Earnings Call: H2 2017

Feb 22, 2018

Ladies and gentlemen, welcome to the UCB 2017 full year financial results conference call. For the first part of this call, let me remind you that all participants will be in listen-only mode, and afterward there will be a question and answer session. If you wish to ask a question during the question and answer session after the presentation, please press the code 01 on your telephone keypad and you will enter a queue. After you are announced, please ask your question. Please note that this conference will be recorded and that a replay of the webcast will be available later today on UCB's website under the investor section. I am pleased to present Madame Antje Witte, Head of Investor Relations, who will be the moderator of this conference. Madame, the floor is yours. Thank you very much. A very nice good morning from my side and good afternoon. Welcome to our full year's earnings call. We have here a very nice selection of the Executive Committee of UCB and chaired by Jean-Christophe Tellier, our CEO, who is going to lead you through this presentation. The presentation and the following Q&A are both covered by the safe harbor and disclaimer statement you find on page 2 of this presentation. This presentation is also available on our website as the transcript and the replay of this call will be. Thank you very much and I am handing over to Jean-Christophe. Thank you, Antje. Good morning, good afternoon, everyone. It is a pleasure to welcome you for our full year results of 2017. As you have already seen in our press release, we are very pleased about our 2017 results, which reinforce our foundations for our future growth and creating value for the patients and for our shareholders. You see here the planning and the agenda for this afternoon. After my introductions, I will hand over to Dhaval Patel, our new Head of New Meds and Chief Scientific Officer. He will go a little bit deeper into the pipeline. Then we will move to the bimekizumab phase IIb results that we have been happy to report last year. Dominique Baeten, our new Head of the New Patients and Admissions in the Immunology Unit, will comment further on these results. Then Detlef will go back on the numbers and provide you all of the lights that you need to fully understand what we have been able to deliver this year. After my conclusion, we will move into the Q&A, as Antje mentioned. For the Q&A, we have here on the table also Emmanuel Caeymaex, our Head of Immunology, and Jeff Wren, our Head of Neurology, who will be available to answer your questions on their natures. With that in mind, I would like to start immediately, and if you remember our strategy at UCB, our aim is really to create value for the patients and making sure that we concentrate and focus everything we are doing on that purpose to be able to create more value for patients. How we plan to do that, it is quite simple on the paper. Objective is to better connect the patient to the science, and by doing so, creating innovative, differentiating scientific hypotheses that can then lead to differentiated solutions that can be delivered to the patients. In 2017, we have been able already to deliver some nice examples of each of these steps, and this is what you see on this slide that I would like to comment quickly. From better connection between the patient and the science, you have here two examples at the two extreme of our pipeline. One is Cimzia already on the marketplace, but here, because of a better understanding of the need of pregnant women and being able to connect that with the unique specificity of Cimzia, we have been able to build clinical trials that lead to a label in Europe and soon, we hope in the U.S., of Cimzia for women of childbearing age. Emmanuel may answer your questions later on. On the other extreme of the spectrum at the very early stage, by also better connecting certain patients to our science, we have been able to have in our pipeline a very innovative tau antibody, and Dhaval will comment on this one a little bit later. Now, if I'm thinking about the ability to connect the science with our solution, two examples here in 2017. One is bimekizumab, and you have seen that the ability to have a dual targeting antibody against two interleukin-17A and F allow us to get a good clinical outcome, and Dominique will comment on that. On epilepsy, our high drug resistance new class molecule padsevonil has also achieved in 2017 very positive results on a phase II, which with the pre and postsynaptic activities provide us hope for a better activity for refractory patients. Last but not least, if I'm thinking about how to better connect our solutions to the patients, you see here two different approach that can also help and being very innovative. One is the ability in 2017 to get new indications, monotherapy for Briviact, as well as pediatric indications for epileptic patients with Vimpat, without doing clinical trials, but just by using advanced analytics and extrapolation of our data that will and that have helped us to get these indications much earlier compared to the classical rollouts of new indications and life cycle of new drugs. Also, if I'm thinking about advanced analytics, by leveraging the data that we have in the U.S. in particular, we have been able to define with Georgia Tech an algorithm that can predict for epileptic patients what is the best next treatment for them. So you see here in a very quick summary, few of 2017 achievements, which are not yet full translated in the numbers, but give you a sense of where we are focusing on from patient to science to solutions, and solutions back to patients in order to continue to deliver superior value for them. Now, we are very pleased that by executing on this strategy, we have been able in 2017 to achieve our targets and to deliver on all of our commitments. You see here that the numbers that we have been able to deliver are linked first to our core products, Cimzia, Vimpat, Keppra, Briviact, and Neupro. You see that our core products represent now EUR 3.6 billion of sales and have been able to grow at +13%. Secondly, we build our future and prepare our pipeline and continue to advance and mature our pipeline. Bimekizumab positive phase IIb, Evenity top line results of ARCH, and the filing in the European Union at the end of 2017. We also are very pleased with the richness of our pipeline moving forward. Now it is more than 12 new entities that are in our pipeline today to deliver future growth. We have done that by executing on our strategy that continue to focus on the areas where we think we can provide differentiation and try to partner where we think we are not in our core business. In 2017, as you have seen, we have been able to out-license Xyzal as an OTC treatment in allergy in the U.S., and that has been done in 2017, as well as we have acquired a company in the U.S. named Beryllium that will strengthen our scientific platform. Finally, after have increased our financial outlook in 2017 twice, we have been able to reach our latest one and to deliver a year in advance our REBITDA ratio that we promised to you five years ago already. So you see there is a lot of positive events in 2017, a lot of improvement and progress that has been done that have led to these results. With this in mind, I would like now to hand over to Dhaval that will go deeper in our pipeline. Dhaval, up