotic in moderate to severe acne, has seen a very nice uptake of TRx during the first year since launch, reaching 6% market share in The US in the broad oral antibiotic market prescribed by dermatologists by the end of the last quarter last year. The strategy has always been to generate a lot of user experience for the dermatologists, thanks to a generous copay offset by Almirall.
This we clearly achieved and we have now established Shefsara as the best in class oral antibiotic for moderate to severe acne. We have also flagged that we would start working as of the second year to improve the gross to net by introducing a new less generous co pay offset. This is exactly what we did as of the January. The logical recent TRX decrease is in line with our expectation given the changes to our co pay program that we initiated in the January. Moreover, I can tell you that the overall market share of oral antibiotics has decreased versus December, and that Zevtera market share already starts to stabilize.
Also, you can see from the slide that the absolute number of prescriptions starts to stabilize. More importantly, this expected decrease of prescriptions is actually eliminating the non covered prescriptions in order to improve the gross to net. Actually, can tell you that we see already significant improving improvement in the last weeks in the gross to net for January, despite being in the high deductible season, and this improvement should further develop throughout the year. Also, we have announced this morning that we have acquired the rights to in China, and we are planning to submit Seysara to the Chinese NMTA in 2023. There is a large acne population leading to a potential of thirteen million moderate to severe treated acne patients in the urban population by 2028.
This is a large opportunity where we can launch an innovative product into a growing market with clinical development that is largely derisked. Our pricing research shows there is significant willingness to pay out of pocket in tier one and tier two cities, and we plan therefore to launch insertion out of pocket model, avoiding also lengthy pricing and reimbursement discussions. Entering into the late stage of our pipeline, we have made excellent progress there. We are building the clinical stage pipeline with very exciting products. Here we're talking about lebrikizumab, vivalevaline, and the recently announced BMZ-one with more to follow in the course of 2020 and 2021.
I mentioned before, we have also included Sisara for clinical in phase three. Combining the peak sales potential of the recent launches Kilarence, ILUMETRI and Seysara together with tirbanibulin and lebrikizumab gets you in excess of €1,000,000,000 another indication of the ongoing potential for transformation of a company that has just reported twenty nineteen nineteen product sales of €853,000,000. These peak numbers do not include BNZ01 nor SAKSAHA China. On lebrikizumab, this slide tells you why we are so excited by this opportunity. Since we exercised the option on lebrikizumab, there has been only positive news.
Upacitinib received its registration in rheumatoid arthritis with a black box, and we think it's very reasonable to assume that they will have a black box warning for AD also. We have initiated phase three even a little bit ahead of schedule in October 2019. Then two potential competitors dropped out of development. There was the IL seventeen c from Novartis that was stopped in October 19 and the anti IL thirty three from Anaptis Bio that was stopped in November 19. In the meantime, Dupi has obtained market access nearly everywhere in The US, hence opening the way for future incumbents in that indication.
And we note with interest Sanofi announcing in December 2019 the global peak sales potential for Dupin of €10,000,000,000,
which we
very much see as an external validation of the potential of lebrikizumab. And then in December, also tralopinimar hit its primary endpoint, but with no details given. Perhaps of most relevance to Almirall was, of course, the acquisition by Lilly of Dermira, which we view as a very solid external validation that we made the right choice when we took the option on lebrikizumab. To expand a little bit more on Libri's potential, we are pleased to see the latest report from DRG that supports our forecast for Libri. In fact, DRG gives sales of €532,000,000 by 2028 in a market that keeps growing.
I am not sure that potential for Almirall of this drug is sufficiently recognized by observers. We think that this product has a potential to be best in disease for atopic dermatitis. This graph shows the substantial market opportunity, and the good news is that today, there's only one biologic that is market, dupilumab of Sanofi. Since the launch, they have been able to secure a very good market access for dupilumab in Europe. This is a positive indicator for Libri, as we will not have to open that market access in the atopic dermatitis space.
