Earnings Call: H2 2013

Feb 26, 2014

Good afternoon. Good morning for those on the line. I am very pleased and delighted to share with you the annual results 2013 for UCB. Just in a nutshell, for those of you that did not capture it, we delivered on our commitments again. What is as exciting as delivering on our commitments is to see the position of strength that we have and the wave of new products for the new era, as we call it, that is coming. I will let you read the disclaimers that are the usual one, and that is the one thing that does not change. The agenda of this afternoon is I have three slides for my introduction. Then I will hand over to Jean-Christophe Tellier, who I am sure you are all interested to see. I say a few words about Jean-Christophe in a minute. Then Detlef will walk through the financial performance. Ismail will update you on R&D. Iris is in the room also, but we had to choose. Last time was Iris, this time is Ismail. Then I close before the questions. Overall, we delivered on our commitments for this year despite adverse exchange headwinds. You may remember that in 2012 we had the opposite. We had favorable exchange tailwinds. This year, despite this, we delivered on our guidance. If you look at constant exchange, which really gives you a sign of the underlying performance of the company, you see that indeed we are entering in 2014 in the phase of growth driven by CVN and by the emerging market and Japan. Clearly just want to highlight that Japan had a very strong performance that was impacted by the 30% devaluation of the JPY. Just to give you a small data point, Keppra grew by 60% in 2013, so 30% in EUR, 60% in JPY. Tight management of expense, Detlef will talk about that, which enabled us indeed to deliver a nice EUR 689 million and 193 in terms of our core EPS. I shared with you a year ago this slide which in fact was co-developed with JC and the ExCom, and really highlighted our five growth priorities moving forward. I am really pleased for the year 2013 that we have made progress in every single one of these priorities. Clearly, I am sure you are as pleased as I am with CVN growing at 27% or 30% constant exchange, reaching now almost EUR 1.2 billion, which is more than a third of the total revenue of the company. Emerging market, as I mentioned, despite the exchange growing at 13% in every single market growing faster than the market with the exception of Russia. Then momentum in our late-stage pipeline, the new indication for Cimzia that we got approved both in the U.S. and Europe at the end of last year. Indeed confirming the excitement behind romosozumab, epratuzumab and brivaracetam. Also, and you will hear for the first time a little bit more about our breakthroughs, and you will hear that progressively of course as we go given the competitive nature. But I am very pleased with the momentum of the breakthroughs. On the profitability, you saw that we made a little bit of improvement 2013, but really significant acceleration as we have said, in the year 2014 to reach the peer profitability in 2017. So overall, UCB is really in a position of strength. The only weak points we have on our competitive profitability is getting managed as expected as we have committed to you. Not only we're in a strong position, but we're clearly very excited by this new wave of new medicines that's coming. As excited by the wave that's coming soon after that, which is the famous wave of breakthroughs. It's a great time to indeed hand over for a CEO when you have the company in a very strong position and you know that it's only the beginning of the growth. It's a great time to do that when your successor is ready. I'm very pleased that indeed the board, and I had a little bit of also voice into that, chose JC and also his colleagues because over the last few years, JC internally was exposed to different things. He was the key driver of last year's ten-year plan for UCB together with the Executive Committee. My only added value in the whole ten-year plan process of last year was just to suggest at one point that it would be a good idea to do an executive summary. The year before, JC was also the architect and the thinker together with the Executive Committee, again, about our new organization, which is organized around patient solutions. Overall, I'm pleased to hand over, not only on January 1, but right now, the teleprompter or the slides to JC. Just to warn you, we share one weak point. It's the accent. You will actually have some strong continuity there, and you have a significant upgrade to moving from a French vet to a French rheumatologist, which proves you indeed that UCB is starting a strong growth phase. With that, I am pleased to hand over to JC. Thank you. Thank you very much. I don't know if it's an upgrade from a vet to a rheumatologist anywhere. The last patients that I've seen officially in an academic environment was 25 years ago. So if ever you have an issue with low back pain, I will suggest you maybe to go to someone else but me, to make sure that you get the best treatment possible. Having said that, it's a great honor and pleasure to be with you. Good afternoon, and to share with you some updates on the two first growth drivers that Roch initially shared, the CVN and also Keppra and performance from an emerging market perspective. Our purpose is really to deliver sustainable value for patients suffering from severe diseases. So it's really great to be in front of you and share some nice growth momentum behind our product. Because what does it mean in the end is that more and more physicians have confidence in our solutions and more and more patients have the benefits of our products. I will share with you the current growth and results from a CVN perspective, which make us more and more confidence in our ability to reach the peak sale that you know we are committed to of the EUR 3.1 billion before the end of the decade. That is confirmed, and that has been in a way confirmed also by the results of this year. I would like to start with Cimzia. The main achievements in a sense for Cimzia this year is to reach more patients, and reaching more patients through two main work streams. One is gaining new patients through new indication. We have delivered as planned, thanks to Iris. We have delivered as planned the new indications both in Europe and in the U.S., axSpA and PsA in Europe, AS and PsA in the U.S. The dynamism that these new indications start to give to the brands is really good. The also other element is the expansion through geography and the emerging market today and the end of 2013 actually represents already 20% of the overall growth of Cimzia in absolute terms, which is a very good performance. Basically, we are expanding our ability to touch more patients through new indications and through new geography. You see here the very dynamic growth. The growth of Cimzia is not only a growth of net sales, but also if you look at the performance in market, and I'm focusing here mainly in Europe and in the U.S. and in terms of market share, either patient share in Europe or TRX share in the U.S. You can see a nice growth on both geographies and region in both criteria. You can see that also by a growth of the product higher than the growth of the market. You know that in the U.S. we have a very particular situation to benefit from two formulations, and these two formulation are pretty unique for a brand, in the TNF environments, to get at the same time an auto-injector, which is sold for mainly the prefilled syringe and also an in-office administration. The flip side of that dual formulation is that the in-office administrations are not well captured by IMS. We have started, if you remember last year, to show you a little bit the dynamism of these two presentations. Even if it's only 20% of the overall Cimzia sales, the in-office administration is growing pretty well. You see here the in-office administrations on the left-hand side and the prefilled syringe on the right-hand side. The absolute growth year-over-year has increased in both formulation. Today, the in-office administration represents roughly 50% of the cost in absolute term. Moving to Vimpat. Vimpat is also continuing to grow. This year in 