Earnings Call: Q2 2016

Jul 15, 2016

Ladies and gentlemen, welcome to the presentation of the Interim Reports Q2 2016 for Sobe. I will now hand over to Geoffrey McDonough, CEO. Please go ahead. Thank you, Mark. Good afternoon, everybody, and good morning to those of you joining us from the United States. Welcome to this presentation of our Q2 year to date earnings here at Sobeys. As usual, we will make about 20 minutes of prepared comments and then open the floor for Q and A. I'm joined today by Alan Raffensperger, our Chief Operating Officer. Today, I will fulfill a lifelong fantasy to be the CFO of the company by standing in for Matt Solak Pauline, who has an important personal event today, but who will be available again in the office next week just in case I'm unable to capture all of the detail that you would usually cover. We are going to make some but very few forward looking statements. So we're obligated to show the slides, so do keep that in mind for the duration of the presentation. The Q2 was a very active quarter for us. As you know, it was the 1st full quarter of run for the Elocta launch. We also had approval for Elocta come in the quarter for Switzerland. Also importantly, we got the approval for Alprolix and began first sales in Germany in the quarter. So it feels great to be in a situation now where the hemophilia franchise that we've been working towards for so long is now fully underway with both products approved in our territories. We also had some significant milestones for Kineret with the final element of our patent state being granted in Europe for the new citrate free formulation. We also signed a licensing agreement with our partner, Alphabody, to develop a longer term replacement or 2nd generation molecule for Kineret with an Affibody platform basis. And we also signed an agreement to undertake tech transfer so that we could ensure both capacity and security for long term supply for Kineret by doing so with Pfizer at their facility in Stryngus. We also with Pfizer extended our long term manufacturing agreement for the drug substance for Refacto through the end of 2023. Orphanin oral suspension and 20 milligram capsule were both approved in the United States. It's a really important milestone for us for Orphanin. And finally, we were able to call our bond a year ahead of schedule and to replace it with a financing structure, which will have both better strategic flexibility as well as a lower cost structure going forward. We had also a nice incremental step towards potential registration in Canada for Orphanin after the quarter closed with the validation of our capsule filing there. To move on to the financial highlights, the 2nd quarter was a very strong quarter financially as was the first half. And I'll run through first a summary of the Q2 results and then give a high level view of the company year to date. In the quarter, total revenue came in at SEK1.469 billion, representing 92% growth. Keep in mind, there's a one time credit here coming alongside the approval of Alprolix in the amount of C386,000,000 Product revenues were C1.288 billion. Refecto came in at SEK181,000,000, a nice increase over the same quarter last year. Margin also buoyed by the impact of the one time credit came in at 72% and EBITDA at 550,000,000 dollars Cash flow from operations in the quarter were flat or 0 and related mainly to the ebb and flow of paying off the bond and the timing of orders coming quite late in the quarter. If we take a look with the same kind of perspective on the year to date performance for half 1, you can see that the first half revenues were just a little over CHF 2,700,000,000 representing an almost 70% growth versus the first half last year. From a product perspective, it was about $2,400,000,000 over 90% growth. But again, keep in mind that the total of the one time credits for the first half, which will be non recurring, was a little over SEK 700,000,000. Refacto has had the opposite phasing this year compared to last year. Our second half will be a little stronger than the first, whereas last year was stronger in the first half. Decrease. Margin year to date 73 percent and EBITDA a little over SEK 1,000,000,000 with cash flow at SEK 235,000,000. So I've mentioned a couple of times these one time credits. If you back those out and take a look at the year to date performance with those taken to the side, you can see the total revenues were a little ahead of CHF 2,000,000,000 representing 25% growth overall, 27% at constant exchange rates. Product revenues were particularly strong coming in at a 38% growth at SEK1.7 billion for the first half. And as I said, refacto at about SEK350,000,000 is a little lower compared to last year. The margin was 64%. Obviously, the credits are recognized at 100% gross margin and the remaining impacts on margin were mainly explained by product mix, which we'll talk a little bit more about later. EBITDA year to date was $344,000,000 with cash flow from operations unchanged at $235,000,000 If you take a look at the year to date contributions by business line, you can see that due to a singularly lower results in quarter 2 for Orphan and Genetics and Metabolism year to date had a growth of 4%. We do expect that will recover as we move into the second half of the year. Inflammation had a particularly strong first half growing the KINARET franchise at about 28%. Obviously, hemophilia making a strong new contribution this half and the partner products portfolio was flat on a constant exchange rate basis, but had very nice growth in quarter 2. And I've covered Refacto, which I'll cover in slightly more detail on the next slide. The total income for Refacto in the quarter was SEK 181,000,000 year to date SEK 346,000,000 as I said. That breaks down to CHF 142,000,000 from revenue from manufacturing. And then we have some changes in the royalties related to refacto that have been planned for 10 years now. And in this year and next year, we'll have a couple of shifts. So we'll see the first of them now. The royalty for the rest of the world component for benefics has expired in May of 2016 and the year to date income from that royalty was about SEK 47,000,000 which will not be recurring in the second half. The remainder of the global royalty on benefits will persist through January of 2018. So with that, I'd like to turn the floor over to Alan Raffensperger to run through the remainder of the core business. Alan? Thank you very