Earnings Call: Q1 2018

Apr 26, 2018

Ladies and gentlemen, welcome to the Sobeys Q1 Report. Today, I'm pleased to present CEO, Giro Alcus and Piafra Olof Wallin. For the first part of this I will now hand over to the speakers. Please begin. Thank you so much. Welcome to the SOVI earning 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 Mark Dolla with our CFO Reininger, who is Head of Medical. So if there are further questions, our Head of IR, Jurgen Finthrop. So I would report as I go straight into the presentation. And basically, as you can see from the agenda, Page 2, let's say, basically, we want to lead you through the business review. We want to share with you the financials about the progress we have done with our pipeline and then summarize. Basically, when you go straight to Slide 3 on the Q1 highlights, We felt it was a very good quarter. I mean, we're gratifying to see our revenues rising by 43 percent at constant rate to SEK 1,640,000,000. We had an increase on EBITDA of 90 percent to SEK 271,000,000. When you look at the underlying the underpinning factors of this significant growth, it's going to be a 2.7x increase what was previously in hemophilia at constant rate and a 9% growth in specialty care and constant rate that basically to 1.744, and Matt Rodolf will share with you later some of his thinking around our financial situation in more detail. But important to note is that something else I will highlight is that this is very positive for us. Elocta is becoming really increasingly a standard of care. And in Ireland, we won the tenders are now available as the also by the patient community. We feel very good about this. The other important decision is also that our colleagues now obtained reimbursement in France, which was one of the key markets that we're missing. And we're very happy now that we can provide the product to patients in this very important market to us. Important to note is also that we got a positive study of CHMP opinion on stills in Europe. As you are aware, we still have this trial running the U. S. In Phase III. So this will expand the utility of our thyroid franchise. And we're optimistic about this. And obviously, for us, we just not evident in times when you face at least partially generic competition, we have been able to grow the offered in franchise at 7% at our constant rate and a 4% at actual rate. So very positive development here, we have avoided too much Europe, was a big event. We have launched in more numerous markets. Amongst those, Germany or Denmark, for instance, we will roll it out in the rest of your during the rest of the year. We have also got a fast track approval for Solvii-three. We have moved into Phase I. We 1st patient in the second half of this year. We have, as we pointed earlier, we have a change of the CFO, let's say, in the forthcoming and late spring, officialized only, in July of this year. And the extent for us is going to join us for the Suezi Farm and part of the roll off, and then the regulatory transition during the course of this year. And this will be done quarterly. So this really, in a nutshell, summarizes some of the key highlights in Q1. When you think about important events after the reporting period, I mean, let's say, after the reporting period in order to be precise, we got the still indication that we have a new head of HR who has started with Frederic de Luna, who is joining us in the executive team. Regarding the financial highlights in more detail, if maybe we turn to Page number 5. Here, you can see the quarterly performance and a very beautiful ramp up. Really strong growth quarter by quarter, summarizing the results I just mentioned the gross margin obviously on a total basis substantially expanded. But you can visualize it, a 74% to 72% contraction. This is related to the fact that we had some accounting adjustments on tiled in the Q1 last year that Maduro was explaining as part of the presentation. And let's say, the cash flow development is related to the taxes that we are now paying in the Q1. And also there, you will hear more in the next 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 strong 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. But let's say, the hemophilia 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. I think we made significant progress with the recurrent franchise, but also with the orphanage franchise. Getting into the business review and the hemophilia growth. I think it's important to note that there have been a lot of questions regarding the prospect of our hemophilia franchise, a lot of speculation, I mean, given the fact that new these come on stream. I think we are not here to profile our product against competition as much. More 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 that's very serious side effects, laser infections, where there's a lot of deaths. You want to make sure that your safety is established. And the positive news here is we have established safety in multiple thousands of patients we award evidence. And on top, let's say, our products are more than just a low carb like product. We have, have, let's say, the FCFusion technology that gives us ways to believe that the product has utility beyond the extension of half life. And one, for instance, element is this is what we're pursuing is the can we eliminate inhibitors faster. We have seen very strong signals, A collection of case reports that was published at the ICH last year, we have followed up with 2 trials. We also saw utility and joint care. This is an area of focus for our company as well. So we believe that we have the best single female franchise in our stable. We see that basically the product becoming increasingly standard of care as I alluded to about the and this franchise has utility beyond replacing factor at a prolonged half life. When you go to the next page, on Page 9, I want to share a little bit how the franchise has developed. And by quarter, you see there's a very beautiful acceleration of growth