2013, the growth has been mainly due to the classical indication that we have. But in 2014, thanks to the filing last year, we will expect the new indications in monotherapy in the U.S. in the second half of the year. But you see here also a very significant growth across geography. Particular situation of Vimpat is that the situation in the U.S. represents 75% of the overall sales. In-market performance is also with a very solid growth. And actually, the growth is stabilized, and you can see almost gain as a line in terms of gain of market share in the two geographies, on top is the U.S. The bottom line is Vimpat in a rolling three months period of time. So nice growth and nice momentum for Vimpat as a second growth driver. Our third growth driver, Neupro, Parkinson's disease and RLS. If you remember, we relaunched Neupro in the U.S. at the end of 2012. So 2013 has been the first full year of the product's availability in the U.S. And that's the reason of the growth in the percentage in the U.S. You see here also a nice growth in the different geography and in particular Japan as well as the rest of U.S. and Europe. Same thing in terms of market share. We are gaining market share in the two geographies that shows that not only the product nicely grows, but the growth is also an ability to have a higher penetration in the different geography. So at the end of the day, a very solid growth for Cimzia, Vimpat, and Neupro. Cimzia benefiting from the new indication as well as an expansion of geography, very steady growth in the emerging market, and very successful launch with our partner in Japan. Vimpat's continuous growth, preparing the new indications to come in monotherapy in the U.S., and Neupro taking the advantage of the recent launch in the U.S. as well as in Japan. All of that make us very confident to confirm the expected peak sales of EUR 3.1 billion. Now, a quick update on Keppra and emerging markets. As you know, Keppra is now genericized since a few years in the U.S. and in Europe. But it, in the U.S., has been very quick. So we have reached now a plateauing phase, in particular because we are very solid with the slowest formulation of Keppra XR. Sorry. And so you see here that it concentrates the trend of the sales in Keppra in the U.S. have been very positive. And so we are facing now this generic exposure mainly from a European standpoint, and it's not that much in terms of volume because the volume are resisting very well, but more in terms of price cut that one product after each other is taking for Keppra. And that's the reason why the erosion of the sales of Keppra is not as immediate that it is in the U.S., but more progressive because each country takes some price cut at a different period of time. But overall, you see a good resistance in the U.S. You see in Europe now that we are phasing out of this fast declining period of time. The third component, which is really very positive, is the dynamism of the brand in the emerging markets, in particular in China and in Japan, is the 60-plus percent that Roch has mentioned in Japan, which make Keppra a very sizable franchise for us even for the future. Last but not least, our ability to build strong capabilities in the emerging markets. I would like to highlight here mainly one point, which is the agreement with Biogen Idec. Why is it important for us? It is important for us because it is a clear recognition of our ability to take brands from very dynamic companies and defend and develop their brands on their behalf, which is a nice recognition of our ability to do that in these areas and these geographies. The second element is that it's also a clear focus on specialty pharma, which is our strategy in different region of the world, but in particular also in this part of the world, which is somewhat unusual. The last point that I would like to highlight here is Japan, because Japan has been for us a very successful partnership platform of growth. If you look at the numbers here in terms of Cimzia, for Neupro and for Keppra, Japan has been very successful. We had headwind this year, but in terms of sustainable growth behind the FX change, we have very positive results with our partner. That was in a nutshell the message that I wanted to convey to you today. A very good 2013, solid growth in different geographies, new indication that we continue to accelerate the momentum and will give us the ability to reach even more and more patients that will take our medication in the future. With that, I will hand over to Detlef. If it would not be for IFRS 10, I would just say everything as planned and would sit down again. As we had IFRS 10, I will show you that everything is as planned again. But I will explain it. In terms of the products you already heard, CVN, which is important. We heard about Keppra, that is now coming into more also in Europe after having more or less this 50% decrease that we were talking about early on. It's coming into a more flattening situation. But it will stay an important franchise. When we take out the allergy that has been shown significant decrease this year, and not unexpected either. We are back to the mid-single digit decrease of that mature product portfolio that we have guided on. Nothing has changed here. In terms of the P&L, few lines just that I would like to point out. Roch talked about the FX impact, mainly Japan, and I am quite happy that we have been able to compensate that and achieving our guidance as promised. This is very positive. It shows that the underlying business is doing very well. Moreover, I would like to draw your attention to the expense lines. When we talked about our ability to reach 30% of operating margin towards 2017, and you have in mind that I always said it will be an acceleration towards that. First year slower, next year is more, and then in the end of the corridor, much stronger. What we said also, what you have to expect that is R&D will stay high and as guided, is staying around the 25% line. Nothing changed here either. SG&A will have to give. Over time, the gross margin will have to show something. Let's go into these two lines. I think it is very convincing that you see that this reallocation of funds that we are pulling from one end where they are not making the best use, towards where they have the highest impact, has been happening, and this is very positive because it is just validating what we told you before. The second is, you do not see that on the gross margins now, and you would say, "What is happening here?" That is also making a lot of sense because Keppra, still having a significant decrease with high margin, is not overcompensated. The new plant, as you know, in Switzerland, where we also expect some hike at the end of the period, they have not gone into production. That is quite normal, and it is just in the range of what we had been telling you before. We will see later how that then looks for 2014. In terms of below the line, not a lot to tell, really, other than two lines, financial expense. Everybody can appreciate that interest is reasonably low, so you are not surprised that the line is a bit lower. But the dimension of being lower, you are absolutely right. There has to be something else, and it was a one-time effect in terms of cost last year that we did not have this year. When we look to the second line, somehow I am feeling reasonably good even. Taxes are higher, but they are at 29%, and if you have in mind for your modeling, I always said high 20s and you are safe, and we are very volatile. On the low basis of income that we have at this moment, if you have a tax audit, for example, in Germany, you are conservatively provisioning, then you are successfully making the audit, and you have an accrued release. You have a positive or a negative. When you are provisioning, you are conservative, you are probably having something, and with a low profitability that we have at this moment in time, you have this volatility. Please, as I said before, be not surprised. Use the high 20s for your models, and you will be safe. In terms of the EPS, here the one thing to keep in mind for the future is this attributable to UCB shareholders, because that, with the new application of the rules, especially