much, Jeff. Starting with KINARET, sales increased 43% during Q2 2016 versus Q2 last year. Year to date revenues reached SEK471,000,000, which is an increase of 28% over the first half of twenty fifteen. We continue to see strong organic growth across all markets. The shift to our more patient centric distribution model in the U. S. In combination with greater focus by our commercial and medical teams has contributed to the solid results there. Moving on to Orphodine. Q2 sales decreased 4% compared to Q2 2015. Overall, the year to date revenue reached DKK379,000,000, which is an increase of 3% over the 1st 6 months of last year. The volume growth in the quarter was 8%, but revenues were lower due to higher than average Medicaid rebates in June in the U. S. As you see in the graph, Q4 was also higher than Q1. This was simply due to an extra large order to South America, which usually occurs during the back end of every year. Growth in Europe has been supported by the launch of the Orphadin 20 milligram capsule and Orphadin oral suspension, which is now available in almost all markets. The revenue for our partner products portfolio grew by 9% in Q2 versus Q2 2015. For the 1st 6 months of this year, we registered revenue of SEK 399,000,000, which is a decrease of 2%. The stronger Q2 performance was boosted by strong growth for ZIAPEX in both Dupuytren's contracture and Peyronie's disease. The pharma Swiss portfolio also contributed to the strong Q2. Moving on to the hemophilia franchise. Total revenues reached SEK627,000,000 for the quarter and just over SEK1 1,000,000,000 for the 1st 6 months. Focusing specifically on Alokta, the Q2 revenue amounted to SEK 184,000,000, of which SEK 55,000,000 was related to Alocta product sales in Europe and the Middle East. We also received approval for Alocta in Switzerland during the quarter. Given the importance of our Alokta launch, I would like to add some more color to the numbers. As you know, in Europe, we are launching country by country as we secure reimbursement decisions. Revenue from the quarter was derived mainly from Germany and the Middle East with first sales in the U. K, Ireland and Sweden. In regards to Germany specifically, if you recall during our Q1 earnings call, I mentioned that we had initial sales in 12 clinics. By the end of Q2, Alokta was prescribed in 27 clinics. These 27 clinics treat roughly 50% of all the hemophilia patients in Germany. In regards to access, reimbursement has already been granted in Germany, the Netherlands, Ireland and in Sweden. In regards to access in the UK, the NHS framework agreements are now in place for a locked in Northern Ireland, Wales and Scotland. The final commissioning guidance is under development in England. Finally, preparations are fully on track to enter all remaining markets over the coming 12 months. In regards to Alprolix, total revenue was CHF444,000,000 for the quarter. Subtracting the estimated royalty revenue, the onetime credit and the CHF14,000,000 milestone payment for the EMA approval of our prologs, we booked CHF5 1,000,000 in product sales, with the first sale booked in Germany in June. Revenue from the quarter was derived mainly from Germany and the Middle East, with first sales also occurring in the U. K. Reimbursement for Alprolix has now been granted in Germany, the Netherlands and in Ireland. In the U. K, the NHS framework agreements are now in place for Alprolix effective September 1 in Northern Ireland, Wales, Scotland, with final commissioning guidance under development in England. All preparations are under track to enter the remaining markets over the coming 12 months. The launch sequence will be very similar to Alocta in terms of country sequence. Now I'd like to hand over our earnings call back to Jeff to present our financials. Thank you, Alan. In this section, I will pinch hit for our CFO, Mats Uluk, by running you through the P and L, the shift in revenues to SEK1.469 billion as I mentioned earlier, with the gross profit coming in at SEK1.065 billion, resulting in a gross margin of 72%. I mentioned that the gross margin backing out the impact of the credits was 64%. That relates almost entirely to product mix in the quarter and the first half and also to the impact of the rest of world royalty on Refacto. I misspoke earlier when I said it was related to benefics. Moving down to P and L, you can see that EBITDA came in at 5 $50,000,000 with the full year EBITDA closing at just over CHF1 1,000,000,000 There are 2 items of note here. The financial net, which is slightly higher related to the cost of closing and calling our bond a year ahead schedule. There was a 1% charge related to that early call and some transaction fees. And the income tax expense is unusually high in the quarter and that relates to a change in our tax model now that we have both hemophilia products in our portfolio formally. We moved to a planned amortization model and therefore taking a one time charge in Q2 to reflect that change. We do continue to expect our overall tax rate for the year to be in the low 20s on a full year basis, most of which will be deferred. On the cost side, the SG and A expenses are related to the ongoing build of the hemophilia organization. We are complete in our build for the Tier 1 markets, but have some small incremental investments remaining for the Tier 2 and Tier 3 markets through the tail of the year here. And finally, the R and D line as we signaled earlier in the year is related to the shared costs between us and Biogen. From the point of view of the balance sheet, the main changes here are related to the increase in intangible assets and liabilities due to the approvals for a locked down Alprolix. Alprolix obviously being seen in the quarter 2 changes, but both being reflected in the midyear point. The long term debt reduction is related to the repayment of the bond loan and also the drawdown of the new term loan facility at $500,000,000 If we take a moment to review cash, you can see that our cash position today is $770,000,000 with net cash coming in at CHF266 1,000,000 and that relates, of course, to the change on the calling of the bond. This, as I said, at the outset is something that gives us more strategic flexibility, but also lower financial net terms going forward. As usual, and this will be the last time that we do this, we've run through the impact of the approvals for the hemophilia franchise with respect to the royalties. In this case, the approval of