in the last, let's say, 15 months. And this gives proof to the fact that we have spent, obviously in the company a lot of time and effort on this franchise. And as we called in earlier quarterly meetings, we basically felt this is true good of an opportunity, and we still believe this, that we should not invest into this franchise. So 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 patients. And this is really the underlying driver of this business. So when you think about it, the kind of growth we have experienced is very, very substantial. And let's say and let's say a lot of that what is also modifying is obviously that the royalty stream, let's say, from BioRelative, it's a very significant size for the company and is also very accretive to all earnings. We have $1,000,000,000 out of 1.9 6,000,000,000,000,000, so very substantial part of our entire company. I believe I mentioned, let's say, so this gives you a good perspective. So if you go to the next slide, a long term, very strong growth, 2.6 fold at the actual rate versus previous year. And you can see a very nice uplift over the particular over the last two quarters. And basically, it's a function of internationalization, foremost of penetration because we are not going so now this adoption funnel. And in many centers now, we come from the trial phase into the significant adoption phase and also even that's clearly becoming standard of care with very significant market shares. Coming to Alcolex. With Alcolyx, we have obviously a very formidable competitor. We launched it at the same time. And there, we have a phenomenal growth as well. We tripled essentially in the business on a quarter by quarter basis. And let's see what we can see also now with the reimbursement in France. We are overall reimbursement status. Is a little bit behind the kilometer given the reimbursement discussions we have and also the regulatory cycle time. So we gain momentum. That momentum is reflected also in our current perspective of the business. So there we will we feel that the best is set to come. You know about our manufacturing business, refractory. I mean, this essentially follows revenues of Pfizer's refractory business. And basically, the adjustments, as we said, are more a function of the phasing of inventories rather than the true performance. And when you refer to the Pfizer Annual Report, you see the Pfizer performance. For us, it's a very stable source of income, but it gives us the capabilities to, 1st of all, have a pilot plant and also secondly, to earlier reported that we didn't sell the partnering business would have been in my books, the organization. So we're happy to keep it. But because it gave us a fantastic platform in Europe, Now we have obviously a very well functioning organization in North America, too. We have clearly an understanding of how to lifelong life cycles by new indications, by clinical trials, new formulations. Clearly, it's a source of very strong underpinning growth. You have seen in the Q1 also for Specialty care. The partnering product approach will give us a rise to believe that we can extract new products, for our big deal 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. So the 9% is constant currency. I think when you look at the portfolio, it's a very positive portfolio, it's a very positive evolution for this franchise and driven obviously by the 2 flagship products products, Carteret and Orphadin. We have a 4th product, Ciapex, and I think that is doing quite well as well where we have a couple of things in plan to make sure that we can establish this in a more prominent basis. Coming to Orphanin. When you look at the performance of Orphanin, very satisfied as it is. We are facing quite a bit of impact from generic competition. We were able to compete with the generics in Canada. 1 vaccine tender, you can also once daily, dozing approved, growing with our product at the stage of the life cycle, 7%, I think, is quite remarkable. So pretty curious to talk to the commercial organization. We have been very focused on this business. We are also sure that there is a connection between the patient and the product. Obviously, it's clear when you look when you think about the disease, patients can think about having their own sugar today. It's clearly related to the effect of this product. So we are very happy about the operating profitability of it. Rate is doing extremely well as well. 12% of concentrate in the U. S, we have even stronger growth. Shows that the utility of this product beyond the current established indication, we see a lot of debate, scientific debate about the rise of articles covering IL-1s and the rise of clinical trials in this field. It means that all of this therapy area is that far not exploited. And one of the positive effects was obviously the steel approval in the EU. On this note, I think I want to pause and turn company. Thank you, Guido. As Guido said, Sobe had a very strong quarter with 41% sales growth, which is 43% at constant exchange rates. And the growth is very much driven by the performance of hemophilia franchise. Gross margin came in at 72% in the quarter versus 74% last year. And if that onetime impact is eliminated, gross margin last year was 69%. 