Hello everyone, and welcome to today's presentation of ALK's Quarter Three Results, together with the updated outlook for the full year. Could you please turn to slide number two, where I'll introduce you to today's presenters and our agenda. My name is Per Plotnikof, and I'm Head of Investor Relations, and with me today are ALK's CEO, Carsten Hellmann, and our CFO, Søren Jelert. Today we will look at our Q3 performance, the continuing impact of COVID on our business, sales trends across our regions and portfolio, and the Q3 financials. We will give you an update on our four strategic priorities before sharing the updated full-year outlook. Finally, we will end today's call with the usual Q&A session. If you please turn to slide number three, and then I'll hand over to Carsten, and we'll get underway. Thank you.
Thank you, Per, and thank you all for joining this call. First, let me give you the highlights. Earlier this year, we have said that we were assuming a normalization of the AIT market conditions by now in order to meet our targets. But despite the fact that this clearly still hasn't happened in many places, I'm pleased to report that ALK has returned to growth and delivered a solid Q3 with 7% overall organic growth, helped by spectacular growth in the tablet sales, which were also fueled by continued strong take-up of ITULAZAX in its early launch markets. Sales in our European and international markets remained resilient and performed well. Even so, across our markets, visits to ALK clinics are still subject to many restrictions, with the greatest sales impact in the USA on our legacy products in general.
In the USA, we now estimate missed sales for the full year worth more than DKK 100 million due to COVID. But despite all of this, sales in the quarter increased 7%, not least because of a very strong performance from tablets, which grew 52%. Tablets are now the largest single product group for ALK, accounting for 36% of total revenue. Planned product continuations reduced growth by approximately four percentage points. EBITDA was up 61% to DKK 58 million on the back of savings, operational efficiencies, and delayed R&D costs. As a result of all this, we upgraded our earnings and cash flow outlook while narrowing our growth outlook to around 8%. The key growth driver is still the tablet portfolio, and our outlook for the year is for tablet sales growth to significantly exceed 30%.
Before I go on, let me take a moment to highlight how we see the remainder of the year panning out. In Q4, we expect double-digit growth overall, driven by tablets and by new treatment initiations. This assumes that patients' ability and willingness to visit doctors remain at current level at least. Needless to say, if the impact of COVID-19 significantly changes market conditions for the worse, it may pose a risk to our outlook, but we don't expect much of that. Before we go into Q3 financials, let's just talk about COVID-19 in more detail. Please turn to slide four. Despite the challenges in the USA, especially for legacy products, ALK's overall business remained highly resilient to the impact of the pandemic, although we are working day-to-day on mitigating the consequences of COVID-19.
We continue to protect our staff and have taken all possible steps to prevent disruption to the business and safeguard the supply of our products. Many employees are working from home to the extent possible, and in Denmark, we have built an extra canteen to help employees keep social distance when having lunch, just as one example. Although we see patients now returning to clinics in many markets, capacity remains constrained by factors such as increased hygiene measures and revised working practices. As a result, home-based treatment, particularly tablets, continues to do well, and in some cases, we're even benefiting from reduced access to other types of products. And there's no greater evidence of this impact on legacy products than in the USA, where, as I mentioned earlier, missed sales would be significant this year. COVID containment measures continue to affect our clinical development activities too, particularly in patient recruitment.
In most cases, it's still too early to say what tangible effect this will have, although we know that in China, a delayed trial will push back our filing of ACARIZAX by at least a year. On the positive side, filings that are already under review do not seem to be impacted. Our products supply chain remains resilient, and our inventories of both supplies and finished products continue to be robust. With that, let me hand over to Søren for an overview of the sales numbers on slide five.
Thank you, Carsten. Our business in Europe is performing well in the context of COVID. As you can see here, European revenue was up 6% despite reduced sales growth from discontinued products worth 5 percentage points. Some trends that are worth noticing include 56% growth from tablets led by continued success of ITULAZAX and 42% growth on JEXT. Tablet sales reflect the ongoing shift to registered treatments, strong sales force execution, and we also think a positive effect from COVID. Germany especially continued to perform very well with triple-digit growth in tablet sales and sustainable high capture rates across the portfolio among new patients. There, we have also recently seen an update to doctors' fee structures for AIT, meaning that financial incentives for prescribing tablets will further improve in the future. In short, Germany is a key market to watch for going forward.