Alprolix has very much the same mechanics as did the approval for Elocta. Up until launch, we've had a base cross royalty rate of 12%, of which we get 2% in cash related to the sales of Biogen for Alprolix in their territory, which we book as revenue and the remaining 10% up to now has been accumulated as a credit since the launch of Alprolix. That credit starting on the first commercial sales of Alprolix is paid through. That is in the amount of US46 $1,000,000 There's no cash effect, but it is used to reduce our liability. The royalty goes to 12%, 7% of which is booked as revenue and through of course the cash and 5% of which is credited to reduce our development obligation. Our royalty and returns to Biogen is 17%, 12% of which is reflected in the COGS line and 5% of which is credited to the development obligation. The transfer of the MAH for Alprolix will occur in the Q3 this year and at that time, Sobe will assume 50% of shared development activities in 2016 and going forward. And we now estimate our total repayment obligation to Biogen to be in the range of US186 million dollars And now with the production of this one time credit, we currently estimate that liability on a non adjusted basis to be in the amount of US130 $1,000,000 So with that, I'll proceed to a short summary in 2 parts. 1st, as we mentioned in our release, we are not changing guidance, although we feel very, very positive about the first half results here for the company. This just reflects a cautious approach and a launch year with a lot of things moving here and of course the European summer ahead of us, but feel very, very good about the guidance as we have laid it forth based on the very strong results in Q2 and in the first half. So I think in summary, it's fair to say that the core strategy we've had of focusing on the results in our core business, preparing for the launch of our hemophilia franchise and turning our attention increasingly to building the business on the basis of additional M and A and partnerships now going forward is well on track based on these results and very happy now to conclude the call and move into the open Q and A. Thank you. Over to you, Mark. Thank Our first question comes from Yonwen of Jefferies. Please go ahead. Your line is open. Thank you. Good morning. So I know it is still early in the launch cycle for hemophilia product. But regarding Elocta, I think you mentioned that you have been seeing patients switching from both the short acting as well as the plasma product. Are you also seeing patients switching from on demand to prophylactic treatment? Eun, it's Alan Raffensperger here. Yes, we actually are seeing both on demand and prophylactic patients being switched. As you know, there's a vast majority of patients in a country like Germany are actually prophy patients, but we are capturing both. Okay. So potentially you could actually expand the kind of in terms of sales revenue, you can expand the hemophilia market. Is that correct? That's correct, Yan. Okay. And then second question is on Kineret. Are you seeing proportionally more sales growth in the U. S. Versus the rest of the ex U. S? And the second question is, in the past, you have given us guidance that for new indications such as acute gout and to those disease, you are planning to start the Phase II and Phase III study already next year. Can you give us an update? And also can you kind of talk about the market opportunity for those 2 new indications? Thank you. Yes, Eun. I'll take the first question and then pass over to Jeff for the second question, regarding the trial activity and the potential for gout and also stills in the U. S. We are seeing actually greater growth volume and also value in the U. S. On the value side, we did raise the price of KINDRA at 9% in January. On the volume side, due to the very focused patient centric distribution model, or if you recall that we made the transfer to that new model during the course of last year, we are seeing the benefits of improved compliance and adherence to Kineret. On top of that, we also have a very focused local medical and marketing that's working well. So that combination has pushed North America ahead of Europe in regards to growth, both in value and also in volume. Thank you, Alan. And to take your second question, the trials are both on track to get started here at year end and beginning of next year. We expect them each to allow us to proceed to a filing if successful in the 2019 2020 timeframe. As you mentioned, the trial for Still's disease is a Phase 3 single pivotal trial, which would bring us to an approval in the 2019 timeframe. We estimate that the eligible population of patients that we could approach would be incremental to our business today would be in the range of 2,000 additional patients. And if you look at the acute gout indication, the time frames are similar, but we have a first dose ranging Phase II trial, which will also give us a good indication or confirmation of efficacy and in particular in form our primary endpoint selection for Phase 3. So that will give us a good midway gating point to decide on the incremental investment for Phase 3. But we would expect to proceed to a single Phase 3 in that indication as well with approval around 2020. There, although it's an acute indication, we talk about a much larger eligible patient population. So we think that the relative value is going to be roughly twice that of the stills population over time. But we'll know a lot more about how to estimate that once we're at the end of the Phase 2 for acute gout. Okay. And a follow-up question is on Kinaret. How many patients have you disclosed how many patients are currently on Kinaret? No, we haven't disclosed our total patient numbers, Eun. Okay. And then just a quick follow-up. So in terms of patients are switching from short acting plasma and on demand therapy to Elocta, I don't know, I mean, if you can just give us a quantitate to what percent in each category are currently on Elocta? Yes. So we don't have numbers to give you that are precise mainly because we don't know them. They're not numbers that we can purchase or easily access. But I can give you our sense when we discuss it internally, we think the vast majority of early adoption here is in the prophy pool and that the on demand pool is probably 10% or less, but one that we would expect to become more significant over the coming years of launch and experience. Okay. Thanks very