IFRS 10, is an important one that we have to look into. Was not that important in the past. Doesn't mean anything because, at the end, it shows the same. Everything that is provided from UCB is taken into consideration. It shows really the underlying dynamism of the business of UCB. This is more as an explanation and just for you to know, when we guided, we had the 179 million of shares. Now we have 182. We are more around 196 when you take this into consideration. Going to the next one. It probably appear a nice thing to talk about. You have seen we have been on the capital markets this year. We have taken the advantage of the low cost and the availability of the market. The situation that we are in is very, very good. We have EUR 700 million of cash, more than EUR 700 million. In itself, this is not good news because you're not getting a lot of money for this. But knowing that we have to repay around the same amount of money in 2014, this is nice. What makes this chart even more nice is this one, which is the convertible, and you know that we are expecting that this will convert in the coming days to 100%. What it shows is 2014, done, 2015, done, 2016, still a big bullet, but here are some good news, too. We have a revolving credit facility. It's EUR 1 billion. It's not used. I could say today my refinancing until 2019 is under control. This is a very good place to be, especially when we have in mind that through the recent years, we had quite volatility in capital markets. I'm very happy about that, and it gives us a lot of flexibility going forward. Here is still work to be done, not surprisingly to you. The profitability has to grow to really get to a better picture in terms of net debt. At the moment, we are investing heavily. You see that with CapEx. Roughly half of that is going into the two plants. Then you have some expansion on the Kremers Urban side because business is very good there, too. This has been driving these numbers. We know about these two numbers, the net interest and the dividends. This is something that we have to see going forward. While I expect that the CapEx numbers will go down a bit over time. In terms of cash flow operations, when you go into more detail, you will see that working capital was negative EUR 300 million. That is a big number. That really catches not only your attention, it also catches mine. Now you have to ask yourself what is behind that. Roughly half of that is expansion in generics and expansion in emerging markets. Strong growth in these two sets, especially in the second half of the year, combined with long payment terms, is just giving this. Second is, we have been talking about the positive of our expenses going down. What that means, your accounts payable also going down in working capital, that credit is getting lower, and therefore you have EUR 80 million impact on this one. Both together are more or less explaining this difference. Some of them will be permanent. I do not hope that the cost will creep up again, but some of that is temporary just by the phasing of the new sales and the growth that is underlying. Also here, we are in a controlled investment phase. We have made these choices, and we have a very positive impact of the convertible that we will see, which will reduce a significant part of our net debt, therefore bringing the ratios down to a more normal level. Now, the one that we want to understand, it is very difficult to understand. A number of you over our lunch told me already, "I am not getting to these numbers," and I said, "I would not expect you to get to these numbers because it is really complex." Think about it like this. In the past, it was so easy. You owned 51% of the company, you consolidated. Below 50%, you did not. Today, if you are controlling the activities of the company, then you consolidate. But consolidation of a company is very complex because it is the entire company. So it can be depreciation, it can be R&D expense, it can be interest. So it is a lot of things there. For somebody that is not having the numbers around, it is very difficult to show that. To make sure that you really understand the underlying dynamism of the business and are able to value the quality of our guidance that we are giving for 2014, we wanted to give you that transparency. That is the transparency. What it shows is, you will see an impact here already of 36, 37 million on the recurring EBITDA. This is dropping down even a bit more pronounced on the core EPS level. That is where you probably will not be able to reconcile 100% because of the complexity that I explained. But what it shows you also, that is bringing me to my guidance, that when you take apples to apples, what we are seeing is quite a good jump going into the right direction that we have promised to you. We are showing a moderate increase in revenue, driven by the good growth of our products. Then we are showing an overproportional increase in recurring EBITDA and an even better increase on the core EPS level. So apples to apples, I would say, I am coming back to my opening statement, back to as planned. I think more excitement can be given by the next wave of products, and that is Ismail, so I hand over to him. What I will do is cover the R&D pipeline and give you an R&D update. We have my colleague, Iris, here as well. As you can see, the immunology pipeline is very robust. Really as JC said, we will be expanding the labels of our in-market products, as well as having two novel mechanism molecules, epratuzumab, which is the anti-CD22 molecule for systemic lupus erythematosus. Very excitingly, romosozumab, which is a sclerostin antibody with our partners, Amgen, for post-menopausal osteoporosis. This is a very exciting molecule. As many of you may have seen the article in the New England Journal of Medicine, accompanied with an editorial. It is also particularly interesting because nature did this experiment in human beings. In the Afrikaner population in South Africa that gets sclerosteosis and van Buchem disease, we know this gene has been knocked out. And we see proof of mechanism that they grow thick bones that are normal, and we see no mechanism-based side effects other than exaggerated pharmacology. That's a theme we'll leverage as we go on when I talk about the research update as well. In our CNS development pipeline, again, label extension of our growth driver, Vimpat. Then brivaracetam, which is a novel molecule for epilepsy. We'll see for both of these, immunology and CNS, that there will be some phase III readouts later this year. On that point, before I move to the early stage pipeline, I'd just like to ask Iris if she wanted to comment anything on the late stage pipeline. Yes, thanks so much, Ismail. Thank you. All of you. First of all, you all know how excited we are about our late-stage pipeline. We're very passionate about the molecules that we are developing because we really believe that they have the potential to have a tremendously positive impact on the lives of many patients. I'm particularly excited to be able to confirm to you today that the timelines as given will be the timelines when we report results to you. The big wave of phase III news will start in the second half of this year with bevacizumab, and then we'll continue in first quarter 2015 with apatuzumab phase III results, first results, and then in the first half of 2016, we'll add the first results of romosozumab. You've been asking, why does it take longer now with romosozumab because the original guidance was end of 2015. It's very simple, and you know that we are very conservative and that we do everything in our power to ensure success of our clinical trials. What we are doing is we constantly monitor the fracture rate in the phase III romosozumab trials in a blinded fashion across the entire population. We're doing this because it's very important the primary endpoint is reduction of fracture risk. You have to ensure that you have the right number of fractures at the beginning in the population. We are monitoring this in a double-blind way. When we see, and that's prescribed in the protocol, that the fracture rate does not meet our expectation, does not meet our prediction, then we adjust the sample size. We have