In North America, sales were down 14% organically on the effects of COVID-19, which Carsten explained earlier. Sales were in line with our most recent outlook, although sales of bulk SCIT products did improve in the third quarter, registering a sales decline of 3% versus a 22% decline seen in the second quarter. International markets saw revenue growth of 110% in the third quarter with continued strong sales of tablets to Torii in Japan. Despite the influence of COVID-19, Torii continues to do a great job in building the Japanese AIT market. In China, the effects of the pandemic were largest during the first quarter, so that during the second and third quarter, the market bounced back strongly, with the revenue for the first nine months being up some 50%. Let's take a closer look at the three product categories on slide number six.
We've already highlighted the resilience of tablet sales, which were up 52% in the third quarter, and we also confirmed that tablets are now our largest single product segment. Disregarding product discontinuations, combined SCIT and SLIT sales were down 5%, mainly on the effect of COVID. Sales of other products were flat, as the lower sales of other products in North America were mitigated by strong performance of JEXT. Now, let's turn to the full-year financials on slide seven. ALK financial robustness improved further in the first nine months of 2020. Gross profit was DKK 1,449 million and yielded an unchanged gross margin of 58%. This reflected changes in the product mix that saw higher sales of tablets in Europe, but also lower sales of legacy products, as well as increasing lower margin sales to Torii in Japan.
The sales to Torii is reducing the gross margin by approximately one percentage point. The expected gross margin of 58% continues to reflect a significant investment in supply chain robustness, as well as the continuing rollout of the production site strategy, which in the third quarter involved certain restructuring costs from relocating part of our quality control activities to Madrid in Spain. Capacity costs decreased 6% in local currencies to DKK 1,289 million . R&D expenses were up 7%, reflecting a step up in clinical development activities. However, this was much lower than planned as COVID delayed the clinical activities. Sales and marketing expenses decreased by 11%, reflecting both savings and operational leverage. EBITDA was up 72% to DKK 331 million and exceeded our expectations. Finally, free cash flow of DKK -67 million was better than expected, mainly influenced by the higher earnings and timing of certain payments.
This leaves us with a cash reserve of approximately DKK 600 million. With this, I'll hand you over to Carsten for an update on our strategic priorities.
Thanks, Søren. As you might recall, we are now nearing the end of our three-year strategic transformation of ALK. This journey has seen multiple transformation initiatives across ALK. It has delivered double-digit growth based on strong tablet performance and improved commercial effectiveness. It has delivered pipeline progress, not least with the launch of ITULAZAX and new digital capabilities, and it has leapfrogged ALK's production and robustness and quality levels. All of this has created a strong fundament for ALK's future growth opportunities, which looks promising for the next many years. This progress enables us to address how we can further develop ALK in the longer term, creating an even stronger, bigger, and sustainable ALK. Early next year, we'll present an update looking at the next phase of ALK's development.
I can already say now that the strategic direction and the four pillars will overall remain the same, and we continue to focus relentlessly on strong execution and growth and profitability. Let's move on to slide 9, where we look at the latest progress in the first two focus areas in more detail. On the left is our first focus area succeeding in North America. As we mentioned earlier, the U.S. continues to be impacted by COVID, and from an ALK point of view, this is having an effect on our efforts to build commercial mastery. We estimate that lost sales for the full year in the USA is to exceed DKK 100 million. Still, we continue to do the right things to support long-term U.S. market development.
We are encouraged to see an increase of 30%, an increase of 30% in the year-to-date tablet volumes, although this has not yet translated into revenue growth due to the coupon rebates. Furthermore, the U.S. launch of our digital platform has seen very positive early results, as shown here. In our second focus area on the right here, complete and commercialized tablet portfolio, ACARIZAX and ITULAZAX are still the most important drivers of growth, but actually, every tablet in the portfolio saw growth in Q3, and we expect to significantly exceed our full-year growth target of more than 30% from tablets. The rollout of ITULAZAX to further markets continues as planned, with strong performances. For example, in Germany, where in just 12 months, the product is number one for new tree AIT inotations despite competition from 15 other products.