to you. Thank you, Jean-Christophe. It is my great pleasure to speak with you today about R&D at UCB. I joined UCB in October of 2017 and have been positively surprised by the quality of science that I saw and the robust molecule generation engine that exists here. The scientists are excellent, engaged, and enthusiastic. So I am really happy to have joined, and I would like to provide some of my observations and speak to some of the projects to highlight our strategy moving forward. This slide shows the status of our clinical development pipeline as it stands today. UCB is the global leader in epilepsy, and we want to build on this and keep the leadership position. Currently, we have two new molecules in clinical testing for epilepsy. PAD 170, which JC has already talked about, is a unique molecule with a dual mode of action that is in phase IIb for drug-resistant focal onset seizures in adults. I am going to speak to the mode of action shortly. Radiprodil is a new phase II entrant, and it is in an adaptive phase II clinical trial in subjects with drug-resistant infantile spasms. We think this is an important unmet medical need. Believe this molecule can also expand into other indications. We are enthusiastic about the potential of both of these molecules to meet unmet medical needs in patients with epilepsy. Our goal is to build on our neuroscience franchise by expanding in movement disorders and neurodegenerative diseases. While we already have a presence in Parkinson's disease with Neupro, we are planning studies in not only Parkinson's disease, which is caused by misfolding of the protein alpha-synuclein, but also in the so-called tauopathies, such as progressive supranuclear palsy and Alzheimer's disease that are caused by misfolding of the tau protein. Currently, the alpha-synuclein aggregation blocker, UCB0599, is progressing very nicely in phase I trials, and we anticipate that this will continue. Today, we disclose the entry of UCB0107, which is a monoclonal antibody targeting tau, into the UCB pipeline. I will describe this molecule shortly. We are bullish about our immunology pipeline also. My colleague, Dominique Baeten, will soon provide insights into bimekizumab, which is a monoclonal antibody that neutralizes both IL-17A and IL-17F. While we have several novel molecules in the early stages of development for immunological diseases, I want to highlight the status of rozanolixizumab. Okay, I am going to call this rozimab from now on. It is too hard to say rozanolixizumab, which is a monoclonal antibody targeting FcRn with potential efficacy in a variety of diseases such as immune thrombocytopenia and myasthenia gravis. UCB also has a strong biologics platform, and that is a core value driver for our pipeline. It is partially exemplified by bimekizumab, rozimab, and UCB0107. These are all high-quality biologics molecules, but I would like to briefly introduce a proprietary multi-specific biologics platform with the first molecule, UCB0159, which is directed against TNF-alpha, IL-17A, IL-17F, and albumin. Okay. First about padsevonil. In epilepsy, seizures are driven by overactivity at certain types of neurological synapses. These are the connections between nerve cells. There are 2 main types of connections or synapses that are involved in seizures, and they transmit signals through GABA, which is also gamma-aminobutyric acid for the scientists amongst you, and/or glutamate. Now, most anti-epileptics target either GABA or glutamate signaling, but not both. For example, benzodiazepines work on the GABA receptor, and the SV2A modulators like Keppra and Briviact work by inhibiting the release of neurotransmitters such as glutamate. Padsevonil, which was previously called UCB0942, is also called SI because it inhibits both pre- and post-synaptically, is a dual SV2A modulator and GABA A receptor inhibitor that has shown efficacy in highly drug-resistant epilepsy. What is highly drug-resistant? These are individuals who have failed 4 different anti-epileptics and have 4 or more seizures per week, which is quite a lot, and has shown efficacy in this indication so far. We believe this will be an important component of our armamentarium against epilepsy moving forward. Neurodegenerative diseases are an important area of unmet medical need and represent a large economic burden. Alzheimer's disease is one of the most prevalent of these diseases, and there have been many attempts and recent failures in our attempts to combat this disease. Most of the failures have targeted amyloid beta or Aβ, whether by antibodies or small molecule inhibitors of beta secretase, also known as BACE. There remains hope that targeting the tau molecule will be effective. There have been 2 hypotheses for Alzheimer's disease, the Aβ hypothesis and the tau hypothesis. Tau one is still relevant. Now, recent scientific evidence has emerged that is relatively new, that small aggregates of tau that are released from dying neurons can propagate the disease by spreading to and infecting other neurons. This led us to believe that an antibody-based approach to prevent the spread of these tau seeds could be effective in tauopathies. So we developed UCB0107 specifically to prevent the spread of these human tau seeds. We did that by collecting human samples from patients with Alzheimer's disease and with progressive supranuclear palsy and used them to identify the antibodies that would prevent their spread. We believe that this molecule has a competitive advantage to others in the clinic and could be best in class because of these properties. We are enthusiastic about it and announce that it has entered into phase I clinical studies, and we have the plans to develop in PSP and Alzheimer's disease. Rozimab is an anti-FcRn monoclonal antibody that works by lowering levels of pathogenic antibodies. Our aim is to replace costly and burdensome therapies like plasma exchange and intravenous immunoglobulin or IVIG. These are for IgG autoantibody-mediated diseases such as immune thrombocytopenia, ITP, myasthenia gravis, and chronic inflammatory demyelinating polyneuropathy. Let's call that CIDP. We have tested the molecule in both the IV and subcutaneous formats, and it has excellent drug-like properties. We have moved forward with the subcutaneous format and already have a positive proof of concept in ITP that doses up to 7 milligrams per kilogram. We are proceeding with higher doses in ITP and expect a final readout around mid-year. We also have an ongoing phase II-A study in myasthenia gravis, expected to complete in September of 2018. Rozimab really is a good molecule. It is effective and is generating a lot of interest in the community. Finally, I would like to briefly speak about our biologics platform, and I have been very impressed with the capabilities. Bimekizumab, in particular, is an excellent example of the power of the biologics platform to generate unique high-quality molecules. It has been relatively straightforward in the industry to generate antibodies to IL-17A, such as secukinumab and ixekizumab, also known as Cosentyx and Taltz. Inhibition of IL-17A alone has been sufficient to treat diseases such as psoriasis, psoriatic arthritis, and ankylosing spondylitis. However, these molecules do not inhibit another isoform of IL-17 called IL-17F. We believe that it will be more beneficial to inhibit both than IL-17A alone, and Dominique will describe