done exactly this. We have increased the number of patients in the placebo-controlled study, and that's the reason why it takes a little bit longer. It takes longer to recruit more patients. All of this with the intention to ensure probability of success for the study. Again, I can confirm to you that the results, first results will be available in the beginning of 2016 first half. The placebo-controlled study is fully recruited at this stage. I also would like just to switch gears and to move over to the CNS pipeline. I would also like to address some questions that some of you have voiced around tozadenant. As you know, we have brought tozadenant into our pipeline in February last year because it's a testimony to our commitment to people living with Parkinson's disease. It's a non-dopaminergic mechanism. It's an A2A antagonist, and it would be a very nice complement to Neupro, which is a dopamine agonist. We were surprised and are challenged since then when we learned about the results of another A2A antagonist, preladenant, which has been developed by Merck. Pergolydone, again, same mechanism of action, comparable phase II results, and a complete failure in a large-scale phase III program. Again, you know that we are diligent, you know that we are conservative. Our team is analyzing what are the reasons, what does this failure of another program mean for our program? What do we have to do to ensure success? What's the risk profile now going forward? This does not delay the program because, as you know, we have anyhow been conducting phase III enabling activities because we needed to do additional tox studies. We needed some additional phase I studies. There was formulation work ongoing. All of these activities are progressing according to plan while we really try to understand the impact of the challenge that the preladenant program has given to us. I just wanted to add these two pieces of information to also address some questions that I learned over lunch. Thanks very much. Thanks, Iris. Thanks for that input. Moving then to the early-stage molecules, you'll see we announced in 2013 the entrance of two more molecules, UCB4940, which is a monoclonal antibody, and UCB5857, which is a small molecule. We are not at this stage and going forward revealing the mechanism of the targets that these molecules hit for obvious competitive reasons. We'll do that as we advance the molecules in the clinic. UCB CDP7657, which is our anti-CD40 ligand, which had been in phase I before 2013, has now completed enrolling phase I-B study for systemic lupus erythematosus, and we'll get some readout of results in the second half of 2014. Similarly, we've got these two molecules already advanced into patient populations, and we'll be getting some readouts this year as well. We're moving now very fast from candidate declaration to first in men, and from first in men to what we call POC-lite studies, and I can amplify a little bit about that in the question time. Exciting developments in the early-stage pipeline, and I think we're starting to see the consequences or the rewards of a lot of the changes we've made earlier on. Going forward, how are we approaching the research? This is critical. We have our research strategy here, which is a six-pronged strategy. The one thing to draw your attention to is we've actually deliberately switched our strategy. When I updated you last time, we said deliver differentiated molecules. We are now moving the research strategy to deliver first-in-class molecules, and that will be not for the current set of molecules necessarily, but advancingly as we advance the pipeline. That's where we'll be moving to, and I'll make some comments about that. Our strategy is very consistent, and we were verified by a recent paper in Nature Reviews Drug Discovery that came from the Boston Consulting Group. They took a look at the largest number of molecules in the clinic and analyzed them and found that the whole host of criteria, like the size of the company and where it's located, really doesn't impact success that much. The most important criteria was scientific excellence, what does the institution have in terms of this criteria, governance by truth-seeking, and I'll talk a little bit about this, the tenure of the R&D leader, the nature of the targets, and here's the only area where they're different from us, because they had a higher success rate on precedented targets, and we acknowledge that, but I'll talk a little bit about how we'll mitigate that risk, and whether you had large antibody facilities or not. What you see here now are some data from UCB from 2010, 2011, 2012. This first graph shows the number of publications, so you can see an absolute increase in the productivity from our laboratories. This is the impact factor of the journals that they're being published in. You can see again that we're seeing a significant. More papers appearing in better quality journals. I addressed this group 2 years ago, where we gave you the examples of ofucimab, where we could have got a medicine that would have been registered, but we did not advance it because it did not bring enough value for patients, and that's a key criteria. So we pick winners early and kill early and use this truth-seeking, robust decision-making criteria. In terms of the nature of targets, we're going to be deploying, and we are currently instituting the example with the anti-sclerostin. We now know from the genome studies that many of us carry many more mutations than we inherited from our parents. If there's 7 billion people on Earth, nature would have done the experiment to knock out every single gene. Then the question is, where do you get people? Why don't you get all of the phenotypes seen? Well, most of you marry people who are unrelated to you, and therefore you don't see it in your children. In the Islamic population and in the Islamic world, you get consanguineous marriage. This is very rich to go and look for genetically validated targets. In fact, we've embarked on that approach to identify the novel targets. In terms of having large antibody capabilities, you can see UCB has been very successful in bringing small molecules to the market and in our pipeline. We've been very successful with our antibody capabilities as well. What we have that others don't have, and is an approach that you'll hear of in the future, is we actually now have a methodology where you use antibodies to probe where we need to make the best small molecules, too. The antibodies go in and identify for us the most druggable properties of the small molecule. You could likely see many protein therapeutic, antibody therapeutics being converted to small molecules. With that, I just end off by saying, clearly, as you can see, we're placing our bets on innovation and scientific excellence, that we have 550 people in new medicines. Clearly, innovation occurs right around the world. For us, we're building a super network where we're leveraging the innovation in a non-forest way from anywhere. We've made key collaborations. You've seen the announcements with Harvard and Yale and with biotech companies like ConfometRx, et cetera. With that, I'll leave it and be happy to hand back to Roch. Thank you, Roch. Thank you, Ismail. Overall, very pleased with the progress of UCB in 2013. Clearly, UCB is in a unique position of strength with CVN emerging market, Japan driving our growth, no patent expiries for many years to come, and a new wave, a new era, as we call it, of new medicines that's coming and just behind that as Ismail started to sort of make you at least see that there are an exciting reality behind the breakthrough terms. You'll hear more clearly in the months and years to come about this wave of breakthroughs that is following pretty closely the wave of romosozumab, epratuzumab, and brivaracetam. Really, the only weak point that the company has versus our peers is our competitive profitability. As Detlef shared, we clearly started to address that and it's accelerating clearly in our guidance of this year. Overall, very pleased with the position of the company and even more excited clearly about the prospects. With that, I'll ask my colleagues to join me on stage and we'll take all the question. I