Ladies and gentlemen, welcome to the presentation of the Q2 results 2015 for Sobi. I will now hand over to Geoffrey McDonough, CEO. Please go ahead.
Thank you, Eleanor, and good afternoon. Good morning to all of you who are joining us, and thank you for sharing the second quarter and first half results for Sobi. It's been a very solid first half, one marked by quite strong operating momentum across the portfolio, and one that sets up quite a good platform for the second half of the year, where some of the components from our pipeline will come into play, most notably the launch of Elocta, and we'll bring some highlights in today's comments about our preparations and readiness for that. Of course, other nice milestones in the first half, and particularly in the second quarter this year, have come with the approval of Orfadin liquid and 20 mg capsule, as well as the filing for Alprolix.
As usual, I'm joined today by our Chief Operating Officer, Alan Raffensperger, and our Chief Financial Officer, Mats-Olof Wallin, and in turn, each of them will review the operating portfolio and the financials before I return to close the call before Q&A. From a highlights perspective, as I said earlier, the pipeline had some nice highlights for us. We worked for quite a long time on the oral suspension and 20 mg capsule for Orfadin. These are formulation and formats which will allow for more precise dosing in pediatric and adolescent patients, and in our view, will make a real contribution to more sustainable adherence for patients around the world.
The filing for Alprolix came in earlier this month and was validated by the EMA, and it's part of a wave of data and visibility that the company and these products have had over the last six months, in part culminating as well with 23 abstracts at the ISTH meeting in Toronto a couple of weeks ago. We also decided to terminate further development of SOBI-02 in favor of a novel C5 inhibitor, which we're advancing into pre-clinical development. That allows us to maintain our commitment to the space, but to take advantage of a new molecule that has several additional features which we think will give it an advantage going forward. After the period this morning, we did also exercise our opt-in right for Alprolix based on the triggering events of the MAA filing. From a results perspective, total revenues increased 15% in the quarter.
Quite a significant contribution of exchange with a 4% growth at CER. Product revenues grew at 25%, 12% at constant rates. ReFacto, as we expected, had a slight step down compared to quarter to last year, mainly due to phasing effects as we'll touch on. Gross margin came at 63%, based mainly on mix. EBITDA came in at SEK 74 million. Cash flow from operations was SEK 79 million. If we now take a year-to-date lens on the results, you can see that the first half, compared to last year, grew 32% and 20% at CER, coming in at SEK 1.6 billion with about a 39% growth on the product revenue side, 25% at constant rates to deliver a result of SEK 1.2 billion. ReFacto, compared to last year in the first half, grew 14%. So far this year has delivered SEK 404 million.
Gross margin for the first half in total was 61%. EBITDA has been SEK 247 million with cash flow from operations at SEK 249 million. Very stable platform, both in terms of the momentum and pace of the top line, but also stability on the gross margin and continued positive cash generation. If you take a look at this on a full year-to-date basis by category, you can see now that each of these segments continue to maintain their rough quality and size. Each of ReFacto partner products, genetics, metabolism, inflammation, living in this SEK 350 million-SEK 400 million range on a half-year basis. You can see that on the half-year basis, the growth rates here at constant exchange rates are quite good in each of the segments, again, speaking to the strength of the diversity in our overall operating business.
Nice and important also to see that we have a growing contribution from the haemophilia line. On the ReFacto side, I think the moving 12-month total and the quarterly chart kind of tells the story about how lumpy or episodic this business can be. Revenue this quarter coming in at SEK 172 million, down 8% versus the same quarter last year. Again, I think the chart gives a view of how unusual the first quarter was in this particular year. Revenue for manufacturing was SEK 99 million. Royalty revenue was SEK 73 million. On a full half one basis, the total, as I said before, was SEK 404 million. With that short introduction, I'd now like to turn the floor over to Alan Raffensperger. Alan?
Thank you very much, Geoff. Let's first take a look at our Kineret performance for the second quarter. We booked a revenue of SEK 171 million, which is an increase of 15% over quarter two 2014. Compared to the first half of 2014, our results reflect a growth of 36%. However, please remember that quarter one 2014 was weaker due to Q4 2013 stocking effects. The Q2 increase reflects continued volume growth across most European markets. In addition, our U.S. demand continues to be steady. We have been able to effectively manage the distribution shift to a premier patient-centric specialty distribution model, which will allow us to better support our patients and our healthcare providers. We expect to see the positive incremental effects of this change during the second half. Moving on to Orfadin. We booked SEK 189 million in sales, which is an increase of 35%.