that. Lastly, with the platform, the scientists were able to engineer a molecule that really could inhibit both A and F, and this is truly a bioengineering feat. Expanding on the theme of improved efficacy by engineering and additional therapeutic principles, we have used a UCB proprietary platform to generate a molecule, UCB0159, with three different principles, including the IL-17A plus F inhibitor, an anti-TNF modality, and an albumin binder to provide longer half-life. This molecule is progressing well through phase I and bodes well for this multi-specific format, and we hope to bring several such molecules in the pipeline in the years to come. Now, I would like to hand over to Dominique Baeten, who will speak about bimekizumab in clinical trials. Thank you very much, Dhaval. It's a pleasure to share with you the top-line data of the three phase II-B trials with bimekizumab in three related indications, being psoriatic arthritis, ankylosing spondylitis, and psoriasis. Now, before going to the trials, just to remind you of the scientific hypothesis underlying this clinical development program. As indicated by Dhaval, blocking IL-17A has proven efficacy in a number of conditions, inflammatory conditions of the skin and the joint. Our scientific hypothesis here is based on the fact IL-17F and IL-17A are twin cytokines that are produced by the same cells, expressed in the same inflamed tissue. They drive the same downstream inflammatory pathways, both in skin and in joints. It's therefore that we hypothesized that in situations where IL-17A blockade may have an impact on its inflammation, that dual blockade of IL-17F on top of IL-17A could lead to improved therapeutic efficacy and a deeper response, both for skin and for joints, than targeting IL-17A alone. That's why, as just explained by Dhaval, our scientists developed a monoclonal antibody, which blocks specifically and completely both IL-17F and IL-17A. Now we translated the scientific hypothesis into the clinic by doing a number of experiments summarized on this slide and recently published in "Annals of the Rheumatic Diseases." This includes a series of preclinical experiments with patient samples, where we consistently observed that using bimekizumab suppressed inflammation more profoundly than blocking IL-17A alone. More importantly, we performed a proof of concept trial in psoriatic arthritis, and we shared the top-line data with you in June 2016, where we treated patients at weeks zero, three, and six with bimekizumab and looked at the joint and skin responses at week eight. As you can see, we obtained stringent ACR 50 responses in 40% of the patients already at week eight. That further increased to 57%, which was maintained to the end of the study at week 20. In parallel, we obtained already 87% PASI 90 response of the skin already at week eight, again maintained up to week 20. So this trial formed the base of the phase II-B development program with the design summarized here in this slide. I just want to highlight a few points that are important when we will try to interpret the top-line data. First, all three trials are robust, not only in terms of the number of subjects included but also the type of patients. In particular, we included a mixed population of anti-TNF naive patients as well as anti-TNF incomplete responder patients. Historically, many trials have excluded the latter population because they are notoriously hard to treat. Here, based on our scientific hypothesis and considering the unmet need, we decided to include these patients. The second point is that, of course, these trials were placebo-controlled, but as you will see, the placebo responses are low. The importance here is that the real value of bimekizumab is best established by looking at the difference between bimekizumab and placebo, rather than by interpreting the crude bimekizumab data in isolation. Finally, in line with our hypothesis on depth of response and speed of response, we choose very stringent clinical efficacy endpoints already at week 12, as this is most relevant to patients, to healthcare providers, as well as to payers. As you know, the psoriasis trial read out in July 2017, according to plan. The two other trials read out in December 2017, approximately six months ahead of schedule. With this, let's move to the trial data, and let's start with psoriatic arthritis. This is the BE ACTIVE trial, including 206 patients with active psoriatic arthritis. Again, I emphasize that this is a mixed population of anti-TNF naive and anti-TNF incomplete responder patients, and the primary endpoint was the ACR 50 response at week 12. The trial reached its primary endpoint. It established a clear dose response. As you can see on this trial, we obtained up to 46% ACR 50 at week 12 with bimekizumab versus only 7% in placebo, meaning an effect size of 39%. Similarly for the skin in the same trial, we see a clear effect size between bimekizumab and placebo at 12 weeks using, again, a very stringent endpoint, PASI 90, which means 90% skin clearance. Finally, there were no new or unexpected safety signal in this trial. Let's move from psoriatic arthritis to ankylosing spondylitis. The design of this trial is very similar. We included 303 patients with active ankylosing spondylitis. Again, this mixed population. The trial met its primary endpoint and demonstrated dose response. Using the ASAS 40 endpoint at week 12, this was achieved by up to 47% in the treatment arms compared to 13% in the placebo. Again, focusing on the effect size, which is 34%. Also in this trial, no unexpected or novel safety signals. Finally, the trial in chronic plaque psoriasis, BE ABLE, 250 patients with active disease. Again, a mixed population. Here in this trial, dose response was established, and as you can see for PASI 90, we had no placebo response at all compared to up to 78% in the bimekizumab dosing arms. If we go to an even more stringent endpoint, which is the PASI 100 or complete skin clearance, this was achieved by up to 60% of the patients. Also in this trial, no unexpected or novel safety. In summary, what I showed you here is the results of three robust phase II-b trials. Robust in terms of number and type of patients included, in terms of low placebo responses, as well as in terms of stringent and early endpoints. All three studies met primary and secondary endpoints. Most importantly, we had a rapid and strong clinical efficacy, clinical relevant endpoints both for joints and for skin. This was very consistent across the three studies already at week 12, and all this with a favorable safety profile. In conclusion, these data support initiation of the phase III programs for clinical differentiation in all three indications. As you know, the phase III program in psoriasis has also already started in December, and we are now preparing the initiation of the phase III programs in ankylosing spondylitis as well as psoriatic arthritis. I leave it here for bimekizumab, and I hand over to Detlef for the financial results. Thank you very much. I hope you share the enthusiasm. I hope I can present what I believe is a nice set of numbers and get you even a bit more excited about our company. Let's look into the financial highlights. Revenue has been up 9% on real rates, 11% on constant rates to more than EUR 4.5 billion. Operating expense has been very well controlled. We have promised you that there are scaling