ITULAZAX also saw a further five new launches in Q3 and another early Q4. Meanwhile, we saw further evidence of the continued market shift towards evidence-based products as authorities in Germany updated their fee structure for AIT products, equalizing the financial incentives for prescribing tablets versus other products. In addition, ALK became the first company in Germany to completely discontinue non-registered AIT products. For completeness, at the note at the bottom here, just refers again to the impact of COVID on our clinical development activities. If you will now turn to slide 10, I'll just update you on the final two areas of strategic focus. Our third focus area on the left of this slide is patient engagement and adjacent businesses.
This has been an area of intense activity in 2020 as, against the backdrop of COVID, we have worked hard to connect with the most suitable candidates for AIT treatments ahead of the end of year high season for treatment initiations. As you can see, the numbers here are quite impressive and speak well to our ability to build a two-way interaction with people living with allergy and to mobilize these people to take action. We have also been piloting different innovations in a couple of markets that may have relevance more widely. For example, in the U.K., in partnership with Pharmadoctor, we have launched the country's first allergy test and treat service. While in the U.S., we have fine-tuned our Find a Doctor service to doctors who we know will offer a full range of treatment options to patients, including our tablets.
Also in the U.S. and in Germany too, we can now offer to connect people directly to a doctor so they can speak about their allergies and treatment options. Behind the scenes, we are also using our digital platforms in new ways to counteract many of the limitations created by COVID. For example, in China, more than 5,000 healthcare professionals tuned in for a virtual medical congress we hosted online. On the right of this slide, you will see our final focus area, optimize and reallocate, which is about improving the overall quality and efficiency of ALK. One example of this is the way we are standardizing the number of active pharmaceutical ingredients used across our portfolio, in turn reducing manufacturing complexity, helping to boost margins longer terms.
Before we can make these changes, we need to update the regulatory approvals held on file by authorities, which involve a huge amount of work for our organization. In Q3 alone, we submitted 275 change requests to regulatory authorities in 30 markets covering 27 products. At the same time, our portfolio rationalization work continues, as does our site strategy, under which we have recently announced the transfer of parts of our quality control activities from Denmark to Spain. Again, all in the name of improved efficiency and robustness of supply, something that has been a huge asset for ALK during the pandemic. With that, let me hand back to Søren for slide 11, where he will talk you through the changes we have made to the 2020 outlook.
Thank you, Carsten. Based on the result for the first nine months and our current sales and cost trends, we updated the full-year outlook as follows. We expect organic revenue growth of around 8%, net of product discontinuations, which reduces growth by approximately three percentage points. This is broadly in line with our most recent guidance. Subsequently, revenue growth is expected to reach double digits in the fourth quarter, reflecting a continued strong tablet sales. A significant share of this will be coming from the tablet supply to Torii in Japan. Hence, full-year tablet sales are expected to significantly exceed our 30% growth target. Turning to EBITDA, that's now projected at between DKK 350 million and DKK 400 million , reflecting savings and operational efficiencies in sales and marketing and the delayed R&D spend.
We continue to see the gross margin roughly on par with the last year, and we now see R&D expenses at DKK 500 million-DKK 525 million . Free cash flow is now expected to be around zero, reflecting higher earnings and the postponement of a one-off repayment of accrued rebates that will take place next year. CapEx is now DKK 250 million for the full year. With this, I will hand you back to Per and the Q&A session on slide 12.
Thank you, Søren, and thank you, Carsten. This concludes the main part of our presentation, and we will now open up for the usual question and answer session. Operator, please go ahead.
Thank you. If you wish to ask an audio question, you may do so by pressing zero one on the telephone keypad. If you wish to restore your question, you may do so by pressing zero two to cancel. Once again, it's zero one on the telephone keypad. If you wish to ask an audio question, there'll be a brief pause while we wait for questions to be registered. Our first question comes from Michael Novod from Nordea . Please go ahead.
Okay, thank you very much. Yes, it's Michael Novod from Nordea Markets. I have a couple of questions. Maybe you could also talk about whether you—I know you also did that in Q2, but maybe just give an update on whether you see any sort of sustained cost savings from going into the year to come also margin. That was one thing. The second thing is we've seen a negative effect on the U.S. business from COVID, obviously, but could there also be a scenario where you actually see a positive effect from COVID on the tablets that is also starting to sort of source through in the numbers that you see a strong attraction for the tablet franchise also going forward, given what we have seen in terms of people not as often going to the doctor, perhaps due to COVID?
