Earnings Call: H2 2016

Feb 23, 2017

Welcome to the UCB 2016 full year financial results conference call. I am pleased to present Madame Antje Witte, Vice President, Investor Relations, who will be the moderator of this conference. For the first part of this call, let me remind you that all participants will be in listen-only mode, and afterwards, there will be a question and answer session. If you wish to ask a question during the Q&A session after the presentation, please press the code 01 on your telephone keypad, and you will enter the queue. After you are announced, please ask your question. Madame, please go ahead. Yeah. Thank you very much. Good afternoon from my side here from Brussels. Good morning to the U.S., and good afternoon to let me say Asia, because we have some people dialing in from that region. I very welcome you to the UCB full year 2016 financial results analysts and investor meeting. I am happy to hand over to our CEO, Jean-Christophe Tellier. Thank you, Antje. Good morning, good afternoon, good evening. It is a pleasure to welcome you either here in Brussels or through the webcast for our full year results, as Antje mentioned. I am very pleased to report another strong year for UCB. After the classical disclaimer, this is the agenda for us today. After my introduction, Ismail Kola will comment about our innovation biotech model and how our innovation focus deliver value for the patient. Then Detlef will go deeper into the numbers to continue to comment on the growth path that we have. After a quick conclusion, we will open the floor for the Q&A. So 2016 has been a very interesting year, if I may say, from a lot of different perspective. If we look at our environments, the world has been tremendously changing over the past months. Despite all of this changement in the environment, which lead to probably more volatility and uncertainty, we see some confirmations of trends that preexisting to 2016 and will continue to strengthen, we think, in the near future. One of them, of course, is the pressure on cost containment and on healthcare investment. It is something that will be here to stay in the future for sure, but it is also something that we need to take in account and leveraging the two other points that have been also very important in the recent past and will continue to increase in the future. One of which is the technology maturity. Science have never been so rich, and the delivery of future solution to cure chronic disease have never been so promising. It is very important to continue to protect innovation and concentrate on that. The second element is the raise of the patient voice. Ability for the patients to be more empowered to control their whole health in the future is an important trend, which also, I think, deliver future opportunity. Despite all of these changes and despite all of this volatility and uncertainty, something remain. The patients need the ability for people suffering from chronic disease to make sure that they can continue to live the life they want, which leads to a need for more differentiated solution for them. That reinforce our strategy. That reinforce the patient value strategy that we have started a few years ago, and that we continue to strengthen in the near future. Why? Because innovation will be critical to deliver differentiation. These innovations need just not to be a level of expertise within the organization, but also open to the external world through developing networking and ability to connect with science, academic, biotech, startup, everywhere they are. But this openness to the external world, this development of network and connection is not only from a science standpoint of view. It needs also to be developed with all stakeholders involved in delivering value for the patient. We contribute to this value through our medicine, but all the stakeholders also contribute to the value for the patients. If we work all together, then we can better allocate resource and better make usage of the resource that we have. The third component of the networking above and beyond the startups, the academics, the universities, and other stakeholders are, of course, the patient themselves. Connecting with them and involving them into the solutions are really key. By doing that, we are very confident that we will continue to deliver sustainable growth in the future and deliver value for UCB, for the stakeholders, and for the shareholders. How we plan to do that? The patient value strategy is articulate around very simple principle. The first one is to better connect the patient with science. If we better connect the patient to science, we are more likely to define appropriate solutions for each of them. The second element is connecting the science to the solutions and making sure that we can translate innovative scientific hypothesis into differentiated medicine. The final one is connecting the solution to the science, because if we can do that, if we can then having differentiated solutions and connect them with the patients, the patient can have the best possible experience. This is how we can deliver superior value for the patient. How we plan to do that? We plan to do that also through the deliverables of growth, because it's because we are growing, then we can invest in innovations and then we can deliver sustainable growth. We build our growth on three elements. The first one that we have started to build on a few years ago is the growth of our core product, Cimzia, Vimpat, and Neupro. Then we will expand that growth with the next generation of product that we have, Evenity and Briviact. Then the early-stage product that we have today in the development will deliver breakthrough growth in the future. 