much. Yes. Thanks, Eun. Thanks, Eun. And our next question comes from Erik Huttgart of Carnegie. Go ahead, sir. Your line is open. Yes. Hi. Thank you. Two questions on the Elocta launch and one on the guidance, if I may. First on the Elocta launch, it's now been on the market and commercially available in Germany for around 6 months. So could you say something about the uptake in Germany versus the uptake in the U. S. During this period? Is it faster? Is it similar? Or is it slower? Eric, it's Jeff here. I think what we see in centers who are open and ready to begin with the use of Alok it's very similar to what we see in the U. S. Systematically, the approach in Germany is slightly different from the way it is in the U. S. Even though the reimbursement environment is similar. Each center has to make their own agreement essentially or platform on which to use the product. So in that sense, the sensor by sensor adoption is slower than it is in the U. S. And in the U. S, you really have one starting gun and all the centers begin at the same time. In Germany, as Alan was saying, we've moved from 12 centers in the Q1 to 27 centers in the second quarter and that just reflects the pace of bringing each center onto line. All right. Thank you. And then my second question on the Lotte loans is that when I read the report, it looks like Luxembourg is the only country that has been added to the list of countries with secured reimbursement for Loktas in Securon report. If that is correct, is market access moving slower than you expected? Or is it on track? Erik, it's Alan here. We secured reimbursement in the Netherlands as well, Ireland. And I believe I mentioned as well in the U. K. Framework, we have now full reimbursement in Northern Ireland, Wales and Scotland. And we're under right now, they are negotiating locally, in England, for the NHS framework. So we have high expectations that that will be fixed and secured very soon. So I think you may if I remember it it correctly, you mentioned after Q1 that you had just received a secured reimbursement in the Netherlands and also in Ireland. So I was just wondering what has happened in terms of reimbursement since the Q1 report? We also have Sweden as well has been secured. Yes. Eric, if I might give a little more color, I think what Alan said is exactly right. Specifically to take a couple of those examples. So in Ireland, we had an agreement on the basis of the tender to begin prescribing in the middle of Q1, but that translated to the center based adoption and agreements that allowed us to move forward more formally in Q2. And likewise, for the rest of the United Kingdom, we have what's called the framework agreement that allows for broad adoption across the centers, which is something that is newly coming online here at the end of the quarter. We have several markets where we have incrementally agreed on a price and a reimbursement framework, but we're prevented from speaking about them until they're locally published. So I think it's worth perhaps just saying in the aggregate that in general, we're finding the establishment of price and reimbursement to be ahead of our expectations and timing for the markets where we have feedback so far. But the gap between when those agreements have been reached and when they can be publicly announced is enforced by the local governments. All right. Thanks a lot. And then finally on guidance, despite higher Alprolix credits and also, I guess, currencies has moved in your direction since guidance was issued, but you stick to it. Is there anything that is proceeding worse than you predicted in your initial guidance? Or are you just being cautious? Yes, just an abundance of caution, Eric. There's nothing that we foresee that is moving against us or that we would foresee as more challenging in the second half. I mean, as is obvious from the results, we have some one time items that will not recur in the second half versus the first half. And since we're in such a relatively early phase of the step ups here for the hemophilia launches, we just felt that it was better to proceed under a more cautious way of thinking from the point of view of the guidance. Obviously, if we come back from the summer and head into Q3 and have a better sense of how things are going, we can make an adjustment then. All right. Thanks a lot. I'll jump back in the queue. Okay. Thanks, Eric. Thanks, Eric. Thank you. Our next question comes from Richard Parkes of Deutsche Bank. Just a few. Firstly, on the Loctate royalties that you recognized or estimated. It looks like backing that out, I mean, correct me if my maths are wrong, but you're assuming that sales come in, in the second quarter above $130,000,000 which is obviously above where consensus is. So I'm just wondering what leads you to that estimate. Maybe you could just let us know how you receive the royalty payments from Biogen. Do you get them on a monthly basis? So do you get some insight into where that quarterly number will come out? So that's the first question. Yes, I'll take that one, Richard. So we obviously are only in this situation very rarely that we're a little bit ahead of Biogen earnings. So I should start by saying we have no view and no ability to predict exactly where they're going to land. But we do get sort of a monthly trends, which of course is a little out of date now since we're ahead of their earnings. But we more or less just set a straight line against the monthly trend and past performance. We can and we will be probably a little bit wrong one way or the other. And of course, we'll true that up quarter to quarter. But I think on both Lacta and Alprolix to date or Lactata and Alprolix to date, Biogen has had a really nice curve. So we will probably be a little bit wrong in our estimates here, but we hope we're not too far off. Okay. Okay, great. And then the Elocta EU launch, I'm just wondering what feedback you're getting from centers and maybe the centers that aren't yet engaging with you in Germany or sort of setup? I know, obviously, Shire Baxalta are going to be coming along relatively shortly with the adenovate. So what's your experience in terms of the things that they're trying to do to maybe tie up physicians or convince centers that they can hold off until a dienovate is available for that switch. I'm just wondering if that's one of the gaps that you need to sort of close to cover that other 50% of centers in Germany? Yes, I think that's a good question. I