And then the last question, do you have any thinking around moving further into food allergies, etc., to sort of bolster the pipeline near and long term beyond what you're already doing in the pipeline, also beyond your adrenaline strategy? So maybe getting into some of the more severe food allergies over time. Thanks a lot.
Thank you, Michael. This is Carsten. Before we go to the cost, let me just talk to you about first the tablets U.S. and others and also other new endeavors we could embark on. Yes, we do see, as I said, 30% volume growth on the tablets in the U.S. And we do see many places in the world, including Germany, where we had about 18% of doctors that were totally resistant to prescribe tablets, where a lot of those are prescribing tablets as well. So the answer is yes, we do expect a pickup. And we actually, if you and I guess you already did that, Michael, if you look at the NBRx in the U.S., you will see it almost doubled from last year to a level higher than it was in the beginning of the year. So yes, we do see a pickup there.
It's complicated in the U.S. in many, many aspects right now, but definitely it hasn't made us less encouraged by what's going on over there. The money we are losing in the U.S. is in particular on our allergens due to the fact that people are not going in and getting shots. On top of that, if you look at the result from the first trials in Chicago, New York, on the digital platforms, there's actually a very, very rapid intake of new people which we are having communication with, helping them to a doctor now willing and able to prescribe a tablet and not to any doctor in the U.S. So yes, we are pushing and keep pushing hard in the U.S.
To the one about our future, I can only say absolutely yes to the fact that when I said that we wanted to be the allergy company, it does include, as you know already, anaphylaxis treatment, and it does also include looking at food allergies in the future. And as soon as I have some more concrete facts about that, I will, of course, announce that. It's a very interesting area, and the way we enter that type of market would have many forms, but we are doing a lot of business development as we have done. And so does with the consumer part as well. We have not given up on that one as well.
But I think we're getting to a stage also where we can conclude that the ALK as a company, it's much more robust and able to take on new challenges, which we have been doing. So with that one, I'll give it to you, Søren, and you can talk a little bit about the margin and the costs.
Yeah. Thank you for the question, Michael. And it's, of course, clear for many and also in the report that we have submitted that the COVID currently suppress activities, not only in the R&D, and just to take that first, those costs we do expect to come back next year. So where we originally have had a higher DKK 600 million level this year at least for R&D, that has come down now to the DKK 500 million-DKK 525 million. And those costs, you could pretty much add on to next year. So basically, that will not change the picture. And there we haven't actually underlying seen a lot of change besides the clinical trials being postponed to next year. When you talk to the sales and marketing cost, it is, of course, clear that we do not host a lot of conferences, at least on site. We don't fly a lot.
And that is actually yielding savings currently. We do anticipate that some of that will remain for some of the part next year. But in general terms, we are very committed as a company to focus on creating the efficiencies in sales and marketing costs. And of course, it's clear that what we are seeing now could be our tailwind to get to that because it is a more efficient way we are currently operating. So I wouldn't rule out that some of the patterns we see now, that can assist us in reaching these long-term sales and marketing aspirations of 30% of sales. So yes, I think some of it will stay back, but I firmly also hope that we will be able to go out even more, visit the doctors more, have the conferences, get out with the scientific messages. So expecting that it would go up.
So I would say to you, read as a mixed bag, yes, I think we will be more effective based on COVID, and it will yield lower costs next year. But I don't think, and I do not hope that it's at the level where we see now because that's not healthy either. I hope that answers the question.
Just one follow-up on the German fee structure. When was that changed? Was that changed during third quarter, or do you expect the change to happen here in Q4 or next year? I presumed that.
So Michael, this is Per. Let me just clarify that. That has recently been changed, and it will be implemented from next year and onwards.
Okay. So it didn't actually have any. So the German performance of more than 100% growth in tablets was not reflecting the change in the fee structure with German doctors?
That is correct. It will affect from next year and onwards.
Okay. Super. Thanks a lot.
Thank you. Our next question comes from Jesper Ilsøe from Carnegie. Please go ahead.