2016, I've mentioned, it has been a year where we have been able to deliver continuous growth, top and bottom line. And you see here what was our objective at the beginning of the year and where we stand at the end of this year. You see Cimzia, Vimpat, and Neupro delivered a 20% growth overall. You see the advancement of our late-stage pipeline with the launch of Briviact in the U.S. and in Europe, and the filing of Evenity in the U.S., Canada, and Japan. You see the strength of our early pipeline with now 10 new molecular entity in phase I or phase II. You see also the extension of our network through new partnering and the UCB venture fund, the continuous focus on our key therapeutic areas and patient profile that we want to treat with the divestment of some of our established brands. And you see also the deliveries of the numbers with the numbers that we have disclosed this morning. Our revenues are up 8%, building on the net sales growth of our key core products of +20%. Profitability have also increased with EBITDA EUR 1,031 million, +26%. The core EPS at EUR 3.99, at EUR 3.19, sorry, grows 47%. And on the midterm financial, we have already achieved our net debt EBITDA ratio, which we promised to deliver one over one in 2018, and we are already below that two years earlier. And we are very confident that we will be able to confirm our 30% ratio in 2018, while we have delivered already 25% in 2016. And with that, the peak sales of CVN that have reached today EUR 2.4 billion of sales, we are very confident that before the end of the decade, we will achieve at least EUR 3.1 billion. This is a quick snapshot of our strategy and what we have delivered in 2016. And I would like now to hand over to Ismail to comment a little bit more in the pipeline than I have just started to comment on. Thank you. Thank you, Jean-Christophe. What I would like to do today is talk to you about our biotech innovation model that we will deliver value for patients, and also talk a little bit about the pipeline and give a bit more color to the 10 molecules that you saw that Jean-Christophe mentioned in his talk. The biotech model, we feel that UCB has specific characteristics that make us very adept to embracing the biotech model. We have scientific excellence, which is connected with a deep understanding of patients. We have, over the last many years, worked on developing our super network and our open innovation model. And as I said, and you have heard from Jean-Christophe, we have, at the moment, 10 molecules in early to mid-stage development. And these are innovative breakthrough molecules in excess of the company's needs or the need to drive our own internal growth. The question is: how will we create value? Firstly, as I said, we will have enough molecules to generate a steady flow of our own company growth. Then the additional molecules that are outside UCB's core focus area, we will progress these via partnerships so that these do come to patients as well and create a second stream for us to generate value for patients. The biotech model is already implemented as manifest by recent approvals of molecules that we have partnered with other companies. For example, Takeda, Teva, these molecules have already These medicines have come to the clinic already, and the molecule we have with Pfizer is under regulatory review by the regulatory authorities. In terms of the strategy by which we want to generate our internal breakthrough molecules and bring them to patients, we want to focus on bringing these medicines to specific subpopulations of patients. What we have constructed here is a pyramid detailing the methodology that we will use based on sensitivity and specificity. The higher end of the pyramid, where you see the molecular signature or biomarkers that we will use for stratification, these have greater sensitivity and specificity in terms of their predictability for the specific subpopulation. Then we will also use criteria like histological imaging, and finally, clinical presentation. What we show here are some of the molecules in the pipeline, like the PI3 kinase delta, which is being brought to market for a specific population, APDS. We have an additional indication in Sjögren's disease as well. That gene is the specific gene that is mutated in patients with APDS. So you can see it is very specific for that subpopulation. Our compound, in partnership with Neuropore, that we want to bring for Parkinson's disease is an example of where we use histological or imaging identification, and then the PPSI is orientated to treat patients with a highly drug-resistant epilepsy. So patients who are refractory, 30% of epileptic patients fit into this category. So these are the stages at where our molecules currently are. We have four molecules of the 10, which we have achieved PoC or PoC light, the anti-IL-13 with Vectura, bimekizumab, and you have heard about that before, and our anti-CD40 ligand for lupus, which is in partnership with Biogen. I am pleased to announce today that we have just got in the data for our PPSI molecule, and we are currently evaluating the data in detail, but we have seen a strong signal by which we have declared proof of concept has been achieved. This molecule will be transitioning to the neurological PVU. We are currently studying it, and we will present the data at future medical or scientific conferences. We will also, now that it has been transitioned to the neurological PVU, update you in the future on the subsequent development