mean, without commenting too much on how competitors are behaving, I think it's fair to say that what we're experiencing at the centers so far is a kind of normal adoption curve. We're not experiencing centers who say, we don't want to engage with this product because we want to wait for another product to come along. It's much more kind of a natural awareness leading to contemplation and ultimately leading to action on the part of individual physicians at key centers. It's always a case that there can be local reimbursement and pricing factors that can be influenced by the competition. But in general, what we're dealing with here is just the natural time it takes to bring everybody up to speed with what the product is, what its value is and how it may be used. I can say that and I think Alan said this in the Q1, it remains the case today that there is a very strong engagement with the idea that what these products are able to offer is at a higher level of protection potentially because the half life can lead to higher circulating plasma levels of clotting factor and that leads to a very natural way of thinking about patient selection and that will evolve and shift over the coming year or 2 as different populations of patients become sort of more appropriate or more eligible. Decision making in these areas is really jointly held between physicians and patients once you get the pricing and reimbursement piece out of the way. The other thing I'll say in terms of the early engagement and feedback is that there's a real desire to understand how the Fc platform in particular will behave in the induction of immune tolerance and also in terms of the immune profile overall. And so we're in a very early stage of understanding that, but that's one of the main reasons that or main areas of feedback that we hear from physicians in terms of their interest in the platform. Right. And final question on Alprolix in Europe. You've obviously got a competitor from CSL that has an option for every 2 week dosing. So I'm just wondering how you're feeling about the opportunity for that product in Europe and whether you can the advantage you've got in terms of maybe greater in market experience with Alprolix now can offset that modest disadvantage in terms of dosing in the European market? Yes, it's a great question. I mean, we're going to see how that unfolds obviously over the coming year. And we feel really good about the fact that we were able to move from an approval to sales in under 3 weeks here and we're very focused on making the cleanest and most positive start that we can in the region. This point about the profiles is quite interesting because the strong feedback we've had based on the rest of world experience, including the U. S. So far for extended half life factor 9 is that patients and physicians really prefer to dose every week. There's not much engagement or early interest in being dosed every other week, even though of course, large numbers of patients in our own clinical and real world experience with Alphalix have done that. The preferred regimen really seems to be weekly. So it's a little hard to know yet whether and when that kind of difference might turn out to be differentiating. So I think our view is just to as you said, we're just focused on making sure that people understand that we have hundreds of patient years experience now with Alprolix. We have very strong, very well structured outcomes data over a long period of time from the BEYOND study. So we're really able to say a lot about both the efficacy and safety experience with Alprolix today. So we try to stay focused on those pieces. Okay. And just a final clarification on refacto. I think you said that you expected refacto revenues to be higher in the second half than in the first half. Does that include the royalties, which I'm expecting are going to be lower given expiry of those plans? So I'm glad you asked that question because I think I might have confused some people with what I said earlier. So let me take your first part of the question first. We expect deliveries of drug substance to Pfizer for refacto to be higher in the second half than they were in the first half. And by that, I'm talking now about manufacturing revenues. The overall royalty revenues will be lower because the $47,000,000 year to date based on the royalties for refacto will not recur in the second half. So on balance, the total refacto franchise may be more or less even half to half, but the revenue from manufacturing will be higher. Is that clear? Perfect. Thank you. Yes. Thanks very much. Thanks Richard. Yes, thank you. Thank you. And our next question comes from Hans Muller of Nordea Markets. Go ahead. Your line is open. Yes, good afternoon. A follow-up on Kineret. Should we expect the strong growth to continue into the second half? Or have we seen most of the uptick from the change in distribution there? And also secondly, do you still expect reimbursement for all important European countries by end of 'sixteen? Thank you. Okay. Helens, it's Alan Raffensperger here. I presume the second question, reimbursement for Elocta through all European countries, right? That's your question? Yes, correct. Okay. So question number 1, regards to Kineret, particularly in the U. S, we do expect the growth to continue. I'm not it's difficult to say exactly by how much, but definitely single digit growth to low double digit growth in the U. S. And the main reason is that we haven't totally maximized our opportunity in regards to adherence and compliance with Kineret. So that's something to look forward to. And that will continue to develop during the course of this year and into next year as well. In regards to reimbursement decisions, we are and something I didn't mention before, Eric asked the question, we have received a couple of positive opinions as well, but they haven't been published yet, so I can't go into which countries. But that is progressing very nicely as far as reimbursement, our decisions are concerned. And we do expect to have all decisions in place by over the next 12 months. I think I mentioned that in the presentation. Okay. I think you said previously that you mistake there? I said over the next 12 months. Okay. I'm sorry about that. So maybe I can just add a little color to that because I think that's right. The distinction here I think we tried to make major markets in Europe. And Alan, I think we are on track to have reimbursement decisions in