First half-year results reflect 71% growth. Here again, there were some 2014 Q1 effects due to the change in the distribution model in North America. Supporting these results, we see stable growth in major markets with positive revenue impact from direct sales modeling in the Americas. Two important milestones occurred in the quarter. Orfadin liquid formulation and the 20 mg capsule were both approved by the European Commission. Revenue for our partner products portfolio landed on SEK 175 million, which is an increase of 10% over Q2 2014. On the half year, our growth reached 16%. The increase was driven by growth of Cometriq, Yondelis, and Xiapex. We are also in the process of concluding our launch preparations for Xiapex in support of the Peyronie's disease indication. Moving to our haemophilia results, we estimate royalty revenue of SEK 18 million.
This estimate is based on 2% of the latest consensus from the Biogen analysts. One important highlight for the quarter was that the marketing authorization application for Alprolix was submitted in June. We anticipate that the approval of Elocta will occur during quarter four of this year. I would now like to take a few minutes to frame the market dimensions for haemophilia A and our preparations for the launch of Elocta. In 2011, the haemophilia A market size in Sobi territories was estimated to be roughly $3.3 billion or SEK 23 billion based on 2011 exchange rates. In addition, it is also important to note that the haemophilia market is concentrated to a select group of main treatment centers in our territory, which will be supported by our highly focused and dedicated team. We already resourced well for this opportunity.
The size of our team needs to be appropriate. The competencies and the way we work will also be key. Over the past few years, we've been able to recruit and train a fully dedicated, launch-ready organization of 75 strong with broad experience. Many on our team already have deep competence within the haemophilia sector. They have been recruited from most companies active within the sector, as well as other rare disease companies. We already operate in a fully dedicated and tight way to be able to address the needs of payers, the scientific community, and our customers. We are fully staffed, trained, and prepared for launch. This is mission critical so we can make the most of the approximate 18-month window between the expected approval of Elocta and the expected entry of the first potential long-acting competitors.
It is a great responsibility to be the first to market, as patients will likely not switch from long-acting to other long-acting products. I'd like to hand over the earnings call to our Chief Financial Officer, Mats-Olof Wallin.
Thank you, Alan. Turning over to the profit and loss statement. As Jeff said initially, our revenues came in at SEK 764 million for the quarter, which is an increase of 15% versus the same period last year. Gross margin came in at 63%, which is an improvement of 2 percentage versus last year. Sales and administration expenses have increased versus the same period last year. This is due to that there is a build-up of specifically the marketing, the medical, and the patient access organizations to prepare for the planned launch of the haemophilia programs. You can also see on the headcount in our report that FTEs have increased substantially during the first half. At the end of December 31st, Sobi had 584 FTEs. At the end of June 30th, the same amount was 648.
In addition, the currency effects have been substantial on the top line, but they have also been substantial on the sales and administration line. This has impacted the cost with 7% unfavorable. EBITDA came in at SEK 74 million for the quarter versus SEK 86 million for the equivalent quarter last year. Looking at the half year, the first six months, our revenues came in at SEK 1,629 million, which is an increase of 32% versus the same period last year. At constant exchange rate, the increase is 20%. Gross margin came in at 61% for the first six months, which is an improvement of 2 percentages from 59% the same period last year. EBITDA for the first six months came in at SEK 247 million versus -SEK 202 million last year. However, last year was impacted by the Kiobrina write-off of SEK 325 million.
Excluding this write-off, EBITDA was SEK 123 million last year, meaning that the EBITDA has increased with 100% during the first six months. Turning over to the balance sheet. The balance sheet has been stable during the first six months. The only line item that has changed substantially is cash. Sobi has been able to consolidate the position here. The cash has increased to SEK 763 million at the end of June, versus SEK 503 million at the end of 2014. Looking at the net debt, we can see that now that the net debt is at SEK 57 million, which is the lowest net debt for Sobi ever. However, I would like to draw your attention to that with a recent announcement of Alprolix opt-in, that Sobi will now pay $10 million for an opt-in in this quarter.