plans for this molecule. So that is an example of a molecule that, in fact, has achieved proof of concept and is showing some very strong promise for a highly refractory group of patients. What we also show here are two points where we will make assessment of molecules, whether they will be internal or will be licensed out. But it is not only at these two points. We can license them out anywhere in this pathway or during development, but these will be the major assessment points by which we will evaluate these molecules in terms of which value stream will they fall into. The molecules that we have in development gives us a strong, diverse pipeline, and many of these will read out in 2017. We have five molecules in phase II and five in phase I. We have increased the number of molecules for neurology, as shown here from our previous pipelines. We have five antibodies. We have one biologic and three small molecules, so we have also increased the small molecular content of our pipeline. Most importantly, almost all of these are first-in-class molecules, so we are concentrating strategically on innovative medicines that will bring transformational value to patients. Additionally, we also need to be vigilant about accessing innovation irrespective of where it occurs, and especially early disruptive innovations that may change the manner in which science is utilized to bring medicines to patients. In that regard, we have created a UCB venture fund to direct and find these early disruptive ideas, and we will utilize this fund by either investing in other funds or directly into companies that fit our strategic purpose. The fund is EUR 150 million over three to five years, initial phase, where we will learn, and then we will evaluate the results and subsequently decide whether it gets larger or whether we continue with it. With that, I would now hand over to Detlef. Thank you. Yeah. It is always difficult when you come with the boring numbers after you have seen the exciting science. But boring is not too bad when it is about delivery. It just means that everything went as it should. Jean-Christophe already said about our performance, so I will not repeat it entirely. I would point out to you only three things. The first is when you take the green arrows, what is very nice and what you would expect, what you want to see and what you see is that you have a nice growth on top line and over proportional growth on revenue, and then, yes, an even bigger growth and the substantial growth here is 47% on the core EPS. That is how you want to really see this, and it is another sign for the scalability of the business and what you can really drive in terms of profitability. The second is that, I think, when you look to the profit of the group, that we just have to understand that due to the divestitures, this has been a bit screwed. When you really look to the underlying business, you are seeing a very strong growth trend there, too. It is around 44%. Just keep that in mind when you are evaluating the numbers so that you are not getting into this trap of extraordinary events. When we are looking to our product portfolio, it is very important to understand that from where we started to today, we have taken a long path already on the journey to be very focused in the areas that we think we are very good. We have been able to divest the other part at very nice prices. We have done that across the years, which is helping us also not only to focus while we are growing, but also to reinvest monies into areas that are bringing more value tomorrow. We do not have to look into these older products that honestly are not so easy to deal with. It is always getting more and more difficult, especially as differentiation of old products is very difficult. This is very good, and with more than 62% of net sales within CVN and more than 80% on our core products in our core areas, we are now really very much where we want to be, and we can just work with the new launches to even increase that. Looking into our performance in terms of profitability. We promised you some years ago that over time that we would accelerate towards the 30%. We said to you it will happen mainly in the operating expense. Let us look at it whether that has come true. There is a slight increase in gross margin, and that is due to the new products having a better gross margin than the old products. There is the scalability of our structure cost that you see very clearly in the operating expense ratio, and that results in what we have been promising, an accelerating profitability that is moving towards the 30%. You heard Jean-Christophe, who mentioned that we feel very comfortable on that target. Now profit is good, but cash is better. The basis for cash is strong cash flow. I think we can show that over the last years, with 40% year-on-year increase on average, we are delivering on that. When you on top of that also divest products at good prices, and that is what you see on the left side of that slide. Then you see a wonderful curve as expected and an earlier delivery on our target of the one-to-one ratio between net debt and EBITDA. With the 0.8, we are now in a very solid position, which does mean we have financial and strategic flexibility if we would ever need it. This is a comfortable situation to be in, especially when you are basing it on a very strong internal growth platform. This is true also that there is still some money in the bank. You see that we have a very benign reimbursement schedule, which does mean we have really flexibility. It is not that the money is needed tomorrow. We can use it