effects that will drive operating expenses down. I think you have seen that, and we will come back to that later. But also what I would like to point out, we are very stringent in our allocation of resources, and we have been pushing again, to fund our strong pipeline in reallocating monies towards it. Both parameters lead to a very strong recurring EBITDA of EUR 2.5 billion, up roughly 33%, 34%, depending on the parameter. A result that we are very happy with and, as you know, has led also to fulfilling the promise of reaching the 30% threshold EBITDA revenue ratio already one year earlier than promised in our midterm guidance. The profit of the group is strong with EUR 771 million, roughly 40% up, and core earnings per share put a little on top of that with roughly 50% up, with EUR 4.82 per share. Looking a bit more into the details, we see what we have been seeing across the last years. You know, but now all of them together, immunology and neurology, adding up to 86% of our portfolio, with EUR 3.6 billion sales already with our core products, which is a growth of 13%. When we are looking into more the P&L, we not only see strong top-line growth, but we are seeing improvement and acceleration. Some of you might remember my term of accelerating towards. This is what you see here. The gross margin is improving towards 74%. The operating expense is going down to 48%, and we reached the 30% and made quite an acceleration in all of these three parameters. Which should give you a clear understanding that there is a very solid and continuous basis that also will not end tomorrow. When you look back to top line and when you look back to profitability and look back five years, you see a profound growth of roughly 10% top line, with nearly more than 25% on the EBITDA in average. This is a very strong performance and has led to an opportunity now being able to have strong cash flows, and by the reduction of the debts, which was accompanied also by being able to let go some of our more mature products. Having the strategic and financial flexibility to complement selectively to our strong internal pipeline. Something that we are expecting to use to drive growth drivers for the patent expiry phase in 2021-2024, but also beyond, to foster long-term sustainability. Let's recapture quickly the 2017 financial targets. It's always nice when you can put check marks to things. You see strong growth on all guided parameters on the left side, revenue, EBITDA and core EPS. I mentioned that before. We have been delivering on our midterm guidance parameters with the REBITDA to net debt ratio already achieved 2 years ahead of target and now being around 0.4, which does mean very low leverage. We now have achieved 1 year earlier the REBITDA revenue target of percent. Our outstanding guidance parameters is about reaching EUR 3.1 billion or more by 2020 for CVN, and the interim result is EUR 2.7 billion in 2017, with a 12% growth. Briviact has been doing very nicely, and we come back to that. Our previous guidance, I can say already now, was EUR 450 million for peak sales in 2026. With what we have seen, more than 100% growth this year, we were feeling comfortable to be able to push that up a bit. We are starting now really in a new phase. We have completed the promises to the most of what you have seen. It's a bit open with CVN, but I hope you, as I, have no doubt that we will make that, too. Now we are focusing really strongly on driving new growth drivers internally and selectively inadequate to external growth drivers, adding to the portfolio or to marketed products. We will use our firepower to that. As I heard already from Antje this morning, that firepower is something you are interested in, let me just give you an idea what I mean. We always like to stay in investment grade, that is always nice. Revenue ratio, you can calculate for yourself what that would mean. But I want to be very clear on that and shown that in the past. We have no hesitancy to pay the price for the right assets and go temporarily higher on that. I hope that gives a bit of a flavor to that topic. Now, having said that, let's look into this next phase, and we'll start with 2018 and the financial outlook, and then I will add the new midterm guidance. This is the guidance as well as the outlook takes into consideration what I said, that we will use our full capacity driving new growth drivers and strengthening sustainability. Having said that, the environment has also changed, and unfortunately, the US dollar has weakened, so that has also an impact. Let's start with revenue. We guide on the revenue of EUR 4.5 billion-EUR 4.6 billion. This is based on continued strong growth of core products. It takes the consideration, if you want to make sense out of that and say what is the quality of this guidance for revenue, that we had one-time effects in 2016 and that we have a weaker US dollar that we are facing in 2018 compared 2017. With that, you would roughly see a growth underlying of around mid-single digits, which is around the market growth. As we are growing with mature products on a high basis, we feel that is very relevant. The revenue is around EUR 1.3 billion-EUR 1.4 billion. Here, the highlights to keep in mind is that after having spent 23.3% in R&D in 2017, our guidance for 2018 is around 26% ± 1%. What does that mean? It does mean that we are putting 3 percentage points on top of the 30% and in terms of having to cover for it. We can only afford that, as you see with this guidance, when we are still continuing to improve our otherwise performance in scaling effects and efficiency. So here we are doing a reinvest to our midterm performance that I am personally very happy about and I think will create a lot of value. EPS is our calculation coming out of that. We are guiding on EUR 4.30 to EUR 4.70. The expected underlying tax ratio is in the low 20s. As you know, we have enjoying a lot of different tax reforms. The ones that have been instrumental for us is U.S., Belgium, and U.K. I am very happy to go more in detail on that. Not a lot of impact in 2017 because there were compensating impacts. There will be probably a two digits million impacts positive in 2018. For you, the easiest would be just thinking about low 20s. If you want, now moving to the midterm, want to keep taxes in mind fluctuating around the 20s for the next few years before we see the full benefits of our portfolio and the patent boxes that we enjoy in the years after, then I think your model will be in good shape. Let us go into the guidance target for 2021. We have chosen 2021 because we think it is the most credible year to do it with. It is the year where the first product is running out of patents, but it is most of them, so we can still keep this well-calculated and well-simulated. We feel very comfortable that after some years of more fluctuation in terms of revenue and more investment into our midterm growth, that we will be able to, revenue ratio back to 31%, which we feel is a nicely competitive ratio that we have been shooting for. Then we will go with the next guidance, knowing at that time how the portfolio composition is and what the market developments at that time have done. I mentioned before that there will be a new guidance on Briviact. We are very positive about the development of the product. We are now feeling comfortable about raising this peak sales guidance to more than