As a preparation for the Elocta launch, Sobi will now start to build inventory for Elocta. By that, I hand over to our Chief Executive Officer, Jeff McDonough.
Thank you very much, Mats-Olof, and thank you also, Alan. As usual, I'll just close by touching on the summary and a couple of areas of focus going forward. From an outlook perspective, as you've seen, we've decided to slightly raise our guidance on the top line to SEK 3 billion-SEK 3.2 billion, and we now believe the margin will land in the range of 59%-61%. We've made no changes to our expectations on OpEx, as we do expect to continue to invest to bring ourselves to a point of readiness for both the Elocta and subsequently for the ALPROLIX launches. We now feel more confident to predict EBITDA on the range on a slightly more narrow basis at SEK 325 million-SEK 400 million.
I think from the point of view of our key areas of focus, not much has changed, and I expect I'll show this slide again in another three months or so. We continue to believe that a diverse and growing and consistently profitable business on our core geographic areas and platforms is a foundational part of the business. Now, as you've heard in this presentation from Alan and from myself, we're really focused solely on being ready to take full advantage of all that the long-acting hemophilia factors have to offer patients in a next-generation therapy for the disease. I think as we look forward, we'll be increasingly focused on how we build our portfolio and franchise beyond our current base. That's a focus that won't take hold in a serious way until the end of the year or early next year.
In summary, we now present results from the first half, which show very solid operating momentum. The pipeline events around Orfadin and ALPROLIX I think were quite welcome in the second quarter and came in as we planned them to. As I've said a couple of times, we're very focused on bringing ourselves to the point of launch later this year. With that, Eleanor, I'd like to conclude our formal comments and open the Q&A process. Thank you.
Okay. Thank you, Geoff. Ladies and gentlemen, if you have a question for the speakers, please press zero one on your telephone keypad. That's zero one to ask a question. We have a first question coming in from Ms. Yin Ying. Please go ahead.
Well, thank you. Good morning, good afternoon. Jeff, you mentioned that you discontinued the SOBI-02, but you have a novel C5 inhibitor. Is this a novel product also based on antibody technology?
Yeah. Hey, Yin. It is still based on the antibody platform. It has a different configuration and a few different features. As soon as we have the patent estate consolidated for the molecule, we'll be happy to talk much more about how it's designed and why it was designed the way it is. We feel quite good about it at this point.
Okay. In terms of a hemophilia product launch, once Elocta is approved, how long do you think it will take to secure a reimbursement from various governments?
Yeah. Well, we've been quite thoughtful about that. Obviously, I think there's still a few markets in Europe which will go relatively early in the launch sequence, where pricing and reimbursement is a relatively free or local matter or some combination of the two. We could expect to have first sales relatively quickly once final labeling and distribution is in place following the approval. Of course then there's a spectrum in Europe beyond that, where some countries will require a relatively short value dossier and pricing negotiation process, and others will take the same process out to a duration of 18-20 months. We expect that the launch in Europe will unfold over a totality of around 24 months once we start the launch.
Once Elocta reimbursement in place, do you think that ALPROLIX launch, expected in the second half of next year, will be faster upon approval?
That's a great question. I think every case is treated the same, but there's certainly an advantage to having a second product on the same platform come to market when another has been through the process. To the extent that payers are wondering about how the product works or where it should be positioned or what its advantages are, in that sense, I think Elocta will certainly set the place or set the table for ALPROLIX. I hope that does translate into it moving more quickly, but we'll know better how it's going by, well, more or less by this time next year.
Okay, thanks. My last question is on haemophilia gene therapy. You are in discussion for potential partnership. Is that both haemophilia A and B? Also, can you comment whether it's a clinical or preclinical compound, particularly on haemophilia B?
Yeah, no, we're not at a specific stage yet. I think it's more to say that we're certainly open to partnerships for next generation therapies. I think at the moment, it's not clear, at least to me yet, that an approach from a gene therapy perspective for haemophilia A is going to be feasible. Although we're very open to have a view on that. I think for us in the next generation, for the short term, we're very focused on the XTEND platform with Biogen. Of course, we'd like to be thinking about this franchise in a 30- or 40-year time frame. We're looking beyond that as well.