for the UCB venture fund. We can use it for strategic investment, and we can use it also for dividends, which we do again and slightly increasing again. Looking to the outlook. The financial targets for 2017 have been fixed with revenues between EUR 4.25 billion and EUR 4.35 billion. This looks a little light when you compare to EUR 4.178 billion this year. But now we have to think what is the underlying business. You heard me talk about the divestitures. Just to give you an idea, it is roughly worth 4 percentage points of growth. Then the IFRS 15, which is a new accounting rule that will be mandatory in 2018. As you want to compare and not surprise again and again, we start already in the year that you have to compare with. It is 2017, and we have considered that. That is around another 1%-2% of growth. So take all of that together, we show again a year where we are estimating a high single-digit growth on our revenue. This leads naturally, as you were kind enough to say that we do good cost control, also to some profit growth. And still with this nice profit of EUR 1.15 billion to EUR 1.2 billion, we are still investing around 24% ±1 in R&D because as you have seen, Ismail, we have a strong pipeline at Iris that we really want to work on. This leads to quite, again, an overproportional growth in our core EPS, which is now seen to be around EUR 3.17 to EUR 4. The underlying tax rate and here slight change for the ones that follow us. We are a bit more positive on this. So this time we are not saying high 20s. We are saying mid-20s to high 20s. For tax, this year will be a very special year because we don't know what happens. We don't know what happens in the U.K. We don't know what happens in the U.S. There are changes in Belgium. So this is the underlying business, and there might be changes throughout the year just by these mandatory changes. They will not have an impact for you, I think, but it is very important to keep that in mind that might, like every other company, to be updated. Looking to the guidance beyond 2017. We talked about the net debt to EBITDA ratio. Yes, the 30%, we are comfortable and committed to it. The nicer interesting information is Briviact had a good start. As we all know, it is slow and steady growth. However, we want to put a post into the ground for you to have an idea how we think about this new product. We are very happy to announce today that we see peak sales of more than EUR 450 million in 2026, when it is going into patent expiration, and including all these extensions that you are getting. I hope you will take that as another sign of our confidence in our own products and the value that we can give to patients. I hope that you have seen another year of delivery, and we try to do it again. Jean-Christophe, if you want to conclude. Thank you very much. Thank you, Detlef. You have seen the result of the full year. As I mentioned initially, it has been a very good year with strong growth both on top and on bottom line. We have improved our profitability, we have improved our profile, we have strengthened our pipeline. We delivered some key milestone in the late-stage pipeline, and we have strengthened the early-stage pipeline. All of that set the scene for a good continuation of growth moving forward with the new launches, and you just heard Detlef about that. With that, I would like now to open up the floor to your questions, and the executive committee is with me around this table to make sure that we can answer to all of your questions. Thank you. Yeah. Sorry? Do we have questions already here in the room? Mikkel. Regarding Keppra, we see that the decline from Europe and the U.S. is partially offset by the growth in Japan. Is there still much growth to be expected there? Or what do you have in terms of expectations of market potential in Japan? Thank you for your question. Yes, we expect strong growth in Japan and international markets. If you look at Japan this year, EUR 104 million strong growth. If you look at international markets, EUR 162 million. About half of that is China, where we see strong growth rates. I think what is unusual this year about Keppra is we saw a tremendous decline in the U.S., and that has to do with some inventory build within wholesalers and some generic manufacturing issues. I think overall, we can expect single-digit decline, low single-digit decline in both U.S. and in Europe. But I think we will see this continued growth within our international markets, and we will see how that counterbalances each other. Thank you. Thank you. Is that okay? Okay. Can we have the questions from the line, please? We have a question from Richard Parkes from Deutsche Bank. Please go ahead. Hi. Thanks for taking my questions. First one was just on Cimzia, and looking at the IMS volumes, the trends have been relatively weak. I know that isn't capturing the sales of the lyophilized formulation and that correlation between the two has broken down briefly in the past. I can't quite understand why there's now such a big divergence between the very strong U.S. sales performance and the weak U.S. IMS volume. So I wondered if there are any special reasons there why the lyophilized is now dramatically exceeding Sub-Q volumes. So that's the first question. The second question was just U.S. sales of both Vimpat and Cimzia were very strong in the fourth quarter, and I wondered if you could discuss how stocking levels might have changed or if there are any rebate adjustments in there that benefited the fourth quarter, specifically. Finally, I wondered again on Cimzia, if you could discuss whether the CRADLE and