EUR 600 million in 2026, which not only has a positive impact in coming years, but also in the years of the patent expiry will help us to mitigate that from internal resources. Having said that, I hope you got the impression that we are in good shape, not only in terms of our underlying products, of our underlying cost management and allocation, but also in terms of the strategic flexibility and that we are prepared and focused on driving this growth for the midterm that we all need to achieve. With that, I happy to hand over to Thomas. Thank you, Detlef. As you have seen, strong performance in 2017, both from a top and bottom-line perspective, very disciplined with both allocations and optimizations of all of the different performance index have leads to these results and these updated guidance for the 2021 and furthermore. I hope that the view that you got from Dhaval and Dominique about the rich pipeline and the quality of the science give us also a flavor of our level of confidence in the future. We do think that our patient value strategy is for us the way to sustainable growth and success for the company. As you see here, we define value by three components. Differentiated outcome for the patients, which means focusing on innovations in science and ability to translate science into clinical differentiation. Best experience for the patients and ability for the patients that needs our drug to get access to this. This is the drivers of sustainable growth. By leveraging that both internally and externally, we think it's the best way for us to deliver value for the shareholders and continue the successful road that we have had up to now. With that, I would like to hand over to Antje and open for the Q&A session. Thank you very much. Thank you very much. May I ask the moderator to start the Q&A session? Sure. Thank you. Ladies and gentlemen, we will now begin our question and answer session. If you wish to ask a question, please press the code 01 on your telephone keypad, and you will enter a queue. After you are announced, please ask your question. Once again, please press the code 01 on your telephone keypad. The first question is from Peter Verdult from Citi. Sir, please go ahead. Thanks, Stella, for the commentary around the midterm guidance. I have a number of questions, but thankfully about four of them are just requiring a one-word or one-line response. So bear with me. JC, on the Cimzia phase III data in non-radiographic axSpA, could you just be a little more precise when we should expect that top-line data this year? Secondly, for Detlef, I think the annual report shows that you carried about EUR 40 million of development and pre-marketing costs for Romo. Can you give us a sense of what the P&L will carry in 2018 in terms of Romo-related costs? Thirdly, when we think about your commentary on the midterm guidance, should we assume that you are now going to develop bimekizumab on your own, or are you still seeking a partner? Lastly, more broadly, JC, could you just remind us of the scope and size of your M&A aspirations with respect to addressing the CVM pamphlet? Thank you. Thank you, Peter. Emmanuel, do you want to start on the Cimzia development plan with the non-radiographic axSpA? Yes. Thank you for this question. Just as a reminder for everyone, the non-radiographic axSpA study that is running with Cimzia has for purpose to enable this product to be the first product with an indication for non-radiographic axSpA in the United States. We're expecting results in summertime, at the time of. Emmanuel, do you want to comment also on bimekizumab and development? Yeah. For bimekizumab, we are moving forward with moving rapidly into the phase III studies. In function of how the environment evolves, we may decide to search a partner or not. Currently, the level of differentiation that we're seeing with the drug convincing us to move forward quickly and generate as much value as possible with this. Thank you. Detlef, on the P&L romosozumab. Yeah. As you can imagine, we are preparing for success and therefore are spending what you need to spend to prepare for launch. That is quite a sizable amount in the high double-digit millions, low triple-digit millions, together with our partner Amgen. As we will see data points only throughout the year or late in the year, I expect that we will fully spend this money. Peter, on the question on the scope and the potential of the acquisition, let me comment on that quickly. First of all, I think that you got a clear view that our main objective remains in our execution of a strategy to continue to develop and invest in our pipeline. By doing so, we are aiming to focus on this pipeline both internally and externally. Some of the assets may in the future be better or extract better value if we partner externally from our own science. We have seen that in the past to a certain extent. We will continue to look at that. From an external potential asset acquisition, the objective here is first to make sure that we would be able to build and strengthen on our capabilities as we have done in the past with an asset that Devan mentioned on the anti-alpha-synuclein, for example, that came from outside. We always want to continue to complete our pipeline with products and assets that can add to what we have without building infrastructure which require capabilities, because basically, our aim is to continue to develop with our own level of capabilities, what we have today, but not more. The nice thing, as Detlef mentioned, is now we have the strategic flexibility to do this, and we still have the time to get the right asset at the right moment to fulfill our growth and potentially add to our internal growth and reduce our risk by doing so. Thank you. The next question is from Peter Welford from Jefferies. Sir, please go ahead. A couple. Firstly, on padsevonil, I think that's how you say it. Can I just outline, are the endpoints you're using in the phase II-B the same endpoints that would be required by regulators in a pivotal study? I guess the follow-on question therefore is, if the data are positive, what other data could you need to be able to go to the regulators with that trial? Does the long-term safety trial, which I think is 2026 or need to read out before you can go to the regulatory authorities? Just moving to the alpha-synuclein, I wonder if you can just comment. Is UCB0599, I think it is that part of the same collaboration as UCB1332 before that, with Neuropore? What's the status and then what happened to UCB1332, can I ask, as your earlier alpha-synuclein program? If you could comment at all on how that program is differentiated versus some of the competing programs like you did with the anti-tau antibody. Finally, just on the second half rest of world Keppra sales number. That was very high and strong in the first half relative to second half. I wonder if you can just give us some insights into what happened with the phasing there in rest of world Keppra, and how we should think of that in the future. Thank you. Thank you, Peter. Jeff, can you answer the Keppra and the padsevonil? Sure. I'll start with padsevonil and just outline what we're looking at. So, looking at refractory patients, and that's what Dhaval mentioned earlier, basically talking about a patient failing 2 anti-epileptics. Looking at our 2A basic that was failing 4 anti-epileptics, 4 seizures per week. Moving into