Okay, thank you.
Yeah, thanks, Yin.
Okay, we have our next question on the line coming from Mr. Richard Parkes from Deutsche Bank. Please go ahead.
Hi. Yeah, thanks for taking my questions, and congratulations on the good set of results. The first one, I'm just wondering how much interaction you've been able to have with payers in Europe about market access prior to the launch and what the feedback has been, on where you see sort of challenges and the low-hanging fruit there. Secondly, just in terms of longer term strategy, obviously, there's success with Elocta now ALPROLIX moving to market and SOBI-02 termination kind of highlights the gap in the pipeline. I'm just wondering how much focus you're having on business development to address that, or is that too much of a distraction for management time, given the execution on the launches in the near term? Those are my two key questions.
Yeah. Thanks, Richard. I'll take them each in turn. On the payer side the access and the ability to discuss these products has been extremely good. It has been surprising for us to learn when we started to engage with payers 24 months ago, how open they were to have a discussion about a product that was 24 months away. The doors were open. The discussions have been fluid. We've had several visits with most payers in our Tier 1 markets, and frankly, they appreciate knowing what's coming further ahead from a commercial perspective than I think most appreciate.
I think the main feedback has been around the relative size of their commitment to the hemophilia treatment market already, and their desire to understand how these products will be positioned, how they will be used, what value they will bring, will they be mainstream, or will they be more niche in nature? These are the kinds of factors that determine for them how much of the budget ultimately should be potentially set aside or thought about when it comes to the value adoption review and the pricing discussions and negotiations. I think I can say quite positively at this point that we have a very firm understanding of where payers are, and that in return, they have a good understanding of where these products will enter and how they will be taken up. I think so far so good.
Of course, we'll come to much more concrete discussions once we have a CHMP recommendation later this fall. On the longer term pipeline side, I think you ask a really important question there. It's one we spend a lot of time thinking about. I think we have two approaches in mind. One is to really rejuvenate and accelerate our early-stage work, and we have several assets in hand, which we'll talk more about later this year. Obviously, as you pointed out, we are going to need to either partner or acquire mid-stage and later-stage assets. We are quite active in that space, but we are not focused on deal-making in the next three months at least, for exactly the reason you point out, which is management bandwidth and focus on the launch.
We know that's an important part of our story, we want to do deliberation before we come to the point of deal-making there.
Great. That's perfect. Just one follow-up on SOBI-02. I wondered how confident you were that the issues that you'd seen didn't have broader implications for the technology platform.
Yeah. It's a good question. I think what we came to was a fairly deep understanding of the specific issues with the molecule that we were working with, SOBI-02. We believe we've really addressed those with the design and the composition of the molecule we'll take forward. One of the challenges is that SOBI-02 is a bivalent molecule which has yet a third valence of interactions. It's binding to albumin. As a result, it's really impossible to draw conclusions that would be platform-wide on the basis of what we saw with that molecule in particular.
Okay, great. Thank you.
Yeah. Thanks, Richard.
Okay. The next question comes from Mr. Johan Unnerus from Swedbank. Please go ahead.
Good afternoon. Thanks for taking my question. Johan Unnerus from Swedbank. On the sort of preparation for the launch, clearly there is a substantial increase in sales and marketing, and you gave us earlier indication that you are well on the way to prepare. Can you say something about have you got 80% of the sort of sales staff in place, or is it more now?
I think I've had this question a couple of times too, where people are asking, is this ramp something that should be projected in the future, or is this kind of a new base that will run? I would say it's a little bit of both, but the reality is that the ramp in costs has been steepest to where we are today. We are mostly at the run rate from an SG&A perspective that we would expect to be at to support the launch in our Tier 1 markets. It will incrementally ramp from here, but at a much lower rate than what you've seen up to now at the end of Q2.
Okay. That's useful. What about the growth margins? There's a royalty effect, I presume, in this quarter. If we would normalize that, would it still be an uptick in the gross margin?
I'm not sure I totally understood the question. You're asking if you normalize which parts of the royalty?