90%. And also, if we exclude the onetime effect in 2017 over the €59,000,000 EBITDA has increased 122%. Tax expenses came in at €148,000,000 and so we are now in a tax position where we have to pay tax and tax expenses are 22% of net profit. The other line other operating revenue is positive with $25,000,000 and that is mainly related to the positive operating currency effects at the balance sheet. Turning over to the balance sheet. Turkey has a very solid balance sheet, and the company is debt free since some quarters. And looking at each individual item, the intangible assets have decreased due to amortization. Inventories is more or less flat. Accounts receivables have increased, and that is due to the excellent sales performance with the sales growth. But it's also due to the totalization in the Q1, where February and March was very strong months, which also impacted the accounts receivable. Cash has improved to EUR 1,760,000,000 dollars And regarding equity, that has increased substantially, as you can see, quarter by quarter due to the profitability of the company. And also, the liabilities have slightly decreased. All in all, it's a very solid balance sheet. With that, I hand over to our CEO, Nieder Olkers. Thank you, Matolo. I think we want to conclude in our presentation just giving you a quick snapshot of what we are doing in the pipeline. You can see on Slide 21, let's say, the strong pipeline, the picture. When you look at it, what are the main drivers of the view that you would expect for a company at this stage? Also, I guess, you'll see a lot of emphasis on driving, providing new evidence for our legacy Glensinoxetylphenolix. I think important to note is, let's say, the hemophilia trial Xtend earlier, but there'll be IVV001 that we share with Bioverativ. This is establishing the target profile during the course of this year. Establishing the target profile during the quarter this year. And consider, obviously, acceleration in terms of clinical development beyond this. So this is a very important innovation for our company. Be extremely multi adapted to what we are doing today. I think in III. So we look forward to expanding our indication for kinaret in the U. S. It is still in this trial in a good way, and we are in the midst of recruiting patients at a significant level. And we have moved 3 into MPS IIIA. And MPS IIIIA, as I mentioned, is going into Phase 1 and recruitment is going to start. Mid of this year. The R and D has been approved. So a little bit of progress in the pipeline, which division. How should we look at full year guidance? Full year guidance, we lifted up based on the data points that we have obtained in terms of hemophilia penetration, also in terms of risk profile for operating, hence, the increase to EUR 7,900,000 to EUR 8,100,000. We have left our expectations for the gross margin unchanged. But as a function of the top line increase, we also increased our guidance for the development to DKK2.8 billion to DKK3 billion. So this basically gives us room still to invest into this business. The forecast is good on the thesis. We want to make sure that we stay a delivery organization, 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. And when you think about the strategic direction that we have, obviously, you want to further the National Life Commercial in the North America in particular to build out these revenues because the team is doing a fantastic job building the product that they have, strengthening overall our position and all the work in our pipeline. As mentioned before, we still believe that in terms of pipeline, we can benefit from terminated CapEx assets. So this is really where we are at. And I think in the interest of time, we interest of time, we open up now for questions. Thank Our first question comes from Eun Yang from Jefferies. Congrats on the good quarter. I have actually a few questions. Number 1, Kibo, when you joined the Sobe, obviously, your number one priority was to grow hemophilia franchise, but now it's doing really well. So can you talk about your current focus on business development? And the second question is, in terms of what you looked at sales, what percent of total sales is actually coming from immunetolix induction use? The last question is Xpeng program. I think previously, you have provided that data in second half of this year, and I wanted to make sure that that's on track. And if so, kind of a data should we expect? Thank you. Thank you for your questions. I mean, with hemophilia, we'll retain to keep us busy in view of the opportunity that we still have ahead of us. So we will not, let's say, slow down only because we had a great quarter. We were trying to get our fair share. So we'll try to get our fair share. We are still absolutely passionate about it. In fact, we want to gain significant position in all markets where we are, which are part of our territory. Regarding your questions on the disease, we are obviously, as we have alluded to, we are screening. We are and we will, let's say, provide you with clear guidance on things as early as we can. But this is clearly on our agenda, towards: a, our a, our latest pipeline b, to focus on our North American presence, which you've been current percentage, we cannot be 65. I mean, it's a function of the exclusive growth area. So it's a happy problem to ITI sales development, I would say this is a relatively minor event, more like in the region of maybe 3% to 5%. It's very difficult, let's say, to quantify this, let's say, but you know, it's in this magnitude because we are not United States to offer approximation than really, let's say, this really at this juncture, it's still an evolution, it's an evolution. It's an opportunity as opposed to threat when you think about our competition that is a rising period of opportunity and studies will lay this out. Regarding the status of the Xtend program, I'd like to refer you to Armin, who can give you a quick update everyone. Armin Reininger. Hello, Jan. So for the Bioverativ 1 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 is targeted for the middle of the next month and we 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. And since we're on track with the sort of low dose, we are strongly believing that we can fulfill it. Thank you. Thank you. Our next question comes from Erik Holger from Carnegie. 