guess, Antje, you'll do the master of ceremony as you have. Why don't you sit here? Okay. We have Detlef here. Detlef? Yep. Okay. Yeah. The mic. Hello? Yeah. Can you hear me? Yeah. Richard Parkes from Deutsche Bank. First of all, I am going to be the first one to be a bit of a creep and say congratulations to Jean-Christophe in his new role and good luck to Roch in his new era. I have three questions, one on Cimzia, one on Vimpat, and then one for Detlef on CapEx. First one on Cimzia. You have to excuse me. The prescription data that we see looks like it has flattened somewhat over the last six months or so and slightly deteriorated on TRX since the beginning of the year. I just wondered if you could walk us through. Is that simply the dislocation between going through the lyophilized formulation, or is there something else explaining that? I wondered if you could talk about your efforts to improve volume growth in the U.S., obviously, given the new indications. The second question was on Vimpat, maybe for Iris. If you look back at the advisory committee documents for the Lamictal controlled release formulation advisory committee, the panel was somewhat concerned about the trial design, let's say. I just wondered whether you were confident that you'd, in the way you designed the studies for Vimpat, addressed those issues. The final question on CapEx. Just wondering if you could talk us through how far you are through that investment in terms of manufacturing facility and what's left, and what we should expect the trend to look like over the next couple of years. So to address the first question that you had on Cimzia, in terms of TRX and NRX and what does it mean from the recent trend. We are now starting to split our Cimzia indications and prescription in the U.S. per indication. Until the end of last year, we had only an evaluation of our share in RA, and we are starting now to do the evaluation also in the different indications, so PsA and axSpA. So if you look at the overall share in the rheumatologic environment, we have increased the market size by incorporating all the patients that are in the new indication, where we are just starting in. So it's difficult to compare exactly what we had last year, which was just RA, which was we have today, which incorporate this indication. From a new indication standpoint, we see the dynamism of this new indication, and if you take in the last 6 weeks, our trend of new prescription NRX in overall the rheumatologic area is 25%, 24% on average, while the average from last year in NRX was only 2%-12% on growth. So we are doubling our growth in terms of NRX, and we are very confident that these accelerations of the trend will materialize in TRX later on, which is logical because we are expanding our pool of patients. But the whole market by itself is bigger than before, so our share in all of these markets is less than before. On Vimpat. The answer to your question is yes. We have been in very close interactions with FDA on the design of the monotherapy study. Of course, we have watched very carefully the outcome of the advisory committee meeting that you mentioned, and also the discussions there. We feel very confident that we have addressed all of the issues that were brought up there by our study design. On top of that, as you know, with very robust, very solid results. So we are confident that the data that support our supplemental NDA are the data that should also give us approval. Having said that, of course, this is in the hands of FDA, but not in our control. But we are very confident that we have done what we can to ensure success. On capital expenditure for 2014, I would probably guide in the EUR 200 million to EUR 250 million area, if there's not any extraordinary. In terms of going forward, we are reasonably through, I think, when we take 2014 a little push into 2015 with the big projects in terms of the biologics plan. We have a bit of work still to do on especially the generic plans where we have been very frugal in investment. We are running 24/7, and if more sales and more profits, we'll have to add a bit of capacity there. That will be a few EUR 10 million over the next two years, I think that come in. Then it's a bit of a question on the success of the pipeline and some milestones that will be going into balance sheet that could show some deviation. Some, which is very difficult to plan. But I think that is probably what I would expect and over time, probably in the range of two years and dropping again further from the level that we are today. Richard, and then you in the back, Peter. Thanks. It's Richard Vosser from JP Morgan. Three questions, please. Firstly, on SG&A, you mentioned a reallocation and suggested more reallocation going forward. Can you just help us understand or give us comfort that there is not going to be any under-investment behind Cimzia, particularly going forward with the new indications, and how we should think about what you're actually doing with the reallocation in areas? One question just on the pushout of the anti-sclerostin. Presumably, correct me if I'm wrong, the fracture rate may be going slower than expected. If that is the case, does that introduce any concerns over the patients are being very well treated now and the anti-sclerostin won't make as big a difference here as we had thought? Just a thought on that. Then finally, just an idea on Methotrexate. Obviously, it's benefiting from generic Concerta. How should we think about growth there going forward? Thanks. Let me go on the potential under-investment. I think we have proven in the last years that we are on the side of not under-investing. Even if it is put into question, I can confirm that what you see are real efficiencies that are due to the life cycle of products or also events like launches, et cetera. Really also infrastructure that is diverted into more flexible costs, which gives you more flexibility of on and off, but is very efficient. I feel very comfortable with that, and I see that further accelerating throughout the years. When we are talking reduction, we are talking proportional reduction. Not just that we are not getting into it's going down all the time, it's going relatively down all the time, I would say. There will be events like new launches that will turn it up again. But it's going into the right direction. In terms of Methotrexate generic, we are very happy with the marketplace. It's a three-player market at this moment in time. We are having our fair share of that. As always, sustainability is dependent on are there new players, and are there shifts in the terms of the distribution channel. There is a bit of development there. We'll have to watch that carefully. It's also something that is, to some extent, out of our control. I think our guidance represents very well what we see today, and is showing a nice growth compared to last year in Methotrexate sales, taking into consideration that there could be additional players, and as usually, we have probability adjusted that. On top of that, Concerta, while it is great and Methotrexate is great, it is not so big compared to CVN and other things that we have in the line. It's a good add-on. Your question on romosozumab, the sclerostin antibody. Let me remind you of the study design. We are recruiting patients with osteoporosis, and osteoporosis is defined by our inclusion criteria. Patients can be recruited on the basis of a low bone mineral density T-score, or they can be recruited on the basis of existing previous fractures, or a combination of both. Again, that's the range of a patient population with established osteoporosis. Patients are then randomized to receive either placebo or romosozumab, and they are all on the same background therapy of vitamin D and calcium. Then again, as patients progress through the study, we monitor the fracture rate. There's an expectation how the fracture rate would look in this overall population, which is a mix of patients on placebo and patients on romosozumab. There are different explanations that might come to mind if the fracture rate is lower than expected, and I'm not trying to suggest anything to you. We have applied the most conservative assessment, which is that the ingoing patient population, again, a range within our defined inclusion criteria, has a lower fracture rate than we had originally anticipated. That's not a point of concern. We're trying to ensure that we get to the right number of fractures by increasing the sample size. Hi, Stephen from Phil Chen. Two questions. Firstly, on Cimzia and potential competition. You could see competition this year for various parts of the Cimzia franchise from apremilast, vedolizumab, and secukinumab. On the basis of what you know about those drugs, how do you think it's going to play out competitively for Cimzia in the short term? Based on what you know about the clinical development programs that are ongoing for those drugs, how do you think it's going to play out in the long term? Secondly, on romosozumab, can you tell us with the additional patients that you've added, how many patients are now in that study? What increase in patient numbers has the delay met? Your question was about the romosozumab study again, right? The patient number. The romosozumab program overall was designed as a program of more than 10,000 patients. 