Ladies and gentlemen, welcome to the Sobi Q1 report. Today, I'm pleased to present CEO, Guido Oelkers, and CFO, Mats-Olof Wallin. For the first part of this call, all participants will be in a listen-only mode. Afterwards there will be a question and answer session. I will now hand over to the speakers. Please begin.
Thank you so much. Welcome to the Sobi earnings call in Q1. I'm very excited to present to you some of the results. As indicated, I'm joined to do this conference call by Mats-Olof, who is our CFO, but also the head of our Turkey unit, Phil Wood, and also by Armin Reininger, who is the Head of Medical. If there are further questions, our Head of IR, Jürgen Windolph. What I would propose is I go straight into the presentation. Basically, as you can see from the agenda, page two, basically, we want to lead you through a business review. We want to share with you the financials, talk about the progress we have done with our pipeline, and then summarize. Basically, when you go straight to slide three on the Q1 highlights. We felt this was a very good quarter.
We're gratified to see our revenues rising by 43% constant rate to SEK 1.964 million. We had an increase on EBITDA of 90% to SEK 771 million. When you look at the underpinning factors of this significant growth, it's basically a 2.7 times increase over this previous year at Haemophilia at constant rate, and a 9% growth in specialty care at constant rate that basically propelled the company to bring it into this earning capacity. Net cash position increased as a consequence substantially as well to SEK 1.744 billion, and Mats-Olof will share with you later some of his thinking around our financial situation in more detail. Important to note is that something in some of our highlights is, this is very positive for us, is Elocta is becoming really increasingly a standard of care.
In Ireland, we won the tender and are now available as the factor VIII product of choice, which is a significant vote of trust by payers, by providers, and also by the patient community. We feel very gratified by this. The other important decision is also that Alprolix has now obtained reimbursement in France, which was one of the key markets that we were missing and we're very happy now that we can provide this product to patients in this very important market to us. Important to note is also that we got a positive CHMP opinion on Still's in Europe. As you are aware, we still have a trial running on Still's in the U.S. in phase III. This will expand the utility of our Kineret franchise, and we're optimistic about this.
Obviously for us, which is not evident in times when you face at least partially a generic competition, we have been able to grow the Orfadin franchise at 7% at our constant rate and a 4% at actual rate. A very positive development here. We have avoided too much generic influence so far. For our specialty organization, the Ravicti launch which is one of the largest rare disease products in the U.S., in Europe, was a big event, and we have launched in numerous markets. Among those, Germany or Denmark, for instance. We will roll it out in the rest of Europe during the rest of the year. We have also got fast track approval for SOBI003. We have moved into phase I, and we expect our first patient in the second half of this year.
As we reported earlier, we have a change of the CEO, let's say in the forthcoming and late spring, officialized only, say, in July of this year. Fredrik is going to join us from Sequent Pharma, and Mats-Olof will make sure that the proper transition during the course of this year is really done cordially. This really, in a nutshell, summarizes some of the key highlights in Q1. When you think about important events after the reporting period, in order to be precise, we got the Still's disease indication that we have a new head of HR who has started with us, Fredrik Wetterlundh , who is joining us in the executive team. Regarding the financial highlights in more detail, maybe we turn to page number five. Here you can see the quarterly performance and a very beautiful ramp-up. Really strong growth quarter by quarter.
Summarizing the results that I just mentioned, the gross margin obviously on a total basis has substantially expanded, but on a percentage basis, you can visualize there a 74%-72% contraction. This is related to the fact that we had some accounting adjustments on Kineret in the first quarter last year that Presentation. The cash flow development is related to the taxes that we are now paying in the first quarter. Also there you will hear more in the second part of the presentation. When you look at the revenues per region, we are clearly an international player with an emphasis on Europe and with stronger positions in the MENA region and in the U.S. and Canada. Our goal is clearly to expand, let's say, North America, as we pointed out, this is something that we will try to address during the later part of this year.
Let's say the Haemophilia franchise is performing so extremely well that even with very good performance on our specialty franchise, the relative importance of North America has declined for this previous year. They have made significant progress with Kineret franchise, but also with the Orfadin franchise. Get into the business review and the Haemophilia growth. I think it's important to note that there have been a lot of questions regarding the prospect of our Haemophilia franchise. A lot of speculation, given the fact that new therapies come on stream. I think we are not here to profile now our product against competition as much. We want to talk about the good stuff that we have and what we believe in.