Instead, we will be able to follow on what Sanofi has already created with dupilumab. All observers say that the number of atopic dermatitis patients will be at least the same as psoriasis, but with a burden of disease that is probably even more important than the burden of psoriasis. We are excited by the profile of Lebri and what it has to offer for patients, and we are working towards launch of the product in early twenty twenty three. I will now pass over to Bhushan to discuss updates in the R and D pipeline.
Thank you, Peter. I would like to spend some time to go through this slide in slightly more details. To further emphasize why we are so excited about lebrikizumab from scientific perspective. Here we see three card foods. One monoclonal antibody, which is already on the market, like Peter said, dupilumab.
And two, under development, lebrikizumab and trilacicizumab. Dupilumab is a mono monoclonal antibody targeted towards IL four receptor, hence submitted to target mediated drug disposition, which has an impact on the half life of the antibody and its ability to maintain systemic therapeutic levels within given time. Ducilumab prevents the dimerization of both type one and type two receptor complexes, thereby blocking type one as well as type two receptor signaling. That's why the signaling is much more wider. Recent studies have shown had many publications that say that IL-thirteen is primary cytokine involved in atopic dermatitis inflammation.
IL-thirteen is overexpressed locally in atopic dermatitis skin and has significant impact on skin biology, including recruiting inflammatory cells in at the lesion. Lebrikizumab is a monoclonal antibody designed to block IL 13 cytokine with very high affinity and up to four weeks half life. Bolivrikizumab specifically binds to an inhibitor that prevents it from binding IL 13 receptor alpha one. Hence, there is no dimerization with IL four and formation of type two receptor complex and blocking of type two mediated signaling. At the same time, it does not prevent the IL 13 from binding IL 13 receptor alpha two, which is also called the receptor, which is known to have anti inflammatory properties.
The specificity and high affinity of lebrikizumab is very important and has reflected in the clinical outcomes in the phase 2b clinical trial that were already published. Lipikizumab phase 2b data, we see percentage change from baseline in pruritus at sixteen weeks to be close to sixty five percent, percentage IgA responders by about forty percent. If you look at e g ninety, which is a very high bar to reach in atopic dermatitis, you see about forty four percent in e g ninety. On the other hand, trilaciclib is also a monoclonal antibody against IL 13 cytokine that it targets very different. Tralecizumab prevents blocking of type two receptor just like dupi, but with a very low affinity.
Larger number means low affinity. Smaller number means a very high affinity. It also prevents IL 13 cytokine from binding to the IL 13 receptor alpha two, a DKIM receptor, thereby blocking its anti inflammatory properties. These two functional characteristics, low binding affinity and blocking of IL 13 receptor alpha one and two sets trilaciclib far apart from high affinity and specificity of lebipizemat. So in short, given the importance of IL 13 in atopic dermatitis, skin biology and its high targeted affinity, long half life, and specificity that targets pertinent mechanism of action for atopic dermatitis, lebrikizumab presents the unique opportunity for benefiting the patients by improving efficacy as shown in phase two b, tolerability, and convenience in long term maintenance of atopic dermatitis.
Now let us talk about the really exciting deal that we have with Vyvanse. As shown in the slide, CTCL, despite the overall long survival rate in the early stages of the disease, the progression rate dramatically increases at two b, and the survival rate also decreases dramatically. There is an unmet need in these stages of the disease where today's available therapies have very high incidence of side effect side effect and are not tolerated by patients. The patients have to go through multiple treatment regimens to survive. Benzee one is an extracellular peptide that binds to gamma c receptor, which prevents its dimerization with IL two, nine, and 15.
It is already in phase one two for CTCL, and FDA has granted orphan drug designation. We will evaluate the results of this particular trial and results of pre phase two meeting with the FDA. And at that time, we will execute an option. This will be around end of twenty twenty. Once the option is executed, we will start phase three clinical trial for CTCL in 2021 and phase two for alopecia areata shortly thereafter.