the phase II-B, it will be similar. We'll still be targeting a refractory population, looking at patients that failed 4 anti-epileptics, but also patients who have had 4 seizures or more per month. So we open it up some, but still within the refractory population. Just as a reminder, the refractory population is roughly 30% of all epilepsy patients. Looking at a safety trial, that will continue, but we'll be ready to go with safety at time of closure of phase III, which we now are trying to accelerate. That's where we stand there. Looking at Keppra, we had some strong growth in the U.S., but you mentioned international markets. We see the majority of our growth occurring in Japan and China, where it is an actively promoted market, continuing to gain patient value and market share. That is why you are seeing these type of strong results within the international markets platform. Thank you, Jeff. Dhaval, on the anti-epileptic. Yes. Yes, to answer your question, both molecules are with our collaboration with Neuropore. The former one is a first generation. The current one that is being developed is second generation, and we will continue with this one and not the former. Great. Can I just ask, just going back for a minute to padsevonil. Am I to understand therefore that the phase IIb could be pivotal? Are you saying that there will be another phase III after this, that you will then have the safety data to do? Yeah. Sorry, I was not clear, yes. We hope the phase II-B to be pivotal. Great. Thank you. Yes, and part of our acceleration plan. Okay. The next question is from Richard Vosser from J.P. Morgan. Sir, please go ahead. Just a question on UCB0159. Just thinking about where you are going to try and position this product in the immunology class. We obviously saw Cimzia in collaboration or in combination with bimekizumab showed no effect in RA. Just thinking about how we should think about targeting of this molecule. Also for psoriasis, whether you think you can generate superiority given the very good data with IL-17s or IL-23s alone. Second question, just on the Alzheimer's tau product, and linking it to R&D spend. Those are very expensive studies, once we get to the pivotal end of development. Just how should we think about the R&D spend going forward? You have given us guidance on 2018, but should that be expected to climb still further, when thinking about the 31% REBITDA targets? Also linked, just obviously very good gross margin improvements. Could you give us an idea, in 2017, could you give us an idea with Cimzia, where you are in terms of manufacturing Cimzia in-house versus with Lonza, and the improvements of the gross margin that you are seeing through that process of bringing it in-house? Just one final clarification question. I think unfortunately, Detlef, you cut out when you gave us the sort of M&A capacity, at least on my line, cut out giving the M&A capacity in terms of the ratio for net debt to EBITDA and those sort of ratios. Could you just go through those again? That would be very useful. Thanks very much. Thank you, Richard. Maybe I can ask Detlef to start to reformulate this answer as well as maybe going into the R&D spend and what we plan to do in different indications. Then I will suggest we move to Dhaval for the pipeline questions and close with the Cimzia manufacturing questions with Emmanuel. No, very happy to do so. Let us go back to the question of firepower. My comment was around that from what we would feel really comfortable with is the 2:1 ratio, which is investment grade. As you can imagine, that is the easiest and most cost-efficient way to refinance yourself. However, as we have done in the past, if the right asset comes, we are willing to pay the price for the right asset and also temporarily going beyond that. We have seen in the past that we were moving temporarily quite significantly beyond that. Going into the gross margin and the question of what flexibility is there still. Yes, we have upgraded our plant in Switzerland, have been in a situation really to see the gross margin further improving. That will take probably a place visibly not before 2019 because we have had to build inventories up. So an effect that is visible, and we are here talking always not multiple percentage points, but we are talking fractions of percentage points and perhaps a percentage point that will be visible after that. In terms of the R&D spend, we have been looking at our programs always from what is maximizing the value of these programs. That can lead to doing it ourselves or partnering. As you know from the past, we have been always being very conscious in these decisions and have made sure that R&D spend is in a reasonable range to obtain a profitability that is giving us the continuous improvement also of our strategic and financial flexibility. Thank you, Livian. A very good question for UCB0159. As you have noted and previously dual IL-17A and TNF inhibitors have been tested in rheumatoid arthritis, primarily some with marginal benefit, most with little at all. One of our hypotheses is that there are diseases which will benefit, and those are primarily spondyloarthropathies today, which is a place we are very interested in. We believe there are other indications that we're doing translational research on to identify, but initially it will likely be spondyloarthropathies. Okay, great. Thank you very much. The next question is from Wimal Kapadia from Bernstein. A couple, please. First on bimekizumab. You've clearly shown very good data to date. But I guess my question is how can bimekizumab compete? Competitors have lots of long-term data. They're penetrating quite nicely, and it's quite a competitive market. Is there a risk investing heavily in a product that will not return as much as its strong profile suggests? Then following on from that, could you just talk a little bit about the differences in efficacy response between the anti-TNF naive and anti-TNF incomplete responders from the phase II studies so far? Then on Briviact, could you just give us some comments around what you've seen in the market to date to give you confidence in increasing your peak sales guidance? Is it volume? Is it pricing? Is it a combination of both? Any comments there will be great. Thank you. Thank you, Wimal. Yes. Thank you for your question. Let's start with psoriasis perhaps. Indeed, psoriasis is a market that's seeing a lot of innovation. There's a few key trends in the psoriasis market. First, whilst we've moved from an ambition to reduce the skin symptoms from 75% to 90%, so PASI 90, what patients really want and what we hear from thought leaders is that PASI 100, that is completely clear skin, is the objective. The new technologies, and in particular bimekizumab, which is the drug that gets to PASI 100 the quickest based on the phase II-B data, to be confirmed in phase III, of course, can have a special position there. Another trend is that dermatologists are increasingly realizing that about a third of their patients that they're treating with biologics actually also suffer from psoriatic arthritis. Dominique has presented the psoriatic arthritis data earlier, which are quite impressive. I think that as the market has more, and as physicians have more tools at their disposal, they will start segmenting the use of those tools. So for patients suffering from skin and joints, they will probably gravitate