When you think about it, I think it's very nice to have sometimes a mode of action in a therapy area that had a history with very serious side effects, with infections, with a lot of deaths. You want to make sure that your safety is established. The positive news here is we have established safety in multiple thousands of patients. Real-world evidence. On top, let's say our products are more than just a prolonged half-life product. We have Fc fusion technology that gives us ways to believe that the product has a utility beyond extension of half-life. One, for instance, element is, this is what we're pursuing, is can we eliminate inhibitors faster? We have seen very strong signals out of a collection of case reports that was published at the ISTH last year. We followed up with two trials. We also saw utility in joint care.
This is an area of focus for our company as well. We believe that we have the best haemophilia franchise in our stable. We see that basically the product becoming increasingly standard of care, as I alluded to about this franchise has utility beyond replacing factor at a prolonged half-life. When you go to the next page, on page nine, we want to share a little bit how the franchise has developed and by quarter. There you see this very beautiful acceleration of growth during the last, let's say, 15 months. This is proof to the fact that we have spent, obviously, as a company, a lot of time and effort on this franchise. As we reported in earlier quarterly meetings, we basically felt this is too good of an opportunity, and we still believe this, that we should not invest into this franchise.
We clearly invested into significant clinical programs, into our expansion of capabilities in the field, into our medical liaison expansion to make sure that this franchise gets recognized by key opinion leaders, by payers, foremost, also by patients. This is really the underlying driver of the business. When you think about it, the kind of growth we have experienced is very substantial. Let's say what is also gratifying is obviously that the royalty stream, let's say from Bioverativ, is at a very significant size for the company and is also very accretive to our earnings. We have bundled in this as well our manufacturing, which is de facto manufacturing of recombinant factor VIII. We felt it's more logical to bundle it under haemophilia. Overall, haemophilia is obviously the core element. Over SEK 1.2 billion out of SEK 1.96 billion.
It's a very substantial part of our entire company. Alprolix I mentioned. Let's say, this gives you a good perspective. When you go to the next slide, a long-term, very strong growth, 2.6 fold at actual rate over this previous year. You can see a very nice uplift, particular over the last two quarters. This basically is a function of internationalization, but foremost of penetration, because we are going so now this adoption funnel and in many centers now, basically we come from the trial phase into the significant adoption phase and also even in some centers clearly becoming standard. Coming to Alprolix. Let's say with Alprolix, we have obviously a very formidable competitor. They will launch with IDELVION at the same time. There we have phenomenal growth as well. We tripled essentially the business on a quarter-by-quarter basis.
let's say what we can see also now with the obviously reimbursement in France, we have its overall reimbursement status is a little bit behind that in Austria, given the reimbursement discussions we have and also the regulatory type, cycle time. We gain momentum, and that momentum is reflected also in our current perspective of the business. There we will, we feel that the best is still to come. You know about our manufacturing business as well. ReFacto, this essentially follows the revenues of Pfizer's ReFacto business. Basically, the adjustments, as we said, are more a function of the phasing of inventories rather than the true performance.
When you refer to the Pfizer annual report, you see the Pfizer performance, but it's a very steady source of income, and it gives us also the capabilities to first of all have a pilot plant but also secondly beef up our know-how on biomanufacturing, which is very useful when we also work with partners. Coming to specialty care, on slide 13, what we can say or what makes it, and we have earlier reported that if we didn't sell the partnering business, we would have been, in my books, clearly all decisions would be happy to keep it, because it gave us a fantastic platform in Europe, but now we have obviously a very well-functioning organization in North America, too. We have clearly an understanding on how to prolong life cycles, be it by new indications, by clinical trials, new formulations.
Clearly, it's a source of this very strong underpinning growth that you have seen in the Q1 also for specialty care. The partnering product approach really gives rise to believe that we can attract new products, for instance, like Ravicti that we launched now in Q1 this year. Specialty care is driven very much by the very strong growth that we're experiencing in U.S. The 9% at constant currency, I think when you look at the portfolio, it's a very positive evolution for this franchise and driven obviously by the two flagship products, Kineret and Orfadin. We have a fourth product, Xiapex, and this is doing quite well as well, and there we have a couple of things in plan to make sure that we can establish this in a more prominent basis. Coming to Orfadin. When you look at the performance of Orfadin, very satisfied with this.
We are facing quite a bit of impact from generic competition. We were able to compete with the generics in Canada and won back the tender with also a once-daily dosing approved. Growing a product at that stage of the life cycle, 7%, I think is quite remarkable. Three kudos to the commercial organization that has been very focused on this business. It also shows that there is a connection between the patient and the product. Obviously, it's clear when you think about the disease, patients can think about having their own children today. It's clearly related to the effect of this product. We feel very happy about the Orfadin development. Kineret is doing extremely well as well. 12% at constant rate. In the U.S., we have even stronger growth. It shows that there's a utility of this product beyond the current established indication.