Underall will have global rights for Genc1. Myonase has the innovative platform technology for extracellular peptides that can inhibit multiple cytokine receptors. The platform technology is already in humans and has shown target engagement. It is also clinically validated as we see in benzene one. End of this year, when we execute the option for benzene one, we will also initiate a research collaboration with the company.
Thereby, they will provide us three IND approved molecules in inflammatory and or immunodermatological indications in the come three years. We are extremely excited about this collaboration so that we can bring technologies to the market, which will benefit the patients. Being said that, I will hand it over to Mike to provide us with financial performance.
Thank you, Vishan. Now I want to take you through the financial part of the presentation. We've delivered what we believe is a very strong set of financial results for 2019. The key highlights are as follows: total revenues and net sales growing at 1213%, respectively, boosted by our recent launches and a full year of our U. S.
Portfolio, mainly boosted by Axsome 7.5. We have positive evolution of the gross margin with a year on year improvement driven by our improved product mix. We have made significant investments in key product launches, helped by reallocating savings from the divestments of our aesthetics business. With this, we delivered a strong operating leverage with EBITDA growth of 45% and a major improvement in the year on year margin. And this has helped us to achieve an excellent operating cash flow of EUR $276,000,000, aided by a significant collection of milestones from AstraZeneca primarily in Q4.
When looking at Q4 twenty nineteen versus Q4 twenty eighteen, we see sales flat and profit improved mainly due to lower G and A R and D expenses. Gross margin was down mainly due to a reallocation of wholesaler fees from the new U. S. Portfolio to SG and A from a reduction of net sales in 2019. On this page, you can see the main contributors to net sales over the period.
In particular, I want to highlight the strong contribution from our recently launched products as the ramp up of ILUMETRI and CESSARA in the first year since launch has managed to hit our internal targets. We forecast a continued meaningful contribution from these products in the near term as we continue to gain penetration in key geographies. We have achieved strong net sales growth of 13% in 2019, which is very much in line with the guidance given. Taking a look at the p and l in detail, you can see the 13% net sales growth that I mentioned, and in addition, margin achieving 71% driven by favorable product mix. Other income was stable versus last year.
Moving forward, we will see a significant reduction in other income as milestone related income from AstraZeneca decreases sharply, and we switch to a predominantly royalty income model. R and D increased this year versus 2018 by 5% due mainly to an increase in Phase IV studies for the recent launches. We achieved a 6% decrease in SG and A spending versus last year. Though when you consider the divestment of the aesthetics business, the IFRS 16 changes and the wholesaler fee reallocation underlying SG and A increased by high single digits. We will discuss this in more detail on the next slide.
All of this led to an excellent EBITDA growth of 45% with an important improvement in terms of EBITDA margin from 28% to 36. Looking deeper at SG and A evolution in 2019, you can see over the year, we continued to manage SG and A expenses tightly overall while investing in our recent product launches. We benefited from meaningful savings following the divestment of our aesthetics business during last year. As you can see in the other column, the reclassifications mentioned during the 2018 year end call amounting to roughly $16,000,000 related to lease accounting implementation and a reallocation of wholesaler fees in The U. S.
To net sales aided the reduction of SG and A versus 2018. In 2020, we anticipate mid to high single digit increases in SG and A, excluding depreciation and amortization, to support our launches and continue the investment in our growth drivers. Going down the P and L, the combination of growth, improved product mix and limited expense increase provided operating leverage with solid EBITDA and EBIT margins increase. 2019 saw an effective tax rate of 17%, in line with our expectations. In 2018, due to the Allergan portfolio acquisition, we ran a new impairment test evaluation.
And as a result, some tax assets linked to the previous US impairments were reinstated, and that's why 2018 had a
small income in the tax line.