towards IL-17s, maybe even still TNFs in some cases, whereas for pure skin symptoms, perhaps for patients that suffer from IBD or other kind of comorbidities, they may well go to p19s. To prove this, we are starting a head-to-head study against Cosentyx with PASI 100 as the primary endpoint. This study is starting within the next 2-3 months. We've used advanced modeling and simulation to have the appropriate level of confidence to embark on this study, and we believe that such head-to-head study against a potential future standard of care, in addition to those that you're aware of from clinicaltrials.gov against STELARA and HUMIRA will provide us with a competitive package at launch of bimekizumab. In terms of PsA and AS, the data are still quite fresh, so we're still analyzing and modeling that data. But clearly, as Dominique presented, if you look at its face value numerically, it looks very impressive, especially as portion of patients were prior exposed patients to TNFs. In terms of the actual data between the subgroups, I will leave that to a congress presentation, which we're of course, aiming to take place this year. Thank you very much. Jeff? Yeah. Looking at the Briviact forecast, one of the reasons we are confident increasing the guidance to over EUR 600 million is the strong uptake. This is not related to price. We have been able to sort of break through this access ceiling that we thought would suppress growth at the beginning. If you remember, Briviact is a wonderful SV2A that requires no titration. We knew there would be tremendous patient need, but we also knew it was difficult to launch in this environment. We have seen growth rates that are strong. It is fueled also by new indications that have happened more rapidly than what we thought with that extrapolation. It was mentioned earlier. We expect additional indications more quickly into next year, perhaps on pediatrics in both U.S. and Europe. With that in mind, it gives us confidence to increase the peak year sales. Remember, we did EUR 87 million this year, beating consensus. Just a little extrapolation here can also help you see where this product can go. Perfect. Great. Thanks very much. The next question is from Thibault Boutherin from Morgan Stanley. Sir, please go ahead. Thank you for taking my question. Just a follow-up on Keppra and the resilience we saw this year. When we look in the U.S., sales were up at 9% constant exchange rate, but prescriptions were down 14%. I just wanted to know how we can reconcile that and also your thoughts on the trends next year. The second question on romosozumab. Do you have any timeline for U.S. decision, and can you give us any update on your interactions with the FDA? Yeah, sure. Let me go ahead and answer the Keppra question. Yes, over the last four years, we've seen purposing of sales of Keppra in the U.S. in particular, and this has to do with some of our wholesaler agreement. We've seen inventory build and we've seen that inventory depleted as well. A lot of this has to do with improving the access, though, of Keppra to patients through a wholesaler repackaging platform. Overall, though, we still expect that Keppra will see decline, single-digit decline, in both Europe as well as the U.S. This sort of normalizes out over time, and we still expect to see growth within our international markets, but the reason you're seeing this variance is due to this buildup and depletion over the course of time within the wholesalers right now in the U.S. I will take the Romo question, Thibault. Just to remind you, the timeline that was already there last year, nothing has changed from that standpoint. As you've seen, we have filed in Europe, and the file has been accepted, so it's going on the regular process. On the FDA interactions and the timeline, the next data point will be July this year when we will answer the CRL that we have received last year, 2017 now. From there, the FDA will have roughly, there is no really guidance there. Could be between six months and one year, we think, to be able to answer to our response. Basically, we continue as planned and the interaction, we answer the question when they will come from both Europe and FDA. Thank you very much. The next question is from Simon Baker from Exane. Sir, please go ahead. Thanks for taking my question. Two, please. Firstly, going back to the numbers for 2018, I wonder if you could just I know you don't guide on product sales, but I wonder if you could qualitatively tell us if there's likely to be much movement in royalty income and fees and the other revenue lines other than the one-off Xyzal income we saw in 2017. Associated with that, how should we think about the continued evolution of the gross margin? I realize there is a benefit of about 30 basis points in there from that Xyzal income, but should we expect much of an increase similar to the excellent performance in 2017? Some color on that would be very helpful. Secondly, moving to padsevonil. Your previous generations of epilepsy drugs have been more perhaps certainly structurally, of a gradual evolution, whereas padsevonil has this, I think fairly unusual, if not unique, imidazothiadiazole core. I wonder if you could give us a bit of a flavor on how it differs from previous players in the class in terms of PK/PD and also metabolism. Thanks so much. Yeah. I think we can probably both take that then because you also know it very well, but I'll- I will take the first stab at it. This has been built from the molecules that we do have. They are an evolution, as you have seen. They are a different chemical series, and core. But this was a really difficult molecule to find. So thank you for recognizing that. I think that other than that, it has great PK/PD characteristics. Right. I think that one thing to point out here is, unlike just adding two products together, what we think is unique about this product is the ability to see this potentiating impact with GABA and SV2A that leads to something that is greater than the sum of its two parts, and that is the promise of this product, this potentiating impact. Of course, more work to do, but that is where we see the promise for this dual mechanism of action. Thank you. Coming back to the numbers, I would not expect that gross margin will be growing as quickly than what we have seen in the last year. Especially, you have to have in mind that there was an impact of other revenues, with the Chatham deal. That was very positive, and we had quite a substantial growth of the core products, too. I expect the core products to still grow nicely. Therefore, that is the positive side of it. I mentioned that I do not expect to have major manufacturing impacts on it. But we are doing that now on a bigger base, and therefore that just means we are getting also closer to the gross margins of our core products. So that slows down the growth. So I would not expect major growth on that. A little bit as we always try to gain efficiencies and through the scaling of the products. Not to the extent that we have seen before. In terms of the top line, I think I answered it already. I expect nice growth still from our products. We are getting into a more mature phase for most of them. So I am very comfortable with the growth that we have shown up to now and within the market developments with what I name a more moderate growth going forward, depending on product. There are differences, and