We see a lot of debate, scientific debate, when you think about the rise of articles covering IL1 and the rise of clinical trials in this field. It means that also this therapy area is by far not exploited. One of the positive effects was obviously the Still's approval in the EU. On this note, I think I want to pause and hand over to my colleague, Mats-Olof Wallin, the CFO, will educate you a little bit more on the financial situation of the company.
Thank you, Guido. Guido said, Sobi had a very strong quarter with 41% sales growth, which is 43% at constant exchange rates. The growth is very much driven by the excellent performance of the Haemophilia franchise. Gross margin came in at 72% in the quarter versus 74% last year. However, last year was impacted by a one-time inventory revaluation of Kineret of SEK 59 million, and if that one-time impact is eliminated, gross margin last year was 69%. Sales and administration expenses have increased to 13%, and R&D expenses have increased to 7%, meaning that the EBITDA has increased to 90%. Also, if we exclude the one-time effect in 2017 of the SEK 59 million, the EBITDA has increased to 122%.
Tax expenses came in at SEK 148 million. Sobi is now in a tax position where we have to pay tax, and the tax expenses are 22% of net profit. The other line, other operating revenue, is positive with SEK 25 million, and that is mainly related to the positive operating currency effects at the balance sheet. Turning over to the balance sheet, Sobi has a very solid balance sheet, and the company is debt-free since some quarters. Looking at each individual item, the intangible assets have decreased due to the amortization. Inventories is more or less flat. Accounts receivables have increased, and that is due to the excellent sales performance with the sales growth. It's also due to the periodization in the first quarter, where February and March was very strong months, which also impacted the accounts receivable. Cash has improved to SEK 1,760 million.
Regarding equity, that has increased substantially, as you can see, quarter by quarter, due to the profitability of the company. Also, the liabilities have slightly decreased. All in all, it's a very solid balance sheet. With that, I hand over to our CEO, Guido Oelkers .
Thank you, Mats-Olof. I think we want to conclude in our presentation just giving you a quick snapshot on what we are doing in the pipeline. You can see on Slide 21, let's say, the top pipeline, the picture. When you look at it, what are the main drivers, obviously, as you would expect for a company at this stage. Also, like us, you hear a lot of emphasis on driving and providing new evidence for our legacy brands in [ophthalmics]. A thing important to note is, let's say, the haemophilia trial, XTEND-1 in BIVV001 that we share with Bioverativ. This is now in phase I, and we look forward to basically building evidence and establishing the target product profiling in the course of this year, and consider, obviously, acceleration in terms of clinical development beyond this.
This is a very important innovation for our company that will obviously extremely nicely dovetail to what we are doing today. I think in the specialty care area, I mentioned the Still's disease trial in the U.S. that is in phase III. We look forward to expanding our indication for Kineret into Still's. This trial is in a good way, and we are in the midst of recruiting patients at a significant level. Then we have moved SOBI003 into MPS IIIA. MPS IIIA, as I mentioned, into phase I and recruitment is going to start mid of this year, and R&D has been approved. Quite a bit of progress in the pipeline, which is very good to find. Obviously the approval of Still's is also a reflection of the good progress that has happened in the R&D division.
Based on the financials that Mats-Olof Wallin has shown you, we ask ourselves, how does Sobi look at full-year guidance. Full-year guidance we lifted up based on the data points that we have obtained in terms of haemophilia penetration, but also in terms of risk profile for operating. Hence, the increase to SEK 7.9 billion-SEK 8.1 billion. We have left our expectations for the gross margin unchanged, but as a function of the top-line increase, we also increase our guidance for research and development to SEK 2.8 billion-SEK 3 billion. This basically gives us some room still to invest into this business. The forecast is built on the feeling that we want to make sure that we stay a delivery organization and not an organization of promise.
We want to make sure that we have enough money to invest into our business because we feel that the best is yet to come. When you think about the strategic direction that we have, obviously we want to further internationalize and commercialize our haemophilia business, build a specialty care platform as a preferred partner in Europe, but look for obviously on additions in North America in particular to build out this business because the team is doing a fantastic job building the product that they have. Overall our position. Also work on our pipeline. As I mentioned before, we still believe that in terms of pipeline, we can benefit from some late-stage assets. This is really where we are headed. I think in the interest of time, we open up now for questions.
Thank you.
Thank you. Ladies and gentlemen, if you wish to ask a question, please press zero followed by the one on your telephone keypad. One moment for the first question. Thank you. Our first question comes from Yoon Yang from Jefferies. Please go ahead. Your line is open.