Sorry, I'm not thinking about the royalties coming in from Biogen. Presumably, they will continue and continue to increase. You have some royalties relating to ReFacto as well, and that's probably supporting your growth margin in this quarter as well.
Mats-Olof Wallin here. I'll try to answer your question. We had a very good gross margin in this quarter. Historically, Sobi has always had the highest gross margin in the second quarter due to the contract that we have relating to ReFacto, which means that we will have the highest royalty revenue in the second quarter due to the contract set-up. We do not anticipate that 63% will be in the coming quarters. Also, as you can see from the outlook, that we estimate to be in the range of 59%-61%.
Yes. To follow up then, even if we would sort of disregard this ReFacto effect, is it still an uptick in the gross margin, or is it fairly normal?
We have had positive currency effect, which slightly has impacted our gross margin positively.
That's useful.
There's also a natural component of product mix. In any given quarter, the more higher-margin products we sell versus lower margin, that's partly what accounts for the variability we see in the margin in the business at the moment.
Another one for housekeeping, the financial net and the tax is sort of a bit unusual in this quarter. Could you give a bit more explanation on that?
The financial net is impacted of negative exchange rates, currency impacts. This is due to that some of the balance sheet assets that are impacted, the currency effects there impact the financial net. As you can also see that we have other negative exchange rate effects in other operating revenues or in fact in other operating costs.
Okay. Should we expect that to continue for the rest of the year to some degree?
Well, the currency is really difficult to forecast, honestly. We can see now that the Swedish krona has weakened slightly during the first week of July. How the future looks on the currency, it's really hard to predict.
Indeed. What about the tax?
Tax is where we can over-amortize on our intangible assets, which has a positive impact on our tax line.
Okay. That's useful. Thank you very much.
Okay. Thanks, Johan.
We have our next question on line coming from Mr. Samir Devani from RX Securities. Please go ahead.
Thanks for taking my questions. Geoff, it was just coming back to the royalty on ReFacto. Obviously, it's a very strong quarter for the royalty income, even factoring in the weaker SEK, it seems substantially higher than I think you've had before. Can you just help us understand why it's jumped so much over Q1?
Yeah, it's actually a very simple explanation, Samir. It's that we have a royalty rate which actually varies across the quarters in the year. The actual rate that's returned to Sobi is highest in Q2 and then goes back to a lower base rate through the year. What I'm trying to say, it's not an organic reflection of the business per se, it's just the way the agreement works.
I suppose my question comes because in Q1 you had SEK 24.5 million versus SEK 26 in Q1 last year, it's gone from SEK 753 to SEK 73 this year. It seems as if there's been almost a phasing effect there as well. Is that right?
That's exactly right. The terms of the agreement had been reset in the same time frame. You're just seeing the evolution of the agreement through that period.
Okay. Final question, just coming back to the R&D and obviously the current state of the pipeline, you talked about having some plans to sort of supplement that. Assuming that you did not in-license anything next year, would your R&D spend fall from the level that you'll achieve this year?
The answer is probably no. Although the R&D line as we have it set is not only covering the early-stage work that we do. We have in the same line a broad suite of activities that support life cycle management activities for the approved products, support for the scientific and medical community around those products, as well as the core medical support functions like Pharmacovigilance, regulatory, medical information, medical affairs, et cetera. Since many of those investments are also ramping for our later-stage products and for the hemophilia franchise, I don't expect that we will see a big step down, per se. That shift that you're sort of leaning towards or thinking about really occurred when we took the write-down for Kiobrina this time last year, where we really reallocated much of our R&D organization away from late-stage projects.
Okay, that's great. Thanks.
Yeah.
The next question comes from Mr. Lars Hevreng from SEB. Please go ahead.
Yes, thanks. Can you just clarify, your comment about expecting fourth quarter approval for Elocta in Europe, does that relate to the first recommendation for approval, i.e., the announcement from the CHMP meeting, or does it also include the formal recommendation from the approval from the European Commission?
Yeah. Thanks, Lars. We're thinking about the formal approval.
Okay, thanks. Also too, as you mentioned about the inventories build-up starting now, could you give some indication too, the amount that you would expect ahead of the fourth quarter launch?