CRIB trials, what impact that could have on it from a labeling perspective. I know you've always had somewhat of an advantage in the label over risk in pregnancy, and that should be something that treating physicians are aware of. I'm just wondering how inclusion of the data or any kind of label update will help you there. Thanks very much. Thank you. I may suggest to Emmanuel Caeymaex, who is leading our immunology unit, will answer your first and third question, and Jeff Wren will hand over with the second one. Yeah. Thank you for your question. First of all, with regards to the Cimzia prescription data, we are referring to the U.S. here. Indeed, we have had a strong year with 17% growth. It is true that the TRX data that IMS reports does not include the lyophilized formulation, which this year was about 30% of our Cimzia business in the U.S. In addition to that, and that has been the case for the last year as well, there is a projection factor. There is a limitation to how accurately IMS can project out our sales based on the data that they capture. Further, and that is new for this year, they have informed us that in the second half of 2016, they have had, let us say, a data issue or less access to data and have therefore underreported the Cimzia prescription volumes. Now, what you are probably interested about is to know how Cimzia has fared in terms of volume growth. What I can say is that about half of the growth that we are reporting here is actually driven by volumes. The second question related to the fourth quarter and Cimzia performance in the fourth quarter. What we have seen is that our shares, including our dynamic shares, have successfully evolved over this year. We have had very strong sales in psoriatic arthritis. Rheumatoid arthritis was very strong as well. That is essentially driven by our performance in rheumatology and including the in-office administration segment of rheumatology. Before I hand over to Jeff to comment on the Q4 neurology products performance in the U.S., a quick word on CRIB and CRADLE. Those studies have now delivered data. The breast milk data CRADLE are available and will continue to be presented in key congresses. The placental transfer data for CRIB will be communicated soon in medical congresses as well. Those will be submitted in the second quarter and so will be subject of a label update, which will take place in the first half of next year if all goes to plan in the U.S. and in Europe, I would say latest at that time as well. What is important, of course, is that physicians also rely on guidelines. Whilst we are producing data to enable physicians and patients to make informed decisions, academic societies also reflect the latest evidence in various guidelines. That is, of course, something that physicians can rely on today. Jeff? Sure. Thanks, Richard, for your question. Yes, fourth quarter has traditionally been very strong for us, and that is true whether you go back to 2014, 2015, or 2016. The question is, do we have inventory build? This year the answer is no. We have got strong fundamental growth rates. So we are growing at a constant and real rate of 20%. Moving away from price increases in gross to net and inventory build, we have a fundamental growth rate roughly of 17%. So just sort of true unit volume growth increase. I think this year it is very exciting that we have seen inventory decline in fourth quarter. So we have been able to see strong fourth quarter sales with reduction in inventory. So it is good to see these fundamental growth rates just continuing on. So no inventory build whatsoever for fourth quarter. Thank you. Can we have the next question, please? Our next question is from Richard Vosser from J.P. Morgan. Please go ahead. Hi. Thanks for taking my questions. So just one extra question on Cimzia first, please. Just whether you are seeing any impacts of Inflectra on Cimzia in the U.S. I know it is relatively early, but just any insight you can give there and perhaps you could discuss formulary access for 2017 for Cimzia and whether you have seen the need for more rebates or pricing adjustments, whether the position on prices is starting to get more challenging in that anti-TNF space. Then second question, just on royalty rates. Of course, Ismail picked out a few partnered molecules, but could you perhaps discuss what sort of royalty rates you are getting on those partnered molecules and potentially how we should expect the biotech IP royalties to develop going forward? Then finally, just a question on Vemurafenib. You highlighted, or Ismail highlighted sort of proof of concept or future development decisions. Just wondering on Vemurafenib, what data you need to see for future development decisions there. Do you need the AS ankylosing spondylitis trial in 2018 as well as the psoriatic arthritis trial? What data do you need and what do you need to see, more importantly, to continue development of that product? Thanks very much. Thank you. Emmanuel, do you want to Yes, good question. First question, impact on Inflectra on Cimzia in the U.S. So far there has been no impact. I think that Inflectra has been brought to market with a 15% discount, which hasn't really rocked the market. 