all the major markets in Europe by the end of 2016. Spain may come a little bit one side or the other, but I think we're feeling quite confident that they will all be secured this year. Alan is exactly right that over the next 12 months there may be some second and third tier markets. By tiers, I just mean waves, how long it takes to expect before you can expect reimbursement to be granted. And Alan is exactly correct, those will continue to come in over the next 12 months. Does that address your question? Yes, very good. Thank you so much. Okay. Thank you. Thank you. And our next question comes from Johan Enyres of Some of them have been answered already. I go back to the guide again because if we look at the first half and the milestones that will not occur in the second half, even if we take them out, both the incremental sales that's needed and EBITDA that's needed in the second half seems to be not conservative. It seems to be extremely conservative. Are you planning to have a lavish Christmas party or something? So that's an interesting idea. But I do think the way you and others are interpreting our approach to the guidance this year is correct. We share your enthusiasm for the first half. We feel very, very confident about the business across the board and specifically as well related to the hemophilia launch. Having said that, we're also mindful of the fact that we're heading into the summer and we're in the early stages of launch. So we just like to be another couple of months ahead in our experience of the year before we adjust the guidance. But of course, there's always different perspectives on how to handle guidance. And I think at this point, with 5 years of experience with this management team, I hope we've set the expectation that we are really interested in giving you the most accurate views of how the company will behave. So when we feel really confident about where the results will be, then you'll see us move guidance. And if it weren't a launch year, I think there might be a different equation here. But just at the moment, we feel good about leaving things as they are. Okay. That's useful. And related questions then on what we should expect on the R and D uptick in the sales and marketing going into the second half? I presume that your reported R and D will go up as a result of assumed R and D costs as well? Yes. It should continue to tick up in the second half. We don't expect it to be dramatic, but it will be there. And same also for SG and A. Part of the driver, of course, is as we talked about the shared costs with Biogen for Alprolix and Elocta. But also the second half, we'll see a higher degree of activity, not only for the KINARET still and gout trials, but also importantly for the manufacturing campaigning to prepare for 1st in human dosing for SOVIO-three, which is progressing really well. So as the pipeline continues to build, we will make some investments behind those when the risk and the reward equation for each program merits it. Okay. And the tax effect is obviously an effect of this moving into planned amortization, should we expect this to go back to normal run rate straight away or should we expect to drift on that side? No. We made the conscious decision to take the full impact of the change in Q2. So you'll see a concomitant decrease in Q3 and Q4 to allow us to arrive on a full year basis in the low 20s. Okay. That's very useful. Anything on the strategy on complementary partnerships or products that you're considering? Yes. I can just say that we are very focused at the senior level. Obviously, the organization is totally focused on execution, but the senior team now is spending significant time looking at M and A and partnering opportunities to bolster our mid and late stage pipeline. We become very capable to launch additional products in early 2018 and beyond. So those are the kinds of assets that we're most focused on right now. And our next question comes from Lars Schoenig of Danske. Go ahead, sir. Your line is open. Thanks. Can you just comment upon the cost of goods figure that you booked for the Q2 at SEK404 1,000,000? Did that reflect any particular inventory buy in? Or is it the standard run rate, so to say, reflecting the where you are in the launch phase for the 2 products? That's one question. The other question is on the timing of the rollout here. You're mentioning in the slides that you see this as within the year's perspective. So is it fair to assume that when we were in mid-twenty 17 or so that you should have a decent coverage, reimbursement coverage in countries such as parts of the U. K, France, etcetera. Is that a reasonable time frame to assume? So Lars, let's start with your first question about the margin. So the $404,000,000 that you're referring to, where are you focused there? If that figure reflects any particular inventory buy in or is it cost for normal purchasing? Yes. Thank you. So there is no particularly significant inventory shift in the quarter. If anything, inventories are a little bit on the low side because revenues came in quite strong at the end of the quarter. So I think the COGS are relatively standard in that. I think that the shift that's most relevant in COGS line is related to mix. So we had relatively higher Kineret and partner product revenues in the quarter and relatively lower Orphan revenues in the quarter. So that's what's accounting for the relatively lower margin once you back out the credits. Did I get your first question, Lars? Yes, that's fine. Okay. And then did I understand the second one correctly that you're asking by mid year 2017, we're on a pretty standard run rate with respect to reimbursement for Elocta? Yes. Yes, I think that's exactly right. We would expect that the markets that will drive roughly 80% of the opportunity will be fully online from a pricing and reimbursement perspective by the end of the year 2016. Obviously, only Germany will be really be in a full run rate situation by then because we will have not only had the full pricing and reimbursement foundation in place, but also penetration of all of the relevant centers. That process will be in an earlier stage for markets like France, Netherlands, Belgium, Sweden and the UK. So we will the run rate will continue to ramp all the way through 2017. And if you ask me when we'll be in a place where we have a relatively stable commercial foundation for launch, I think that's more like the beginning of 2018. So from