With this, we generated normalized net income of £136,000,000 and a normalized earnings per share increased to $0.78 per share, up 53 percent from last year. Looking at the balance sheet, I simply wanna highlight two elements. One, an increase in intangible assets following from the Dermira payment for lebrikizumab as well as additional investment in the Athenex product. And I also wanna say that we finished the year with leverage of 1.5 times EBITDA to net debt, which gives us the maximum flexibility for additional m and a activity going forward. Let's have a quick look at the cash flow statement.
We delivered a strong operating cash flow generating $276,000,000 from good collection in Europe and The US, which we were pleased with important conversion rate and improvement versus last year boosted by milestones received from AstraZeneca. Investments include the Demira option and exercise fee as well as additional down payment on the Athenex product. For 2020, I want to show a summary slide of the guidance assumptions that we're using for the year. This shows our view of some potential impacts to the business this year, both positive and negative. There are multiple moving parts.
However, overall, we anticipate an increase in the net sales as products continue their rollout across Europe and The U. S. Strategy for Seysara to optimize profitability starting in January begins to bear fruit. I've already mentioned in some detail the future expected trend for other income and that we intend to invest to support our recent launches, which will lead to a mid to high single digit increase in SG and A spend in 2020. As you will see, be aware, given that we've flagged it for some time, there is a generic launch for Axon seven point five in The U.
S. That will impact us this year. There's one additional impact area that could adversely affect us in 2020. Our Spanish division is strong and a very profitable part of the business. We have a new government in Spain, and there there could while there could be new measures, there have been nothing announced yet so far, but it would be remiss for us not to mention the possibility that it would lease some adverse impact this year or next could could happen.
At having said that, we have received no details yet of any proposed measures, but we'll let you know once something concrete, is is launched. With the previous assumptions presented, I can give you our guidance for 2020. We expect net sales of low to single digit growth. In terms of EBITDA, we expect to be between $260,000,000 and $280,000,000 for the full year with a growth in the core EBITDA, as I will explain on the next slide. We have given a relatively wide ranging EBITDA for this year as we wanted to have caution because it's firstly, we don't know if and when the Spanish government may implement any measures.
And secondly, the speed of the generic, launch of the Axon 7.5 is not known at this point. These are the two largest swing factors in the range of the EBITDA for 2020. Here, I wanna provide a slightly different perspective on the company's transformation. When looking at EBITDA, including excluding other income, what you can see is that the core EBITDA has been growing in all of the last few years, while the significance of other income has been declining. As we mentioned in 2020, the other income will be mostly a royalty model.
And given the current performance of the underlying products, we expect this to be significantly lower than in the past. We expect core EBITDA in 2020 to be growing despite the impact of Axon Generics. And finally, on this slide, we want to reiterate our priorities when it comes to capital allocation. First, our priority goes to invest behind the new product launches, building our European psoriasis franchise and The U. S.
Acne franchise. It's clear that what we've created for ourselves is a lot of opportunities. Second, we are focused on strengthening our R and D pipeline, which is at the core of being a specialty pharma company. We've made very good progress as Peter and Bouchon have explained. Third, we want to provide a secure and stable growth dividend to shareholders.
At the Annual General Meeting on 05/06/2020, the Board of Directors will propose a gross dividend of 20.3 per share in scrip dividend stable versus last year. Finally, we will focus on M and A for accretive deals that will reinforce our core business and bring critical mass to further leverage our fixed cost base. With that, I'll now pass back over to Peter to conclude the presentation.
Thanks a lot, Mike. So in closing, I would just say that we think that the strategic transformation of Alachal is now firmly underway. With the European psoriasis franchise and Seyslara in The US, we have created a very good momentum. Looking at our pipeline, we have now a very attractive number of late stage opportunities with significant future leverage on our growth profile. Then as you've heard from us before, the key component of our strategy remains to search for additional external opportunities to further complement our current growth profile and generate sustainable value for shareholders.
Finally, we expect top line growth at low to mid single digits. In the year, our biggest product in terms of sales, Axon 7.5, goes generic. This shows that the underlying performance of the business remains strong and demonstrate our significant leverage for midterm growth. So Pablo, I hand back to you for the Q and A session.