15% to Remicade, I mean. If we're expecting any impact in the first half of this year, it would probably be mostly indirect with the originator, Remicade, taking certain actions to protect or expand their access. It's clearly adding to the competitive pressure in the market, but not affecting Cimzia in a direct way. In terms of the outlook for access in 2017, well, what I can say based on last year is that we have won some accounts, we've lost some as well. But basically we're entering the year in a position that is pretty similar to what it was last year. Looking forward, I do think that insurance companies and PBMs have taken more interest in the in-office administration segment and Medicare Part B. So I would expect some more pressure there, either with some erosion in access or some rebating, which classically hasn't been the case. So that's where I would see most of the new action. I think on the pharmacy side it's pretty stable. Yeah, and concerning the royalties, it's very nice that you asked for that because it gives us an opportunity to just reiterate the point that we did try to make. We have this new run of products that we are giving to other companies because they are not in our core areas. Some of these products are just coming to the market, therefore it's an increasing factor. But we are still having the first wave of products that are decreasing. At this moment in time, we expect that this will be reasonably stable in terms of the effects, at least for this year. But yes, part of the strategy is not only to get royalties, but also get other economical benefit from molecules that are very innovative but not in our core areas. As to bimekizumab decision-making, obviously, studies are running in several indications, and you have read that the first study will report results in Q3 2017. That is the psoriasis, those ranging studies, and that the axial spondyloarthritis studies will read out in 2018. I think we can say that by the time we have the results of all those studies, we will be in a position to make a decision. Of course, as the data accrue, we will be able to be more specific in terms of exactly what we want to see. Very clearly, the rates of remission or, let's say, the equivalent of low disease activity in the field of axial spondyloarthritis and psoriatic arthritis are still quite low. So there is a lot of headroom there for a new product to have impact. In addition, in the field of axial spondyloarthritis, there are no disease-modifying agents, or at least no agents that are labeled as such. So here's an opportunity again, and our goal with bimekizumab is not to develop a medicine that brings incremental benefits, but a medicine that really makes a difference to patients and to the medical practice in those fields. Thank you, Emmanuel. Maybe just as a reminder, remind that bimekizumab, it's an anti-IL-17A plus F, which we think that the F biology will translate it into superior differentiations in clinical. So when Emmanuel mentions we are aiming for differentiation, it's based on these biological differences. Thank you. Can we have the next question, please? Our next question is from Chung Hyun from Credit Suisse. Please go ahead. Hello. Thanks for taking my questions. I have three if I can. Number one, during your presentation, I think on slide 12, you referred to some recent partnerships, one with Takeda, another with Teva, and another with Pfizer. Can you give us some more color on these partnerships and what they involve? Two financial questions. One, on CapEx for the next few years, we've seen it go from EUR 71 million to EUR 108 million for 2016. Can we assume a similar increase for 2017? Secondly, should we expect any further biotech IP payments out? In 2016, it was a EUR 1 million credit. How should we think about this in the future? Thank you. Yeah. In terms of the slides, we intentionally put that there. The first point, just to reiterate to make sure, is the partnerships were done earlier, but that these products have been approved recently. That's why we're focusing on them. The one with Takeda is the nature of the partnership is the fact that it is a revenue stream or royalty stream based on the intellectual property, whereas the others with Teva and with Pfizer were internally discovered molecules that was licensed to them. Therefore, they nicely illustrate the bandwidth or the spectrum of the types of partnerships from which we can get royalty payments. As Detlef said, we don't comment on the exact percentage of royalty for any of our partnerships. That's the maximum information I think I could share with you right now, but we're very excited by it. And in terms of CapEx, I would guide on, if you take the ordinary CapEx, around EUR 150 million, probably ±10%, because you never know exactly how the flow of these is throughout the year. We are also looking into longer-term investments as we have done before, when we see that we have a good business proposition. So that might come within the next years. But we are evaluating the different opportunities, and that could increase this number. In terms of the biotech IP, you can more or less stick with this number or go to zero. We don't expect anything there. I hope this answered the question. So if you could have the next one, please. Our next question is from Vincent Meunier from Morgan Stanley. Please go ahead. Hello, thank you for taking my questions. The first one is on PPSI. So you are talking about evaluating the data, and you show strong confidence on the proof of concept. Can you please comment on any first take you can have on the differentiation And or the efficacy of that compound and any preliminary data which could support the development in the regular epilepsy indication. The second question is on Evenity. Any comments on the ongoing discussions with the health authorities, and how much costs are embedded in the 2017 guidance, if any? Last question is on your net debt to EBITDA ratio. Do you plan to add phase III assets in the short term