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 5 European markets and how that has developed since the previous quarter? And secondly, on Alprolix in Europe, I know that CSL has said that they are Idelvion is capturing twothree more than 2 thirds of patient switches in the U. S. And 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 reimbursement? Yes. Maybe, Phil, do you want to comment on our market share position? Good afternoon, everybody. It's Wood here. Hi, Eric. From a market share perspective, we continue to see significant growth in our share with the Luxtera across all the countries, but in the big countries, big countries, as you say. And we see progress maintained in France, Germany and more so in Italy and in Spain now. So we're very pleased with that progress as we see in the access area where we see shares significant now and matching in many cases with conventional therapies. So we're very pleased with that progress. From an Adelian perspective, we see the position slightly differently to U. S. Position and we see a fair share of opportunity switching to AlcoVotes versus any others that there may be switching elsewhere as well. So we see a more competitive position certainly with Alkalix, but we certainly see that we take our share of the conversions. Yes. And Eric, maybe from my part, I mean, you have seen obviously some of the CSL data published in what we refer to on the other market in Europe. We might have not might have omitted market share in Thailand. So I think it's pretty balanced. I mean, we take it very seriously. And it's also fair to say that maybe in terms of promotion focus, we the focus was for us very much laid upon the large opportunity in Factor VIII. But we outputs are very significant uplift here in penetration. And there is a utility that goes beyond PK profile in this product. And that's what we're trying to explain more and more to the community and which is 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 think the I can't actually recall that we have given you maybe one or the other number. But I think given the fact that there's no IMS number that gives a very good standardized outlook, I mean, we have our own data set where we measure the success by accounting, like all the other companies would do. But I think this would not be moved up to this at this call. Okay. Thank you so much. Thank you, Eric. Our next question comes from Peter Seysen from Handelsbanken. It's Peter from Handelsbanken. Congratulations on the results. First one, could you just give us a bit of perspective on how you think about your I mean, in the year, you talked about all the options that you have for business development, in licensing, blah, blah, blah, etcetera. But just staying on sort of how you think about value creation, are you looking at something that is EPS accretive in the short term? Or how do you think about, yes, just on the financial side of things? Secondly, the French tax decision that you mentioned in the report, I mean, can you elaborate as to the potential size of this financially? Is it significant or less significant? How should we think about that? And yes, 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? Okay. Thank you for the question. I hope I got it right. There were 3 areas that started the in licensing or acquisition. It's pretty difficult, obviously, to talk about our later expert. We look at opportunities that have technology where we use tools, but also at our mid stage. Let's say, we and maybe in the way and obviously, depending on the nature of the products, you are you have an $1,000,000 or a deferred accretion through your EPS. So it's a bit difficult now to comment. And we cannot, at this stage, really disclose anything that Regarding, let's say, the Singapore, the question was regarding France. And so the France, I believe, I mean, French market is when you look at it, it's one of the largest EU5 market. So it's essentially, you unlock in my books, give and take, around 15% of Factor IX potential. Work. And just thinking about what was another element to the question, I mean, because the connection was not so good, everything. If you Thank you. The next question comes from Christopher Udi from ABG. Please go ahead. Your line is open. I was wondering about, well, what countries did the Lactar alprolix get approved in besides France? And also what countries are you working on getting reimbursal approved? And then can you comment on the reasons for the delayed Alprolix reimbursement in some territories as compared to Elocta? And then I guess, Sobeys 3? And my last question is, if you SOBE 3? And my last question is if you can comment on the write downs. Okay. So approved, let's say, for Arpinx and 22 2 in EU5, let's say, in which ICONX, increasingly now. We are in U. K, Germany, Italy, France. And that's the new ones for the quarter, sorry. So for the quarter, it has basically been in its charge for Fireflies. And for the 2nd, then in Elocta, it is France, North for in North Greece, Slovakia, Poland and Portugal. There was an element of a question regarding why it doesn't take so long to get legal to the full. I mean, it's pretty much related to the fact that monetary situation of reimbursement authorities is sometimes question about the security that they want to have defaults. And let's say, and go beyond what we can accept today. And in the debate, let's say, we try to competitively pride ourselves and in the age of patients, physicians make the product available, but sometimes the demands do not recognize the product that we are providing and features and that basically feeds and sometimes to negotiation and to delay. And therefore, we have also not yet got all products approved. With regard to the write down, I'd like to refer to Maduro. Frankly, I'm, to be honest, not quite sure not to put this into perspective, but Q1 2017, there was a write down of SEK 12,000,000 in that line. So that showed sort of normal amortization was $110,000,000 So that has decreased $110,000,000 to $111,000,000 The last one was about whether you're applying for or have applied for breakthrough for Soviet There appears to be no further questions. I return the conference back to you, sir. Thank you so much for your interest in Sobeys. And yes, we are here as you can see, we believe that the policy progress hopefully, and let's say, you know, 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.