6,000 patients were anticipated for the placebo-controlled study. This is where we have increased the sample size to around about 7,000 patients. About your first question about Cimzia. First of all, we are doing the analysis of future growth of Cimzia, incorporating the impact of potential competitors. The volume that we have and the confidence that we have at all pixels incorporate the potential new and competitor. On that side, from what we have seen so far, any kind of competitors rising are in the range of what we expect. There is no, so far, risk of elements. I think that within the TNF, anti-TNF alpha market that we are in, our main objective is to penetrate within this market first and to build our legitimacy with the differentiation that we have within this market. I think that with the advantages and the differentiation that we have about predictability, about rapid onset, and ability to define the result of the product on the patients, and on our score that we have for the new indication, particularly axSpA or the PASI score, we have elements of differentiation that make us very confident that we will continue to convince physicians that the product that we have elements of differentiation within the TNF. Thanks. I've got three questions, please. Firstly, on Neupro, I've read that you've repriced the restless leg indication or percentage in the U.S. I was wondering, first of all, whether you've seen any impact of that, and what the strategy behind that was, and has the same thing happened in Europe? Secondly then, with regards to Vimpat, I wonder if Iris can give us an update on the primary generalized indication there. Is it one of the regulators that's proving a stumbling block, or what's the sort of thinking there and strategy for that? Then finally, one on, better save the topic of IFRS 10. Can you just give us some sort of indication with regards to the cash flow? Would this change in the EBITDA that we're seeing, if we take 2013 as an example, about EUR 30 odd million. Was that passed as an operating or a financing cash flow, in the 2013 statement that we see? Thank you. It is an operating cash flow in 2013. Yes. Okay. To restate, if you like, with your operating. Okay, thanks. On the Neupro side, the new price that we had on the Neupro for RLS at the beginning of the year is related to the fact that when we have initially launched the product, we thought that the different presentations would have led to different indications, which is not exactly the case. Then we realized also that created difference from a patient standpoint in terms of co-pay linked to the difference of the disease. We thought that it was not accurate to differentiate through diseases, the percentage of co-pay that the patient may have. We have aligned the co-pay that the patient will have, whatever the disease is, because there is no reason that there is a difference from a patient standpoint. In the same case with Europe? I don't know if. No, it was just in the U.S. Europe is a very different situation, as you know, in terms of pricing negotiation and differentiation. They decided that the pricing is very much based from a centralized perspective, irrelevant of the indication. On Vimpat and the topic of primary generalized tonic-clonic seizures, I share your impatience, but our negotiations with three major regulatory authorities, don't forget it's U.S. FDA, it's the European EMA, but it's also the Japanese PMDA, are taking quite some time. I think we are approaching a consensus, and we appreciate the cooperation with the authorities. Having said that, I think it's still time well invested to achieve this consensus because it's still more effective to recruit into one study that's acceptable to all, than to having to initiate multiple parallel studies. Again, I think we are approaching consensus there and that will put a happy ending to the negotiations. Again, I think it's still the most efficient way to handle the topic of PGTCS. Three quick questions and a request, please. On the questions, on Cimzia, I wonder if you could tell us a bit more about the commercial side of things, particularly in the U.S. I think we all understand the scientific rationale for using Cimzia, but could you give us any examples of perhaps any contracts that you'd won where Cimzia is the preferred TNF? Whether the addition of incremental indications is making that materially easier for you going forwards. The fear appears to be that instead of cycling through three of these before heading off to something more exotic, now you might only cycle through one or two, and it's not clear that Cimzia would be that one. That's the first question. Secondly, on Vimpat, as we're entering a phase where we should have a monotherapy label somewhere by the end of this year, would this be a time to change your expectation for the peak sales of that drug? Should we be thinking of that as making a really material difference to the outlook? My third question is on emerging markets. You've now split that out as a specific section in your report. I wonder whether that triggers us to think of more investment there, and if you could perhaps tell us a bit about the infrastructure that you have and your expectations. I see what you've done with the Biogen Idec deal, but if you could tell us a little bit more about that. My request would be, it's incredibly difficult for us to get from your very vague restatement for IFRS 10 to EUR 1.67 as a restated EPS for 2013. It'd be really handy to just have the same sort of simple table, which you will ultimately show us next year, undoubtedly, because you'll have a nice low starting number to go up from. If you know the number's 167, if you could just give us a bit more help from A to B, and maybe you do it at the time of the first quarter or something like that, but it would really be helpful. We all have these nasty computers that you put the numbers in, and if you don't put the numbers in at the top, you don't get the number out at the bottom. Let Jean tell. In terms of the guidance, as you know, I take always a bit of ownership to that. I think we have some time to go. At least EUR 1.2 billion is a very good guidance. Let's see everything coming into fruition. Let's see a few data points. Let's review that then, and if there's something new to say at that moment in time, then we'll do that. But I don't think with at least EUR 1.2 billion we need to act now. In terms of your request, we'll do our best to look into that. It's very reasonable for you to understand that better. We can also try to have bilateral discussions with people that really need it for their models. I think at the end of the day, we'll get you informed enough that you can do the modeling. I take the emerging markets since they'll report to JC as of March 1st. I still have a year ago, I think we shared with you the fact that we are focusing basically on selected market, which are basically Southeast Asia, including China. It's Mexico and Brazil in Latin America, and then we're adding Russia and Turkey. That gives us what we're focusing on, and that represents about 75% of the