to boost the pipeline, which is today mainly made of phase I and phase II assets? Thank you. On the PPSI data, I think, it's our usual practice to present this data at peer review scientific medical congresses and go into the detail there. That's a requirement for many journals and in fact, many conferences. So I won't go into the absolute details of it. In terms of your question on differentiation, just to remind you, I touched on it very briefly. We went into a highly refractory population. Right now, this is a population of about 30% of patients with epileptic seizures. The population we chose are patients who have had failures of four AEDs at least, so anti-epileptic drugs, they failed four, and they have at least a minimum of four seizures per week. This is a very refractory patient population. As I indicated, we saw a very strong result based on 75% seizure reduction and the absolute number of seizures that were reduced in this patient population. I think that's as far as I can go at this conference call. Go ahead. Maybe the question regarding interaction with health authorities regarding Evenity. Just to tell you that the interactions are ongoing along the regular process, that some technical questions have been addressed as in all regular process, and no specific question I would say has emerged to date. So obviously it's still process ongoing. That's what I can say at this moment. On the operating cost, your question, what is the impact of Evenity? We will see that we have a slight increase again on our marketing and selling cost, probably in the single digit space. This is driven not only by Evenity, but by the continued investment in some of our core assets. But we are also compensating on the other side with taking investment out. So I would say we see that more as natural when you are going into the normal launch situations. And keep in mind that we are in a 50/50 partnership, so there is also a compensating factor that not everything is ending up with us. Second question, I think, was about do we think about adding other assets, especially late-stage assets. At this moment in time, we feel quite comfortable with our internal growth profile. However, as always, we are looking very carefully into what opportunities might be available and how strategically they can fit. That is true for any type of assets. Our preference is more in earlier assets or technology platforms that are strengthening or complementing our strong platforms that we have already, and therefore, giving great opportunities for sustainability in the long term. Okay. Thank you. So can we have the next question, please? Thank you. Ladies and gentlemen, I would like simply to remind you that if you wish to ask a question, please dial 0 and 1 on your telephone keypad. Our next question is from Simon Baker, from Exane. Please go ahead. Thank you very much. Three questions, if I may please. Firstly, going back to the issue of rebating in the U.S., I noticed from the annual report that the sales return and allowance liability increased 36% in 2016. I was wondering if you could give us a little bit more color on that and also address the general issue of the changing, if at all, willingness to pay for innovation within the U.S. market. Secondly, sticking with the U.S. and going back to the performance of Keppra. I was wondering if you had seen any impact from the American Epilepsy Society position statement on the generic substitution of anti-epileptics back in June, and if that was contributing to some of the slight weakness in the sales there. Then thirdly, a question for Detlef. As far as I can recall, you are the first company in the sector to address the issue of IFRS 15. I was wondering if you could give us a little bit more color on exactly how that will impact you. Thanks so much. I will take probably the two on rebating on IFRS 15. IFRS 15 is a new accounting rule on revenue recognition. What it does for us is it is shifting between two lines, between marketing expenses and between net sales. We are taking more or less cost out of the marketing expenses, and this is then considered as a reduction in net sales, which is mainly due to some European pricing concessions that are given and that have been, I think with most companies or all companies, been allocated into marketing costs up to now. The new rules have changed, and that is the reason why this now needs to be done. Why we are one of the first, I think there are other companies out there that have already done that, is because we want to make sure that when we are talking about 2017 final numbers and giving guidances for 2018, that we are already on a level field, that we have comparisons of apples to apples. As usual, we will try to not surprise you, and therefore go as early as possible when these numbers will have an impact, which will be in 2017 as a comparison for 2018, when you have to use this new rule and bring this up. The second was about rebating. I know that the number increase looks quite big, but it's only due to the fact that we are growing quite significantly in the U.S. When you look really at, and we do this internally, as you can imagine, we are not seeing a significant increase in terms of our rebating in the last three years. There's a little bit of volatility because, as you know, the timing of these rebates is not entirely easy. That takes sometimes months before the concrete numbers are coming in, and therefore you have slight changes on this temporary nature. Therefore, it might add a bit or take a bit out from year to year. But in general, we don't see any significant increase on these