Thank you, Peter. Joao, please back to you for the Q and A.
Thank you very much, sir. Our first question is from Tron Hyang from Credit Suisse. Please go ahead.
Thanks for taking my questions. I have a few if I can. Firstly, on 2020, do you see growth in The U. S. Derm portfolio for 2020?
And what products beyond Seysara do you see that growth in? And can you outline the Spanish portfolio impact if the government chooses to implement these cost measures? And secondly, on Seysara, you note scripts are starting to stabilize. Is today's level now the bottom or should we continue to expect a decline? And how long do you think it takes to get back to the level you were previously at?
On your other growth drivers, if you have a look at Illumimetry and Skilarence, quarter on quarter sales growth seems to have really slowed. What can really get the sales going for these products? And are you still confident in your peak sales forecast for these products? And finally, just a quick modeling one. You've been helpful on the level of SG and A growth.
Can you please be helpful on the level of R and D growth? Thanks very much.
Okay. Thank you, Frank. It's actually five questions. Let me take the Seysara question and the other growth drivers, so basically the psoriasis franchise in Europe first, and then I'll turn it to Mike for the other questions. So on prescription side, Sarah, if you look at the evolution, it's true that we see the bottom coming close.
I think what you should also take in mind when you look at the the evolution over the last weeks is that you should really take the the point of January 3 as the starting point and not the the peak you saw on December 20, which is typically a peak in The US of the Christmas season for acne, that we really only dialed back on the co pay card after the January 3. So this should really be the base. That's my first comment. My second comment is actually that, yes, you saw the erosion of the Seysara prescriptions, but it's also a typical pattern that in the January, the overall oral antibiotic market also decreases. So what we see actually in market share in the last weeks in the oral antibiotic segment, we see actually that we have already a flat market share since two or three consecutive weeks.
So if you take all these factors together, I think we're probably very close to the bottom, and we can restart growing from this new base. Number two, on the other growth drivers, actually, we are very excited about Seysara. And I really sorry, about ILUMETRI. And I really invite you to look at the patient growth or the unit growth Q4 versus Q3. As demonstrated in the slide, we even had an acceleration in the new patients putting or being treated with ILUMETRI.
And if you would normalize the sales of ILUMETRI for the price decrease in Germany that we have, we're actually looking at 22,000,000 sales. So I really I really invite you to look at ILUMETRI through this lens. And and this is basically only Germany sales because we're just in the phase of launching in countries like Austria, Spain, Italy, we launched last week. And then hopefully, later during the year, we'll also launch in France after the summer break. So I think we're very, very optimistic on ILUMETRI.
And together with the continued gradual growth of of Skilarence, we do confirm our global peak sales of the two products combined of €250,000,000 So I'll now turn to Mike for the other questions. Yeah.
So let me try to go through them, and and if I miss anything, just just let me know. So for 2020 US derm, we're not gonna give detailed numbers about the whole portfolio, but I think it's safe to say that we expect the the generic impact on Axsome to be slightly more than the growth of the other products. So The US overall derm portfolio will face a slight decline. In terms of other growth drivers there, I think tirbanibulin when it's launched in 2021 will be a nice growth driver. The remaining part of the portfolio that we acquired from Allergan has some small growth in some of the products, but some others facing some generic competition.
If I move over to the Spanish portfolio impact, we're not giving any numbers directly on that because we don't have anything concrete in terms of measures yet. But safe to say that if we do have a significant impact, it will put us more towards the lower end of our guidance range than the higher end of our guidance range. And then overall, the last question, we did give guidance on SG and A. For R and D, we would expect a small increase, low single digits, some mid single digits at the upper end of it. As we continue to fuel, the the studies needed for not only phase four for the the recently launched products, but, but we are moving other things through the pipeline.
Thanks very much.
Question. Our
next question for today is from Francisco Ruiz from Exane. Please go ahead.