emerging market, pharma market, if you see what I mean. We have basically the infrastructure there. We're building up in China. The presence there has started. I think Detlef shared with you that we had a very successful 2013 with nice momentum there. We're growing faster than the market, so we continue to invest in a profitable fashion in all these markets. You know that the last one where we're now present was Brazil. We made this acquisition in May, I believe, 2012. We now have, 2013 was the first year of consolidating, and we, in fact, are using that as the platform to gain the approval of Vimpat, even Keppra, still not on the market in Brazil. We're expecting all these also to come in the months to come. I don't know if that gives you enough color on the emerging market, but the infrastructure is there. In some markets, the infrastructure is going to build to expand as the business expands, right? As JC mentioned, I think what JC's point was, the most important is that in emerging market, we follow a different strategy than most companies, but there are a few companies that follow the same strategy, which we are specialist driven. We address severe diseases. We focus, and that's how I think we were able to get the Biogen Idec franchise, because in China, we are the best in neurology, and Keppra is a significant driver of our growth in China. Okay? We are not in terms of expanding in primary care and branded generic type of things. We really follow the same strategy as we follow basically in the U.S., Europe, and Japan. Your question on CDI is yes, we are continuing to grow in access and contracting. In preferred life in 2013, we have increased our penetration by 16%, which was more than the gain of new lives coverage that we had in prefer in 2012. That's a very positive trend overall. You're right, gaining legitimacy by gaining additional indication give us even more confidence that we continue to grow. Ready? Then follow-up. It is Danny Sumpter from Barclays. Three questions, if I may. You have talked about Japan as a franchise for UCB. It is about 7% of revenues currently, and this year we go into a biannual price cut. I am just trying to understand in the context of 11% constant currency growth, what kind of expectations you have for this year and then going forward, given the more recent launch of some of your products. Secondly, on IFRS 10, sorry, Detlef. But obviously this year it is a EUR 36 million EBITDA impact. How should we see that impact progressing over time, presumably linked to some of your late-stage trials? Do we expect that to disappear over time, or will that be a residual going forwards? Then lastly, in relation to the Kremers Urban generics business, which you talked about putting investment behind. Just trying to understand, it is not a business you talk an awful lot about, but perhaps you could give a bit of color around the size of that business now, its profitability, and then particularly given your core focusing on CNS and immunology, how that fits, and especially in the context then of your long-range margin of 30% EBITDA in 2017, how that interplays with that. I start with Kremers Urban first because it is a wonderful topic to talk about. It is roughly EUR 250 million of sales. It is already achieving the margin that we want to have in 2017. Therefore, it is an important part of the business at this moment in time. We lead it like a venture capital, like a private equity. It is not our core, but it is a nice enabling provider. We will have to see when we feel that the time is right for an exit. That can happen. But at this moment in time, we also feel quite comfortable with it, as it is a nice business. It is in a very attractive space from the size, from the margins, in the mid-size generic specialty fund. I am sure that if we ever want to do a divestment there, that there is a lot of interest. In terms of IFRS 10 and looking into the years out, as I said, due to the complexity and the different ingredients of the numbers, it is very difficult to say how they will, like with the tax rate, how they fluctuate. But I would think in general, you can say that probably in the next 2 to 3 years, you probably will see still more significant impacts, which will be leveling out after that. On Japan, you are right that it is, for us, a strategic market. As JC stated, we have an approach which is of partnership. We have an infrastructure and the knowledge in development. So in the R&D space, in the regulatory space, in the sales and marketing space. But we focus just on the top of the pyramid in the sales and marketing. We do not intend to expand that also. We are very pleased, as JC mentioned, with the approach and the strategic approach that we have because we have enough presence. That is the way that we approach it with our partners, is really based on merit and performance. So we have the ability, if the partner would not perform, to step in, which keeps our partners on their toes. But they are doing a superb job. As JC said, most successful Keppra launch, most successful anti-epileptic launch ever in Japan was UCB and Otsuka together. Our launch together with Astellas, Cimzia, is one of the most successful launch of Cimzia that we have, and Otsuka is doing great also with Neupro. So overall, that approach of keeping control and keeping some healthy pressure on our partners and our partners on ourselves to perform, and really being focused on what we call meritocracy, is really the approach that we have in Japan. I do not know if that answers your question. If I may, a follow-up question just to Detlef. With regards to Kremers Urban, I think in the second half, you have probably realized about EUR 40 million of sales from generic Concerta, just looking at the numbers crudely. What is your assumption for contribution in 2014 from generic Concerta? Now you have a 30% market share. As you can imagine, for competitive reasons, we are not too happy to talk about contributions from individual products, and therefore I have to let that answer go unanswered. That question go unanswered. It is a nice product. As we have specialty products, there is a good margin to it. I would not like to put it into a bracket. Good afternoon. This is Sachin Soni from Kempen. My question first is on Cimzia. Could you think that actually you could have a late mover's advantage in this case? As you know, the biggest risk to this business case is healthcare reform. One of your colleagues just mentioned that. If you see the trend is, I'll just have one TNF alpha or two, maybe, for reimbursement. For me, as a reimbursement guy, it's easier to have the one which is covering less lives. As a late mover, I would pick Cimzia. Data is in my favor. Do you see this could pan out in second half of this decade? Not immediately, but result in a tailwind? Or is it a totally nonsense idea? That could be the case also. Then second thing is on, as you take your new role as CEO, what you would have changed in your ten-year plan if you were to re-go through that and say, "Okay, as a CEO, I have to say these things." What would be your top priorities, whether it's you have to lower the bar or increase the bar? I don't know, but what would be those three things? Lastly, on brivaracetam, could you please highlight the strategy after positive phase III data? How would you be positioning the drug with Vimpat monotherapy in place? What exactly would be the cannibalization and where? There is a lot of questions. Let's start with the easy one. The priority of this year is continue to deliver of what we have planned to deliver. Because what we would like to achieve is really to be at least at the peaks that we've mentioned for CVN, because that's the foundation of two things. One is the credibility and the other is the ability. So the credibility to be recognized as a partner and the ability to invest in what will come. As Iris and Ismail have mentioned, we have a very exciting pipeline after that. On the question of the ten-year plan, I would say, we are doing the ten-year plan every year. The ten-year plan of this year, I don't see anything to change versus what we are going to execute, because basically we are online on what we want to do. To take one example, I