Thank you so much. Two questions, please. And we can just take them one at a time. So firstly, on tablet growth. So guys, you started out guiding 30% tablet growth. You now say that you will significantly exceed that despite COVID, and you grow tablets by 52% in Q3. So would it be too optimistic to expect that you should be able to grow tablets by around 30% in 2021 too, given the current momentum you have in tablets? That's the first question.
I will not give you guidance for 2021 right now, but I can just say that the tablets are doing very well right now.
Okay. Thank you. Just a second question then, digging a bit more into the trends you see. So on the top line, so we grow organically by 8% despite lockdowns and product discontinuations. So conceptually looking at the leadership business, how much lost sales should we expect to be recouped into 2021, just conceptually speaking, without giving guidance? And also what headwinds you see in 2021? Will there still be product discontinuation negatively impacting growth, or are we over with that headwind? Thank you.
Yeah. It's hard to say, also because we don't know how long the COVID will continue, what we will have of impact next year. But if you think about it, you will not get two shots when you come back in 2021 and thereby recoup a lot of the lost sales you did have. However, I think the good news is that we're seeing a very good traction in our initiations this autumn, which was where you could have had a concern because that actually reflects what we could have of sales in the next three years. So that looks pretty okay. We will have a small effect on pruning next year as well. It's to the better of the total ALK, but not much.
I mean, I will just reconfirm that we are committed and focused on delivering 10% organic growth, as we said, and then everything we can do to do more, we will do.
All right. Thanks. Just to follow up on the peak initiation season, so do you see any impact, negative impact from the lockdowns here during Q4 in Europe?
We see an impact, but not necessarily negative. I mean, I think we are okay. This is one of the points that we've been tracking almost on a daily and with big deep dives on a weekly basis. And we see that we do not expect to be hurt on initiations in Europe here in the initiation season. It can be a little bit different in the mix and the countries and so forth, depending on where you have the lockdowns, but we absolutely see a willingness to initiate our tablet patients. And as I also said, we even see some doctors that were totally resistant to tablets before are now initiating tablet patients because de facto they cannot see patients coming in wanting to get the shots. So it looks good. It looks good for 2021 and onwards.
Does it mean that we don't have a lot of hard work and we're pedaling like crazy, like everybody else in these COVID times? But I think we are at least not having a lot of self-inflicted problems. So now we are having everybody focused on maximizing what we can get out of it. I am positively surprised about the tablet performance under COVID because when you looked in March and you were, I mean, everything was up in the air, but that's not what we see. We see, as you can see documented now, very strong sales, but that strong sales is also from a lot of patients who get initiated. We see a very strong uptake of the ITULAZAX. So I think things look good on initiations.
Thank you, Carsten.
Thank you. Just as a quick reminder, if you wish to ask an audio question, you may do so by pressing zero one on your telephone keypad. Once again, it's zero one on your telephone keypad if you wish to ask an audio question. Our next question comes from Peter Sehested from Handelsbanken. Please go ahead.
Thanks for taking my question. Peter from Handelsbanken. Just talking a little bit on Germany. I mean, this theme of you being able to capture 20%-30% or at least 20%-30% of market share in Germany being up for grabs as many of these unregistered products are phased out. Now with you having taken a SLITone out of that market and also with these fee changes, are we sort of on the brink of the verge of you being able to carve out these 20%-30% and just to take on your market share opportunity in the German market? On EU SCIT sales, you mentioned this five percentage point negative impact that affecting you this year due to product discontinuations.
Should we assume this to rebound as I guess the underlying growth should be unchanged, or should we factor in more cannibalization of SCIT space from the strong tablet growth in Europe, and then the final question would be in Japan in the report to sort of highlight that in the Q1 has now fully cannibalized to these legacy products. Is that sort of a flag that looking into 2021, we should be looking at a trend change in the sales growth in Japan, potentially offset by these very positive factors that you're talking about on tablet sales in Europe, potentially also in the U.S.? That's it for now. I'll turn back to you. Thank you.