mid-seventeen onwards, then you have then you can say that your target, say, 80% of your target market. A reasonable time frame. I think that's absolutely right. Thank you. And our next question comes from Richard Karch of SAB. Go ahead, sir. Your line is open. Hi. I have a question on the pricing. How is the pricing so far for the hemophilia drugs? I mean, where you have been able to get reimbursement, what is your strategy there? Do you see any pressure to lower the prices given the high price point of these drugs? Well, I think there's first of all, thanks for the question, Richard. I think there's definitely pricing pressure on this as well as all high priced drug categories across Europe. We have a significant advantage here in the sense that hemophilia is a ring fenced financial commitment in every market in our territory almost. And that means that we're not trying to convince governments to come up with new money, but rather entering existing pools with our product. And in that sense, we have taken the approach of trying to make these next generation products broadly available for the mainstream or bulk of patients. And as a result, we have not undertaken a very high premium priced type of strategy. And so not surprisingly, I think payers are responding in to a huge change in their budget commitment. So I think broadly speaking, we've been very pleased with what we've heard from payers and the prices that we've been able to secure, although we haven't been surprised. I mean, we've been working and speaking with payers over the last 3 years to understand how they would see this category. And I think their behavior now is very consistent with what we've heard. Okay. And is there a difference, I mean, with the Locte, you're the 1st long acting out. But without products, you're seeing the competition from Midelvin. Does that make a difference on the pricing? It's a great question. It is. It's fascinating because on the one hand, we get a real benefit from having been in this dialogue with payers for so long on both products, of course, but we've just been through the reviews for Alocta. So in that sense, we're very well known and I think we've had a very positive interaction around Elocta. The pricing and the dosing of each of Alprolix and Adelion are quite different. If you really look into the labels and the regimens, you'll quickly understand that pricing is not straightforward here for these products. And I think we feel that we're very well positioned because of the depth of real world data that we're able to bring to bear and the discussion with payers to support our pricing approach there. So it's too early to tell how it will play out, but we feel quite good about where we are set up. Okay. Thank you. Yes. Thanks, Richard. Thank you. And we have a follow-up question from Erik in Carnegie. Go ahead, sir. Your line is open. Yes. Hi, again, a couple of follow ups, if I may. First, could you give us some more color on when we could expect reimbursement in France and Italy? Will it be in the 3rd quarter or more into the 4th quarter? And then secondly, I know it's very, very early days for Alprolix, but do you have any intel or any input regarding the market share or number of patient starts on Alprolix versus the CSL drug in Germany? Thank you. Okay. So I'll take a crack at those, Eric. We feel fairly confident that both France and Italy will come in Q3. And actually anything can happen, but we're in quite advanced discussions with both. So we're not guessing. I mean, we're very close to final in both geographies. And for Alcolytics in terms of market share, we're not aware of any first sales for Idelvion yet, but of course, we don't have perfect insights. So we're really way too early to have a sense of how shares might develop there yet. Perfect. Thank you. Yes. Thanks, Eric. Mark, I think we have time for 1 or 2 more questions here. Okay. Then the penultimate question is from Guy Martin of Bafarma Lesser. Go ahead, sir. Your line is open. Afternoon, gentlemen. Yes, I've just got a general question actually about reimbursement, and it's more or less been answered now. But I was just going to ask because it's quite a big issue in pharma at the moment and lots of companies have spoken about their frustration with getting payers to agree. I don't know if that's been your experience at all. It sounds like your experience has been quite positive in your interactions with payers. I don't know if you've had any frustrations at all generally with your products. Well, I mean, it hasn't all been unicorns and cinnamon, that's true. But on the other hand, I think there's probably very few chairs that fit in that are as difficult as being in the payer's chair. I mean, you want to get the best for your citizens, but it's a tough budget environment and it's often not so easy to predict how new products will come in. So I would say our experience so far has on balance been very, very positive and mainly because we have been speaking with payers so long about these product launches that there haven't been any surprises for the payers. And I think likewise for us, the real benefit of that approach has been we haven't had any real surprises either. So we have had some challenges and some difficult discussions, but so far the results of those discussions have been quite good. Okay. That was it for me. Thank you very much. Thanks, Guy. I always wanted to say unicorns and cinnamon on an earnings call. So now my day is complete. You're welcome. I got to say that. Yes, thank you. Okay. And our final question then comes from Samir Devani of Rx Securities. Your line is open. Good afternoon, everyone. Just a couple of Just on I think on the last quarter's call, we were speculating at that time about the spin off of the hemophilia franchise by Biogen. I was wondering now that, obviously, that's a bit more official, whether you might want to comment a little bit more. I think at that time, you talked about it being a bit too much of a bite size, but I'm wondering whether you've had any other thoughts on potentially restructuring that deal with them? And if not, are there any changes in the liabilities should somebody else acquire that business? And then just a small question on KEPMATS. Maybe you could just give us a bit more details on why that was withdrawn from the European market in terms of marketing. Okay, great. I'm glad you got on the call center. I was wondering if we had blocked the eyes here. So let me