Thank you. Congrats on the good quarter. I have actually a few questions. Number 1, Guido, when you joined Sobi, obviously, your number 1 priority was to grow Haemophilia franchise, but now it is doing really well. Can you talk about your current focus on business development? The second question is, in terms of what you looked at sales, what % of total sales is actually coming from immune tolerance induction use? The last question is the XTEND-1 program. I think previously you have provided that data in 2nd half of this year, and I wanted to make sure that is on track, and if it is so, what kind of data should we expect? Thank you.
Thank you. Hi, Yoon. Thank you for your questions. Obviously, Haemophilia will tend to keep us busy in view of the opportunity that we still have ahead of us. We will not, let us say, slow down only because we had a great quarter. I think we will try to get our fair share. We are still absolutely passionate about the fact that we want to gain significant position in all markets where we are part of our territory. Regarding your questions on M&A, we are obviously, as we have alluded to, we are screening. We will, let us say, provide you with clear guidance on this as early as we can. This is clearly on our agenda to work, A, on our late-stage pipeline, B, to focus on our North American presence, which you know with the current acceptance we cannot be satisfied.
It's a function of the explosive growth in Europe. It's a happy problem to have. It is definitely something that has not escaped our mind, and we would update you as soon as we can say something. Regarding the ITI sales development, I would say this is a relatively minor event, more like in the region of maybe 3%-5%. It's very difficult, let's say, to quantify this. It's in more of this magnitude. Because we are not getting full disclosure on patient potential and sales in Europe as you get in U.S. It's more of an approximation than really, let's say, at this juncture, it's still an evolution. It's an opportunity, as opposed to threat when you think about some of the competition that is arriving. Period of opportunity, and the studies will lay this out.
Regarding the status of the XTEND-1 program, I'd like to refer you to Armin, who can give you a quick update there, guys.
Hello, everyone. Armin Reininger here. Hello, Yoon. For the BIVV001 in human study, what we can tell you is that in April, the low dose cohort enrollment has completed, so we are on track with what we have planned. The dose escalation data safety monitoring committee meeting is targeted for the middle of the next month, and we will present data at the WFH 2018 meeting that will take place in Glasgow. There we will also have late-breaking abstracts and more information. The high dose also cohort will start mid of next month. That's the plan. Since we are on track with the sort of low dose, we are strong believing that we can fulfill that.
Thank you.
Thank you.
Thank you. Our next question comes from Erik Hultgård from Carnegie. Please go ahead. Your line is open.
Yes. Hi there. Congrats to a great quarter. I have a few questions. First, if you could say something about the market share of Elocta in the top five European markets and how that has developed since the previous quarter. Secondly, on Alprolix in Europe, I know that CSL had said that IDELVION is capturing more than two-thirds of patient switches in the U.S. I was wondering if you could give us a number on what share of patient switches that you're gaining with Alprolix in the European markets with reimbursement. Thank you.
Yeah. Maybe Phil, you want to comment on our market share position?
Good afternoon, everybody. It's Phil Wood here. Hi, Erik. From a market share perspective, we continue to see significant growth in our share with Elocta across all the countries
In the big countries, big five countries, as you say. We see progress maintained in France, Germany, and more so in Italy and in Spain now. We're very pleased with that progress as we see, particularly the progresses in the prophylaxis area where we see shares significant now and matching in many cases the conventional therapies. We're very pleased with that progress. From an Alprolix perspective, we see the position slightly differently to the U.S. position, and we see a fair share of opportunities switching to our products versus any others that there may be switching elsewhere as well. We see a more competitive position certainly with Alprolix, we certainly see that we take our share of the conversions.
Yeah. Erik, maybe from my part, you have seen obviously some of the CLO data published, referred to one or the other market in Europe might have omitted some other market shares, like 100% market share in Ireland. I think it's pretty balanced. We take them very seriously.
Okay.
It's also fair to say that maybe, in terms of promotion focus, the focus was for us very much laid upon the large opportunity in factor VIII. We clearly want to get our fair share and our piece of Alprolix. We can see with Alprolix a very significant uplift here in penetration. There's a utility that goes beyond PK profile for this product, and that's what we're trying to explain more and more to the community, and which has been getting increasingly recognized.
Thank you so much. Just following up on my first question. I know that you provided some sort of range of market shares across the major markets at the prior conference call. Are you able to share an updated number?
No, I cannot actually recall that we have given you maybe one or the other number. I think, given the fact that there is no IMS number that gives a very good standardized outlook. We have our own data source, where we measure the success by accounting, like all the other companies would do. I think we would not do this at this call.