Hi, good morning. So I have three questions. The first one is a follow-up on the Spanish measures. So could you confirm that you have already included in your guidance? The second one is if you could give us the detail of how much of the other income in 2019 come from AstraZeneca both for royalties and milestones?
And the third one, if you could detail what are the earn outs and milestones that you have to pay in 2020 were the ones that you already know? Thank you.
Okay. I'll take the first question on the Spanish measures. So yes, we confirm that we have, let's say, call it a placeholder in our guidance for potential Spanish measures. And as Mike just explained, if those measures materialize, this will drive us to the lower end of the guidance. If not, this will drive us to the higher end of the guidance.
But I think it's too early to really give you more color on that today. The only thing I can I can tell you is that we have we have conservatively planned for that? Mike, the questions on other income 2019 and then Yeah.
So for the other income 2019, the majority of that income, it was all from AstraZeneca in the line other income, and the majority was still the amortization of milestones from previous years as well as the cash that was actually collected in Q4 this year for the combo launch in The US. Going forward, we really don't see significant milestones in that line, and it's really just going to be royalties on the products that continue to be sold. Unfortunately, product portfolio has been declining. And as as of now, we haven't seen any rapid growth of this new combo launch. So so we'll keep a close eye on it, but at this point, you know, what we're guiding towards is is what we see in that line.
And in terms of cash, most of the cash came in in 2019. There is another cash milestone coming in in 2020, but it's related to income that's already been recognized.
Thank you.
And about the the earn outs of product system products? Sorry.
We don't have any other milestone earn outs other than the royalties.
Okay. Thank you.
Our next question is from Peter Welford from Jefferies. Please go ahead.
Hi. Yes. Thanks for taking my questions. A couple. But firstly, Firstly, just with regards to the China in licensing and Cesaro.
Just curious if you could talk a little bit about what you already have in China, I guess, and whether or not beyond that then in the future, are there other opportunities you're looking out to potentially either capitalize on existing products in the portfolio going into China? Or alternatively, is this an area that you're looking externally to source assets to build up, I guess, ahead of time for something to leverage with Cesara launch. Secondly, then I wonder if you could just talk a little bit about the sales perhaps you have in Spain. Maybe I missed it in the presentation, being curious to get to know what is your sales number in Spain. And I think you mentioned that the profit of the business is very profitable.
Is it fair to assume, therefore, that the profitability of the Spanish business is above the group average? And any sort of visibility you can give on that would be great. And then just thirdly, on SG and A, obviously, to high single digits increase, you said, this year, which is very helpful because, obviously, these products roll out. I guess, if we look in the future, I appreciate you're not going to sort of give midterm outlook, but we obviously have then, if you think about it, the tinitiratosis coming next year. We then potentially have, I guess, lebrikizumab in '23.
I guess, can you talk a little bit about what sort of increases we should think about? Or I guess, maybe another way, what sort of point do you think we could reach the point where we should really start seeing leverage through that line, given, obviously, you're getting a portfolio effect? Thank you.
Thanks, Peter. Three questions. I'll take the first one on China and give you a little bit more color. So actually, today, we have presence on some of our legacy brands in China with the classical distributor model. So that is, of course, no base to build a kind of a new presence on new activity in China.
But what we have started to do now with ZEGSAR is really planning for a more strategic entrance into China, either with our licensed products, either with our pipeline products. Think about, for example, BNZ-one, rare disease, high unmet medical need, you know, relatively few referral centers for CTCL. So these are typically the the products that could come fast to China because they benefit from a fast development and then benefit from a fast pricing and reimbursement discussion. So basically what we do now in all our internal research programs, we systematically put China into the equation. And of course, the first one should be Seysara, not only because of but also because, we plan, as I said before, a targeted approach, in tier one and tier two cities in non reimbursed setting.