take a crack at both and Alan can add some color as well if needed here. So with respect to the spin, I think that's gathering momentum. We're in very close contact and dialogue with them about it. I think on balance, we feel very positive about it. It will create a really dynamic, very focused company that depends totally on survival for performance in this area. And I think that's something that we can really recognize and align with. And as an entity, they will be relatively similar in size to us. So we're feeling like the spin on balance is really a positive. It doesn't lead to any meaningful restructuring of the relationship. It's a pretty linear transition of the collaboration across to the new company. So we don't see any negatives or anything there that will be disruptive. And of course, the nature of the spin is to prepare for and execute a public offering. So at this point, it's just too early to understand how that will perform and be valued. So we'll kind of pay attention to that as things evolve later this year. Capyfontein is just a very straightforward commercial reasons decision in Europe. The label had become so relatively narrow and usage has become so niche that we felt we could continue to support those few centers who are working with Kenarat on an individual physician basis without supporting a broad approval. So we decided in the end to withdraw it for commercial reasons. And so we did so at the end of April of this year and the procedure has gone very, very smoothly. That's great. Thanks very much. Yes. Thanks, Sameer. Mark, is there anybody desperately waving? Or are we in a good place to wrap up here? We still do have further questions, if you want to take any more. Well, we have a couple more minutes. Let's take at least one more, maybe 2, depending how it goes. Okay. Sure. The next question comes from Richard Parkes of Deutsche Bank. Go ahead sir. Your line is open. Hi. Thanks for taking my follow-up. Just a clarification really. I'm going back to the royalty estimate on Eloctate U. S. Sales. You said that, that was based on estimates from monthly reports. I wanted to clarify, is that IMS data sort of monthly reports? Or do you get reports directly from Biogen on a monthly basis? And then the second question was just on the NHS framework agreements in the UK. I'm just wondering when final guidance for England might be completed. Yes. So, no, our royalty estimates from Biogen are based on data that's shared with us from Biogen, but it's shared in arrears. So I don't want to give an overly precise view of how we estimate there. For the NHS, it's interesting. In England, we have a framework agreement in place. It's fully agreed. And like they've done for all drugs, they've asked clinicians to write a guidance for adoption. And so we're just waiting for that guidance to be fully ratified and then we're ready to go. So it's a little bit hard to predict. It's been predicted to be kind of weeks, but let's see. Certainly, we would expect it to be done over the summer. Great. Thank you. Yes. Thanks, Richard. Thank you. Take one more Mark. Okay. Then the final question comes from Peter Seidl of Handelsbanken. Your line is open. Hi, Peter. Thank you for taking my questions. Since you did such a great job on the CFO part, I'll dig into some of the working capitalizations in some of your Middle Eastern countries, but I think I'll just skip on that. Thank you, Peter. In France, I guess you had a positive health technology assessment on May 27, which should mean that you should have a decision there within 3 to 6 months. I don't know if you comment on this on the conference call, but can you confirm that this should be on the French market by Q4 of this year and also the same thing in Italy? And secondly, a split on R and D and SG and A costs. Can you give a split between 1st and second half of this year? Thank you. And the last question, just a brief update on patent situation for Kineret and Orphodate in the U. S. And EU, respectively, just as a housekeeping kind of thing? Thank you. Sure, Peter. Thank you. I'll try to get a crack at this in our short time here, but if I miss it, then we'll come back offline here. So I can say with fairly good confidence that both France and Italy will be in place by Q4 and we're obviously hoping and planning for an earlier establishment of reimbursement in both countries. With respect to R and D and SG and A, I would expect that SG and A will move in a relatively linear fashion, half 1 to half 2. In other words, no significant changes. R and D, it's a little bit earlier to say because we'll be taking on costs when we become the MAH holder for Alprolix. But I don't expect there to be a high degree of uncertainty around that. So I do expect that half 2 will be higher than half 1 for R and D, but it shouldn't be a massive change. To quickly take your point about the patent estate for KINARET, the patents for the current formulation in the U. S. Run until 2020 or 2021 depending on the family and will expire during the course of 2017 in a few of our European countries. The citrate free formulation, which has now been granted in both the U. S. And Europe, will have protection through 2,032 and we would expect to manage that transition towards the end of the teens here. Orphanin is off patent in the U. S. And has been since 2013 and will come off patent in a very small handful of countries in Europe at the end of 2016 and then the European patent will expire in the middle of 2017 in Europe. The patent protection for the liquid formulation for Orphan will be in place until 2,032. Okay. And just the conversion on Kineret you say, should that be complete by the end of the decade? Was that what you said? Yes. By the end by 2020. Yes. Okay. All right. Perfect. Thank you very much. Okay. Thank you, Peter. Okay, Mark, I think we're at the top of the hour here. Maybe I can just reiterate my thanks to all of you for joining us for the call. If there's anybody who is in the queue who didn't get a chance to get a question across, please reach out to us during the course of the day. We're all available and very happy to connect to provide any follow-up color as always. And if things occur to you in the coming days, we're available next week as well. And with that, I think we can just wish everybody a great weekend and a terrific summer. Thank you, Mark, for hosting. Thank you. This now concludes the conference. Thank you all very much for attending. You may now