Okay. Thank you so much.
Thank you, Erik.
Thank you. Our next question comes from Peter Sverske from Handelsbanken. Please go ahead. Your line is open.
Yeah. Hi, it's Peter from Handelsbanken. Thank you for taking my question. Congratulations on the results. First one, could you just give us a bit of perspective on how you think about in the report, you talk about all the options that you have for business development, in-licensing, blah, blah, et cetera. Just staying on how you think about value creation, are you looking at something that is EPS accretive short term, or how do you think about, just on the financial side of things? Secondly, the French tax position that you mentioned in the report. Can you elaborate as to the potential size of this financially? Is this significant or less significant? How should we think about that? Your other product business as you reported in the quarter, it was pretty strong. Could you elaborate?
Should we expect this trend to continue for this year? Thank you.
Okay. Thank you for the question. I hope I got it right. There were three areas. Let's start with the in-licensing or acquisition. It's pretty difficult, obviously, to talk about unlaid eggs. Facing forward, we look at opportunities that have existing revenue streams, but also that are late-stage. Obviously, depending on the nature of the products, you have an immediate or a deferred accretion to your EPS. It's a bit difficult now to comment, we cannot, at this stage, really disclose anything given the maturity of our searches. I think that gives you a little bit of a sense. Regarding, I think it was the question was regarding France. Yes, France Alprolix. French market, when you look at it's one of the largest in the EU 5 market.
It's essentially, you unlock, in my books, give and take around 15% of the factor IX potential. It's a material, let's say, give and take. I mean, it could be 16, it could be 14. From a gut feel, that's basically what it does. It is a very significant little piece of work. Just thinking about, was there another element to the question? The connection was not so good, let's say. If I haven't answered all the specific question, maybe you can ask one more time, because the connection was difficult to hear.
No problem. Thank you.
You're welcome, Peter.
Thank you. As another reminder to register for a question, it's zero followed by the one on your telephone keypad. The next question comes from Christopher Uhde from ABG. Please go ahead. Your line is open.
Hi there. Thanks, and congratulations on a great quarter. I was wondering about what countries did Elocta or Alprolix get approved in besides France, and also what countries are you working on getting reimbursement approved? Can you comment on reasons for the delayed Alprolix reimbursement in some territories as compared to Elocta? I guess the third question would be have you applied or are you applying for breakthrough for SOBI003? My last question is if you can comment on the write-downs.
Well, maybe we start with the approval. Basically, we have 16 countries approved, let's say for Alprolix and 24 for Elocta. It's probably not part of this call to go through the entire list. We have a pretty good coverage. We are with Elocta in EU5, let's say, and with Alprolix, basically now we are in U.K., in Germany, in Italy, in France.
I meant the new ones for the quarter. Sorry.
Sorry. For the quarter it is basically in France for Alprolix and for the second in Elocta it is in France and Austria. For Elocta it is Slovakia, Poland and Portugal. There was the element of the question regarding the write-down. It takes so long to get reimbursement approved. It's pretty much related to the fact that budgetary situations of reimbursement authorities sometimes question or suggest that they want to have discounts and let's say, and go beyond what we can accept. There is a debate. Let's say we try to competitively price ourselves and in the interest of patients and physicians to make the product available, but sometimes the demands do not recognize the product that we are providing and the features. That basically leads sometimes to renegotiation and to delay.
Therefore we have also not yet got in all particular countries Alprolix product approved. With regard to the write-down, I'd like to refer to Mats-Olof. Frankly, to be honest, I'm not quite sure how to present it in perspective, but maybe Mats-Olof, if he can.
I can comment upon it.
Yeah.
Thank you for the question. If you read the top of the loss statement, what it says, it says amortization and write-downs. What it refers to was that in 2017, Q1 2017, there was a write-down of SEK 12 million in that line. That showed a normal amortization was SEK 110 million. That has increased from SEK 110 million-SEK 111 million.
Yes.
Okay. The last one was about whether you're applying for or have applied for breakthrough for SOBI003.
We are. Right now we still have to go through phase I and obviously we will. It's a data set. Absolutely.
Okay. Thank you very much.
Thank you. There appear to be no further questions. I'll return the conference back to you, sir.
Thank you so much for your interest in Sobi. We are here, as you can see, we continue to deliver as opposed to promise. Hopefully that we will have a very exciting moment in the next quarter. Thank you so much for your interest and look forward to catching up with you soon. Appreciate it. Thank you.
Thank you, ladies and gentlemen. This does conclude today's conference call. Thank you very much for attending. You may now disconnect your line.