Thank you, Peter, for the questions. We had a little bit of a broken line, but let me start, and then Søren will support me if I don't get it all right. If we take the question about market shares, of course, our eyes are lasering in on everything we can do to further push this agenda, market access agenda towards registered products. And of course, Germany is showing the way right now, and we are gaining both market shares and more willing and able doctors to embark on our products. And as I also said in our readings here, that we have now removed all, I mean, removed all non-registered products. So we have a clean story also to the market. At the same time, we don't see that the SCIT will disappear.
We don't expect that we are going to take out a lot of products any longer because we are having registered products now. So we will probably see a normalized growth, small growth, small digits, small single digit growth on the SCIT business going forward. To Japan, it's a little more difficult to explain picture as you have different parameters. It's going very well in Japan, both on all the products penetration, and the children indication is really going strongly. You know the numbers about both below nine years and below 18 years old, how that's going. Of course, you most likely would see an impact on the numbers when some of the conversion from the CEDAR drops are not 100% accelerating these normalized, you can say, CEDAR tablet sales. That's what we will see somewhat into 2021.
But it doesn't take away our ambition to have very strong growth out in Japan on all the products and also have a plus 10% or 10% growth on ALK in 2021.
Yeah. I think one should also remember that it has been a long fight in Germany to get to where we are today. A lot of hard work to get people to understand that it is evidence-based medicine that works. And that's actually the position we are in now. So I think we are in the driver's seat ready with the supplies, and now the regulator seems to be putting in place things that could look very interesting for us. So at least you could say we're in pole position. And then they're just to finally wave the flags in Germany, but we are here to catch it. And that's what we've demonstrated over the last couple of years with a very strong performance in the German organization.
And then, just to solidify what Carsten says on Japan and maybe directly to your question, the fact that we have sold more and supplied more CEDARCURE this year with the conversion of the drops, it will mean that combined the growth will ease off in Japan next year with that CEDARCURE. But MITICURE underlyingly is doing extremely well. Extremely well. But it will be unfair to us to say we can just because they can only swap the drops one time, and that's what they have done, right? And that has assisted us this year. So that's the Japanese story, and that's, by the way, very much in line with what we said last time. So we haven't changed that message.
Okay, so just to follow up, maybe just one if you could just elaborate a bit on the U.K. pilot project. I mean, what is the extent of this? What kind of learnings are you trying to get out of it? And if successful, what are your wider implementation plans and what is, of course, the ultimate potential here? Thank you.
I'm happy you asked that question because this is one of the things we are piloting right now that could potentially really accelerate because if you think about it, having a complete ecosystem where you have test results and dispensing sort of in an ecosystem with pharmacies, that can really be a game changer in many places of the world. And what we tested and piloted in the U.K. was simply a test where we first tested people willing to buy a test. And will they pay in the vicinity of EUR 30, EUR 40, EUR 50, EUR 60 for these types of tests? Yes. Can you get pharmacies to actually sign up to it? And can we get sort of that ecosystem to work? We had an ambition of about 20 pharmacies-25 pharmacies would sign up for this one in the initial phase.
We had 250 pharmacies signed up the first couple of months, 10x more than we thought. And we are selling much more of those test kits. And this is also the Klarify universe and online than we thought. And what we need to make sure is that, of course, that we are 100% sure that then the dispensing via the pharmacies are done in a proper way where they get offered the right medications and so forth, and also that the tablets become an integral part of that in the future.
So we're trying to solve for the issue that we want to be supporting the allergy doctors and other doctor groups that want to dispense immune therapy, but we also want to make sure that we have our destiny in our own hand and can accelerate in areas where there isn't that many doctors or there's different access to it or they are unwilling to prescribe tablets. That if they don't want to work with us, then we can work with ourselves. And that's what this U.K. test is going. So when are we rolling it out? It depends a little bit about what type of registrations we can get in different markets for which tests and which type of partners we can find. But at least for the U.K., it's a very big success for us.
Thank you very much.
Thank you. There appears to be no further questions, so I'll hand back to the speakers for any other remarks.
Thank you very much, and thank you all for joining this call. As you can see from this final slide, on slide 13, we have a series of virtual roadshow sessions arranged over the next few months, and we hope that you will be joining us on one of these. Otherwise, you are most welcome to contact us, and we can certainly take a call. With that, I will wish you all a very good day and hereby close today's session. Thank you so much. Goodbye.