think that the example that Rob just highlighted in terms of partnership in area where we think that we can benefit from a partner such as Japan, as demonstrating the value and the continuance of the future. I do think that by having a very focused strategy and concentrate where we can create value and invest there, to make sure that we can be successful there, it's a very important component of that. Maybe this answers also to your first questions. I do think that at the end of the day, all the stakeholders we are interacting with, including the payers, but also the academics, the providers, are at the end very much interested about what kind of value that the asset that you bring, the solution that they bring to the table, can deliver to the patients. I think that our commitment is trying to make sure whatever the future of the environment will be, there is always something which remain constant, which is the patient's needs. There are patients suffering outside, and we need, because the patient deserve to get solution that fits to the need, and we need to make sure that we provide solutions that have the specificities versus others that can deliver specific value. Even if you are the late one on the market, it is mainly through data and through visible element of differentiation from a patient standpoint, that you can create sustainable value. That is the reason why we are working on our drugs constantly to try to see and to define how we can make a difference. I think that on psoriatic arthritis, to take one recent example, we can demonstrate that even if we are the late one in the marketplace, we can bring element of differentiation that can convince physicians and patients. Brivaracetam, we are in the middle of the development of the clinical plan. I guess I will pass on this one issue. Allow me to do so, because we are not yet in the stage where we can share with you what will be the positioning and what will be the element of differentiation of the drug. Here also, the objective is not to bring a new anti-epileptic solution for the market, but to try to see and to understand what the drug have as an element of differentiation that can create the value and the element of differentiation, that is for sure. Okay. Thank you. Another question? We will take another question from Richard here, then we will take one from virtual then. Hi yeah. Richard Parkes from Deutsche Bank. I have a few follow-ups. Firstly, for Detlef, on the IFRS 10, those additional expenses look largely like R&D costs, which possibly to an extent is discretionary. When I am re-looking at my model, can you just remind us what you think is the right level of R&D going forward? I think we are probably at the top end of the corridor you talked about previously. You must have an R&D budget in mind for 2017 to get to that margin target. If you can just give us that number, I can just put it into my model. Also for Detlef, I have just noticed in the annual report there is a comment regarding the CapEx investments that you have got to support a new product and new device development. I am wondering if that relates to any new devices that you are developing for Cimzia. The next question is just wondered if you could give an update on the Vimpat plan challenges and where we are there. Just one more, which is on Cimzia pricing. I think in the U.S., going into 2014, you have got sort of 20% plus tailwind in terms of pricing. I am just wondering what you are thinking about the outlook in terms of pricing. Is there more price elasticity there, or does it become a point where maybe you might want to become more aggressive in rebating in order to gain access? Going back to the R&D expenses, I feel very comfortable with what I said up to now. Because it is different parts that now come together. But in my guidance for 2017, that was already included in terms of the 30%. We have always said that we think that R&D cost will stay high compared to our peers. The majority of the changes will come through SG&A and the gross margin later in time of that period. There will be probably a bit of reduction, but we will have to play that out with the molecule that will have to make choices. We have variability, but with that reallocation process that is working very well as you have seen, we have variability that we can use depending where we think we make the bigger impact. Therefore- A direct number, I would not feel comfortable because we have a lot of very exciting things in R&D, and so I might end up to spend a bit more in R&D and squeeze a bit more someplace else if that comes to fruition. But what we can say, I would expect that also to drop a bit from today's level, and then supplementing the other increases, end up to the 30% line. I take the other two. We are, as Ismail said, both in large and small molecules. Being clearly in large molecule, we look at devices, but I don't want to comment any more on that for competitive reasons. On the Vimpat pattern, we feel very strongly and we are pleased. I don't know if you saw, but some other big players that initially tried are withdrawing and agree with us that we have a very strong pattern. On the price elasticity- On the price elasticity, price is one component of the marketing mix decision in the U.S. We are not using price as the element of differentiation, so positioning or in order to penetrate the markets. We are using our competitiveness in terms of profile differentiation. Price is an element of the mix, but we are not using a very specific price policy in order to try to penetrate the markets. We connect our profile to the advantage of the patients, and particularly one area where we position ourselves is the ability to predict the percentage of responder. With that, provides some savings potential for the payers versus some kind of competition. We are not using price as an element of entry. It's part of the mix, and on the other hand, it's our ability to predict the results that give us some kind of advantages in some extent. Do we have any more questions from the telephone line? Please press 01 on your telephone keypad. We have a question from Peter Zolt with Citi. Please go ahead. Mr. Zolt, please go ahead. Okay. We lost Peter. He is in New York. Any more questions in this room? Can you still make some more comments about your tax rate going forward? Because you still have a lot of loss carry-forwards possible. So, in your long-term view 2017, what should be the tax rate we should put in our model? Because normally it should be much lower, especially as you have more R&D to come. Is there any impact to wait for here, even if accounting is different from fiscal? I am not seeing too much of an impact in 2017 because the main tax benefits are coming from products that are coming to the market around that time, or actually have come to the market. These are the developed products that have been under the combined UCB home. The old ones, they are all in the legal areas they have been positioned before. And while they were tax optimized, this will not lead to significant differences. Second is scale of these products and success in different regions. We will expect that U.S. will be an important region for our product portfolio. And unfortunately, U.S. has a high tax rate that will also be a dampening factor of some of the positives that we see. So what I would expect is over the longer term, which does mean end of the decade, that we see some benefits. I would stay in the meantime with my high 20s tax rate to also help you to avoid being a victim of the volatility that you will see on profit levels as we will have them within the next few years. But I feel comfortable that your model will work with that tax rate. Shall we give it another try for the telephone line? Thank you. Peter Zolt, please go ahead. Your line is open. Okay, we gave it two tries, but probably just patience. Patience. Patience. Any further questions this morning? Jean-Marc, may I ask you? No, thank you for your interest. It is a great pleasure that next year I will be sitting with you watching the great results of 2014 and the progress in the pipeline, and learning a bit more about the breakthroughs. I am looking forward to that. Thank you very much. Thank you.