I think at this point, partly because I don't have the number off the top of my head, Lars, and partly because I don't want people to think that they can read into our launch expectations with a number. I'd rather not give a number just now, but I think you can expect that the size of the inventory position will be substantial relative to our size as a company, partly related to the size of the market and partly related to the value.
Okay, thank you.
Sure.
We have a last question on the line coming from Ms. Yin Ying. Please go ahead.
Yes. Thank you. I just have a quick follow-up on a couple of pipeline products. In the past you presented SOBI-03 for enzyme replacement therapy and then also IL-1 antibody product. Can you give us an update on the status of those two products' development?
Thanks, Yin. SOBI-03, as you might recall, we've been waiting to talk a little bit more about that program because we wanted to consolidate the patent position. We decided to try to do a series of additional experiments to supplement the patent that has become locked in April. We expect to be able to talk more about that program in Q3. We feel very good about it, very excited about it. Again, as excited as you can be about an early project. We'll certainly talk more about it in detail later on this year. The follow-on projects that we have for Kineret, essentially, we'd like to be able to bring forward a new version of Kineret with some different attributes and qualities to it. Both of those efforts are in the pre-clinical stage, but moving along well.
As soon as we're able to say something about them moving into formal pre-clinical development, then we'll press release around that and talk about them more fully.
Thank you.
Both are still underway. Yeah.
Thank you.
Yeah. Thanks, Yin.
Okay. There are no further questions so far. Just as a reminder, it is zero one to ask a question. We have one more question on the line coming from Mr. Peter Sehested from Handelsbanken. Please go ahead.
Yeah. Hi, it's Peter from Handelsbanken. Hope you can hear me.
Yes. Hi, Peter.
Hi there. Just a couple of housekeeping questions, please. Have you, in your guidance, your revised guidance for 2015, assumed a launch in Q4, i.e., change in royalty rates, booking of the one-time credit, et cetera?
Thanks, Peter. We try to be careful in the guidance to exclude any income from the launch or from the royalty payment mechanism, precisely because we haven't been able to give exact timing. We also wanted to give visibility into the base business. If we are able to make a first commercial sale in 2015, then you will see a significant one-time income on the top line that will drop through the P&L in the fourth quarter. We have not guided towards that, and we have not included that in our guidance.
Just to check if that is the case, the 10% one-time credit, that it would be booked in Q4 if you were able to launch that. Is that correct?
Absolutely right.
Okay.
If you'd personally be interested in purchasing a vial of Elocta in late December, please let me know.
I don't think that would be compliant.
No.
if you write a nice letter to me in jail, I could probably do it. No. Just one follow-up then. How should we think about your R&D costs in the medium term, also given the pipeline then?
Yeah. I think in the medium term, you should look at them as relatively steady. Obviously, there will be some incremental growth on that line related to the factors I was just speaking to a little bit earlier to Johan's question. I think the R&D investments for haemophilia are not over. I think as we have been building the core medical team to support the franchise, we are also now transitioning into the investment curves for lifecycle management and further scientific support. That line will continue to grow, but incrementally. I think we are in a relatively steady state today. Obviously, once we are fully operating under the terms of the collaboration agreement, when we are the marketing authorization holder, there will always be some additional costs that come in to support Elocta, and then subsequently for Alprolix as well.
Okay. I also did not catch the answer to Johan's question regarding the SG&A costs. Should we consider the SEK 346 million as a run rate for the remaining of the year?
I think you should view that as the base for the remainder of the year. We will incrementally continue to grow from that base, but it will not reflect the growth rate that has brought us to this base today.
Okay. Thank you.
Yeah.
That's it. Thank you very much.
Yeah. Thanks, Peter. Okay.
All right. There are no further questions on the line. Again, it is 01 to ask a question.
Okay, Eleanor. Well, while folks are thinking, if they have a last question, let me say thank you again for everybody's time and sharing these results from the first half here at Sobi. We will certainly look forward to connecting again for the review of our quarterly results in Q3 in late October. Has anyone else come forward with a question, Eleanor?
No, there are no further questions.
Okay. Well, with that, let's just say thank you to you, Eleanor, for hosting, and wish everybody a great weekend and a great summer vacation.