numbers. Nearly stable. Maybe I can follow up on the price innovations and how do we see the evolution of the U.S. markets. As I mentioned in the introduction, we do see a pressure on cost and on price everywhere. Emmanuel commented also on the fact that the biosimilar indirectly create also some kinds of pressure on some formulary and in the future. That's the reason why, in a sense, we want to continue to focus on innovations. I do believe that everybody recognize, in all the different geographies, recognize the value of the science and the innovation. Protecting innovation is an important component. In our industry is because our cycle are very long and the risk are very important. The connection between the price, the protection, and the IP, and the cycle that we have are very important. I do believe that through innovations and differentiation is our best protection in the future to continue to deliver sustainable growth. Maybe, Jeff, I can hand over to you for the Keppra question and the American Epilepsy Society. Yes. Thank you, JC. No statements, positive or negative, whether they are coming out from different type of patients groups, society, or payers, is really impacting Keppra right now. I think it has been very volatile for a number of reasons, going back to 2014. Remember, Keppra in the U.S., EUR 199 million. 2015, EUR 254 million. So once again, the majority of impact and volatility had to do with the stocking of the wholesale channel, as well as just some generic manufacturing issues. Now we are at EUR 215 million. I think we will see, once again, stability come much like we see in Europe. So not a lot of impact we see on prescription behavior from these type of statements. Thank you. Can we have the next question, please? Our next question is from Peter Verdult from Citi. Please go ahead. Thank you. It is Peter here from Citi. Just a few questions, JC, a couple on romosozumab and one on Vimpat. Could we just discuss what level of investment is UCB willing to give to the U.S. so we can allow Amgen to promote that product, assuming approval? Then, regardless of whichever KOL you speak to, they think of romosozumab as a difficult market to build and grow given the data from FRAME. Obviously, you have ARCH coming up in May. So with that in mind and the IP situation in 2026, is there anything that you have in the pipe that could extend the franchise for romosozumab beyond 2026? Then lastly, just on Vimpat IP, could you just remind us what the current roadmap is in terms of next events and timeline? Thank you. Peter, I'm sorry. The line was very bad. We couldn't understand your question. Would you mind to go one by one and just ask the first one very slowly? Okay. Sorry about that. On romosozumab, with respect to the U.S., is UCB going to commit investment to promote romosozumab in the U.S., assuming approval? Or will you leave that with Amgen? That's question number one. Well, basically, U.S. is a territory which is taken care of by Amgen. The way we will operate is still under discussion, but Amgen is taking the lead on that one. As well, they are taking the lead in Japan. UCB will take the lead in Europe, Brazil, and China. The operating model are still basically in discussion. Now the second one, slowly, please. The second question is, when you speak to any KOL, they talk about this being a difficult market for you to develop given the FRAME data. I know we've got ARCH coming up, but with the IP situation of 2026, is there anything that UCB has that can prolong the IP around romosozumab beyond 2026. Well, I guess you refer to the IP published in the public domain, sorry, 2026, which is really the base case without any extensions to apply any data exclusivity. So that's the only one for the moment, which has been published. We cannot really comment at this stage, too early stage for the final IP situation of the product. Okay. The next one. Last question is regarding the Vimpat IP. Can you remind us what the current timelines are, what the next events are, where we can get an update? Sure. Basically, we have three buckets, if you will, of IP matters involving Vimpat. The first one, as you are aware, was the challenge to the patent in the Delaware district court case, which we won back in August of last year. The 16 or so generic defendants have appealed that ruling, and the appeal process is proceeding. I would not anticipate a ruling from the Federal Circuit until probably sometime early next year. Of course, it could be sooner, it could be later. It is clearly up to how the judges proceed with their calendar. The second bucket, if you will, is the Vimpat Inter Partes review that is pending in the U.S. Patent Office and before the Patent Trial and Appeal Board. That IPR, which is a review of the validity of the patent based on obviousness, was instituted about a year or so ago, through a petition by Argentum Pharmaceuticals. By law, by statute, the IPR must make a ruling in that case by May 23rd of this year. We have already had an oral argument back in January before the PTAB, and now we are currently awaiting their decision sometime on or before May 23rd. The third bucket, if you will, is the re-examination of the patent, which is also before the U.S. Patent and Trademark Office. That re-examination is currently stayed pending the outcome of the IPR. Okay, thank you very much. I understand we have no more questions on the line. Do we have questions in the room? I can then conclude that we answered your questions, otherwise you know where to find me. Thank you very much. Have a very nice afternoon. Thanks you for your attention.