And we have thoroughly tested willingness to pay, and that willingness to pay is clearly there, for a treatment that takes, let's say, one to two to three months. Okay? So now we have not decided, and I think we have a bit of time ahead of us, but we have not decided, what would be a go to market model for us in China. We would probably, at least in the first step, not do that alone. We would probably make a strategic alliance with a partner, or we can look at other solutions whereby we have a company servicing us for a couple of years.
And then once we have achieved critical mass, we could firmly establish ourselves in China. So it's a little bit early days, and and we are looking at different go to market models, Peter. But of course, when we get more color on that, we will, of course, discuss this. Mike, the two other questions, sales in Spain and then the longer term outlook on SG and A.
Yes. So in terms of our business in Spain, it's well over €200,000,000 in sales a year. Not all of that would be potentially subject to any measures because we do have a significant consumer health business in Spain. But we do see a basket of roughly €100,000,000 in sales that could be subject to anything that comes as reforms in Spain. The profitability of that business is pretty much in line with our overall global profitability.
So it's a very good piece of business for us, and we just wanted to flag that risk as an unknown. When it comes to SG and A, we do expect the increases to to temper a little bit in in 2021 and 2022. Now '23, we don't know yet because the launch of lebrikizumab could could be a significant one. But but, when you look from '18 to '19 and '19 to '20, you've seen, you know, new launches and then some building of of infrastructure, and, we're starting some some prelaunch, spending for Turbinimulin in in 2020. That will start to moderate as you go into the midterm and then probably accelerate again once we have lebrikizumab in the market.
We'll be looking, of course, to be as tight as we can and and to to really manage that well. But in order to launch, the new products and expand in in some territories where where we're not, yet in the critical mass, we do see some increase in SGN.
Thank you, Peter. Next question,
Thank you. Sorry. Must be.
Next question, please.
Yes. The next question, is a follow-up from Trung Kyung from Credit Suisse. Please go ahead.
Hi, guys. Just two more from me, if that's okay. So firstly, the EMA recently recommended halting the use of Picato on a possible skin cancer risk. Has the EMA asked you for any additional data on terbunilin ahead of the approval? And do you have any long term data or long term trials planned if the EMA asks you for that data?
And then just a financial one on your net financial charge for 2020. So for 2019, of the €21,000,000 net financial expense, euros 13,500,000.0 was foreign exchange, 2,700,000.0 was fair value adjustments. That leaves us with 4.6 net finance. Is that a reasonable run rate for 2020? Thanks very much.
Thanks, Bruno. I'll turn it first to Bhusham for the question related to Picanto and EMA.
Yeah. We have submitted our file to the EMA. As a routine, they have asked us to submit a protocol for long term safety and observation of squamous cell carcinoma clinical trial. The protocol is already with them, and we will hear from them, by third quarter this year. They had not recommended anything special, for us to do as a result of the CARTO trial.
Now I would add to that that actually, before any news of PIKARTA, that was actually our, base case scenario that EMA would ask for those, long term studies. We knew that from the get go, so there's no change. And number two, the the mode of action of tirbanimulin and Picato is completely different. So, if any read through of the, let's say, the EMA Picato decision, it's, I think it's a positive to us because it's one competitor less. And, Mike, the the question on net financial charge.
Yeah. So the net financial charges are a little bit complicated, but let me walk you through what what we had in 2019. In that '21 million, there was about 6,000,000 that was related to the write down of some of the receivables that came from the Thermi divestment. So you only had about 15 of of real financial expense, and some of that is offset by the financial derivative income that you see for the convertible bond. The the accounting is complex in that you recognize an implicit interest, but then you have a gain on the value of the convertible bond over time as we get closer.
So overall, we had net financial expenses if you count the financial income derivatives and expenses of 13,000,000, we would expect that to to come down a little bit. But, of course, that will be influenced a little bit by the value of some of these derivatives, the equity swap and and the convertible bond.
You, Francois, There for the
are no further questions, sir. I'll hand the call back to yourself.
Thank you, Jody. We are now going to close our Q and A session. And with this, we will complete our conference today. We want to thank you for your participation. You may now disconnect.