some will be better than that. So into the market developments to see how that works. Jeff was pointing out we have these wholesaler revenues coming and going. We have seen that over the last few years, so there is a bit of fluctuation. We have been, as usually, simulating that so that you don't look too much into it. But these are fluctuations that can either be positive or negative around the guidance parameters. Okay. Thanks so much. The next question is from Trung Huynh from Credit Suisse. Sir, please go ahead. Hi. Thanks for taking my questions. I have two, if I may. Firstly, in the U.S., there have been recent changes to co-pay assistance programs for specialty drugs, where some plans now no longer allow manufacturer assistance to contribute to the patient's deductible. Can you comment on what you're seeing on this issue, particularly around Cimzia? Is there anything you're doing to offset this pressure? Secondly, can you just give us an update on how Cimzia is managing in the markets where biosimilars are established? Thanks very much. Trung, thank you for your questions. Indeed in the U.S., we have observed that PBMs are deploying so-called co-pay accumulator programs. We are committed to ensure that our patients that are in this pharmacy segment and that are commercially insured, and that are filling Cimzia can maintain access to affordable treatment. We're working with all the stakeholders to offer solutions to those patients. For 2018, indeed, for those patients that are deemed to be at risk of maximizing the co-pay support before the end of the calendar year, we'll actually contact them and make sure that new solutions are offered to make sure that there's no disruption in their care. That's for the question on the access and the co-pays in the U.S. In terms of biosimilars, let me perhaps give you two answers. There's one answer which pertains to Europe, and if I look at Northern Europe, Germany, the U.K., then we've grown by about 10% in those markets in the last year. That is in the face of etanercept biosimilars launching and infliximab being kind of entrenched now. As you know, mostly used in Crohn's disease in Europe. The reason why we've been able to continue to grow, is first because Cimzia is a differentiated product, certainly in the field of spondyloarthropathies, and physicians recognize the advantages of Cimzia versus etanercept in treating extra-articular manifestations, and so that's been borne true. We've also worked on the quality of the experience for our patients, both with the further rollout of our AutoClicks patient-preferred branded auto-injector for TNS in Europe. But also with patient support programs. Finally, of course, the pricing level in the market is starting to modulate, and we're making sure that our value proposition overall remains competitive. In terms of the U.S., as you know, the biosimilars that have been launched so far in this category are infliximab biosimilars. That is actually an opportunity for Cimzia in the in-office administration segment, and so far, Cimzia is not a long infusion, but it's a product that can be administered in the practice pretty rapidly. With biosimilars launching, you have perhaps an opportunity to loosen the grip that J&J have in that segment. That is an opportunity for us to actually grow our business there, and it's grown well into double digits last year in the in-office administration segment. I would say for now, it's a positive. If I could quickly follow up on the co-pay assistance program, can you describe what solutions that you are looking at? Is it something like a debit card? Are you potentially going to shift any patients to the IV formulation? Thank you. Yeah, I cannot do that here. We do not have an IV formulation of Cimzia. We have a lyophilized formulation for in-office injection. That is not necessarily the solution. Thank you. The next question is from Alexandre Cogu from Kempen. Sir, please go ahead. Hi. Thanks for taking my question. I have a question on Romo and two on rozanolixizumab. On Romo, could you help me understand in what way EMA's view differs compared to the FDA, which allowed for filing for approval? On rozanolixizumab, could you help us understand what could be behind the reduced potency with the subcutaneous administration as opposed to IV? Another question, how would you view rozanolixizumab's potency in the different indications that are being tested, so ITP and MG? What IgG reduction do we need to see to get a clinically meaningful effect? Thank you. I can quickly answer to the question on Romo, then I will hand over to Dhaval Patel for the rozanolixizumab question. On Romo, so far the process with EMA has been the normal process. So far we've just filed, so it's really too early to say what will be the possible interactions on the question that they may have. From an FDA standpoint, it's on us now that we have received the CRL last year, and we answered them. That's so far where we are. We will have more data points, mainly when we will be later in the year and closer to the end of the process when we will get some additional element from them. But so far, the process is exactly as planned, and I have nothing in special to report as of difference or elements that may differentiate the perspective of EMA versus FDA versus the product. Yes. Thank you. I am not sure I fully agree that there are differences in potency. There are differences in PK between intravenous and subcutaneous administration. The data that have been published to date are limited. What I will say is that when we are ready to disclose the results in mid-year from the higher doses of ITP, I believe you will be okay with that. Thank you. Can we have the next question, please? The last question is from Jean-Jacques Le Fur. Sir, please go ahead. Thank you for taking my question. Jean-Jacques Le Fur from Ratiocies. A quick question on rozimab. I know the mechanism of action is completely different from Promacta of Novartis, but how do you view your product compared to Promacta in ITP? Is there any comparison we can make, or are they totally different in term of the target you have? Thank you. Yes. I guess being ex-Novartis, I can comment on that. They are completely different mechanisms of action, and I would not equate the two mechanisms. Okay. Thank you. Can we have the last question then? Because looking to the time, I think we have to move on. Yes. We have a question from Sandra Cauwenberghs from KBC Securities. Madame, please go ahead. Hi. Very nice presentation and good to see all the early-stage progress is moving forward. Just one last question on dapirolizumab, the anti-CD40 ligand antibody. Could you give us an update on the status of that and the collaboration basically with Biogen? Certainly. The collaboration with Biogen is an excellent one. I think we have very good relationship. The reason we have not discussed it at the moment is that we are still awaiting the results of the studies, and there is nothing new to report. Okay. Thanks. Thank you very much. This concludes today's session. Thank you very much for listening in, for your very excellent questions. And follow-up, you know where to find us. Isabelle and I are available for you by email or phone. Thank you very much and have a good day. Thank you. Bye-bye. Ladies and gentlemen, this concludes today's conference. Thank you all for attending. You may now disconnect.