ALK-Abelló A/S (ALKB) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to this webcast regarding ALK's in-licensing of neffy, the world's first approved nasal spray with Adrenaline for the treatment of anaphylaxis. My name is Per Plotnikof. I'm Head of Investor Relations. With me today are CEO, Peter Halling, Head of Commercial Operations, EVP Søren Niegel; and CFO, Claus Steensen Solje. And we will now take you through a brief presentation, after which we'll have a Q&A session. To get started, I'll hand over to Peter Halling and Slide #2, please.

Thank you, Per, and thank you all for joining this call. At our Capital Markets Day in June, we presented ALK's new strategy, Allergy+. Today's announcement delivers on key elements of this strategy as we progress towards establishing leading positions in the broader allergy space. I'm happy to say that during the weekend, we announced the single largest in-licensing deal in ALK's history. For an upfront payment of DKK 145 million, we have acquired the rights for parts of the world to neffy, the first and only approved nasal spray for emergency treatment of acute potentially life-threatening allergic reactions. neffy, a product with the potential to transform treatment and significantly expand our markets. Building on the first-mover advantage, we intend to build a substantial business in anaphylaxis in our key markets and beyond, and we start now, approximately 3 years earlier than originally planned. We also gained exclusive rights to all future indications such as acute flares associated with urticaria currently in Phase II development by ARS Pharma. Urticaria is one of the disease areas we are targeting in the broader allergy area. The deal will contribute to growth from 2025 and onwards and be earnings accretive within a few years. Longer term, we see a highly attractive peak sales potential that will further amplify our underlying earnings development. Importantly, the deal also supports ALK's core AIT strategy, including our pediatric ambitions as children and their caregivers are expected to favor needle-free, convenient anaphylaxis treatment going forward. In a little longer perspective, neffy also fits perfectly in with our future product portfolio in food allergies because the frequency of anaphylaxis is particularly high with people suffering from food allergies. And moreover, as with ALK's global portfolio approach in AIT, then with neffy, Jext and Genesis, we are building a strong global portfolio and a market position in anaphylaxis, currently being the only company with both adrenaline auto-injectors and a needle-free solution. To sum up, the in-licensing is a very important step in our strategic efforts to establish a leading position in anaphylaxis, food allergy and other connective disease areas such as urticaria, a deal that will create strong synergies with our core business in respiratory allergy and neffy moreover also supports our long-term financial ambitions, which remains unchanged. Claus will detail the financial impact later. Slide 3, please. The license agreement with ARS Pharma grants ALK exclusive rights to commercialize neffy in all territories globally with the exception of the U.S., Australia, New Zealand, Japan and China. We will prioritize resources and initially focus on bringing neffy to markets in Europe and Canada, where neffy easily can be added to our existing infrastructure and sales channels and where we can leverage the strong scientific and commercial links to our existing product portfolio. Europe is our main market, and Canada is a top 10 market for ALK today. Together, Europe and Canada constitute around 1/3 of the current world to market for adrenaline auto-injectors or pens if we measure in volumes. European and Canadian AAI auto injector markets currently hold a combined value of around DKK 1.6 billion with a significant untapped potential in both markets. neffy's superior product profile also enable us to address low penetration or even white space markets in other regions such as Asia, Latin America and the Middle East. Now let's turn to Slide 4 and over to Søren and projected other market developments. Søren?

Thank you, Peter. Before we take a closer look at our core European market, let me briefly introduce neffy. As you'll appreciate from the right side of the slide, neffy is a small compact nasal spray designed to provide rapid absorption of adrenine. It's easy to carry even when it's a pack of 2 devices as recommended in international guidelines. It's also easy to administer for patients, for relatives and for caregivers. In case of emergency, you just insert it in a nose and press. The solution was well tolerated in clinical trials, and it offers longer shelf life and superior temperature stability compared to existing auto-injectors. We are convinced that neffy offers the best solution to the challenges related to auto-injectors. Patients find pens bulky. Patients are, in general, uncomfortable with injection-based delivery of rescue medicine, also relatives and also caregivers. Patients do not administer when needed. They delay the administration or even fail to use it correctly. Moreover, most eligible patients don't even have an adrenaline pen, perhaps for the same reasons I just mentioned. That being said, many health care professionals and patients value the long-standing clinical practice of pens, which we will accommodate with our portfolio strategy. Slide 5, please. In our main market, Europe, more than 20 million people are estimated to be at risk of severe allergic reactions, yet only 2 million carry their rescue medication and many people fail to renew their prescriptions. The current auto-injector market in Europe is approximately 3x lower in units than the U.S. market and the opportunity space in a number of patients is 10x up compared to the current market size. The European adrenaline auto-injectors market has been growing by 8% per annum from 2013 to 2023, again, measured in units, and ALK has a market share of around 20%. We expect neffy and future needle-free innovations to gradually transform treatment and accelerate market growth. Small needle-free solutions appeal to broader patient groups, especially the patients with needle phobia on needle-related safety concerns to children to newly diagnosed patients, hesitating patients are noncompliant patients carrying pens. Experiences from other emergency medicines moving from needle to nasal support these projections, so does key opinion leader insights and research among patients and prescribers suggest high willingness to adopt neffy. We expect needle-free solutions to grab the lion's share of market growth, but also leave room for coexistence with auto-injectors. Our ambition is to become market leader in anaphylaxis in Europe, just as we are in AIT. We acknowledge that this is a long-haul effort and will expectedly take time. Slide 6, please. In line with our Allergy+ strategy, we will address the anaphylaxis market with a portfolio of solutions with multiple administration forms. A similar approach as we have to respiratory allergy where we both market tablets, injections and drops. Bringing a range of options to the markets will help us meet the diverse needs of patients and prescribers and position us to changes in clinical practices. Hence, we will continue to market our existing adrenaline auto-injector Jext in Europe and selected international markets. We will also continue to develop a next-generation auto-injector, the Genesis project. with the ambition to launch in first markets by 2028. And finally, we'll have neffy, where AIS supplies finished goods to ALK. So an innovative portfolio. fronted by the best-in-class Genesis pen and the first-in-class nasal solution neffy, backed by our legacy Jext. We expect this to become a winning portfolio over time. so that anaphylaxis, currently a business making up less than 5% of ALK revenue will become an important revenue stream. Slide 7, please, and over to you, Claus.

Thanks, Søren. Let me take you through the expected time lines and the financial implications. In Europe, which is branded EURneffy, the product is currently authorized for use in adults and children weighing 30-kilo or more. We will immediately initiate market access negotiations to settle pricing and reimbursement in key markets. We expect first launches to take place in the EU in the second half of 2025 with more launches to follow in '26, '27. Moreover, regulatory submissions for the important markets, U.K. and Canada are being prepared and neffy could also become available in these markets in 2025, subject to approval. By the way, then U.K. is our largest adrenaline market today. Moving ahead, we expect that dose for children weighing 15 to 30 kilograms to become available late 2025, subject to approval, and this will further support our overall pediatric ambitions. In addition, we have potential add-ons such as indications for toddlers and indications and new disease areas under development including urticaria, which Peter referred to. Moving to the financial implications. ARS Pharma is entitled to an up-front payment of $145 million due for payment this year, as well as customary milestones payments related to specific events and double-digit tiered royalties in the teens on future sales. We will finance both the up-front payment and future milestone payments out of our available cash and credit facilities. After the up-front payment has been paid here in 2024, ALK will still have a very conservative debt structure with an expected net-debt-to-EBITDA ratio well below 1x. And if everything goes accordingly to plan, the effect of this up-front payment will be washed out by the end of 2025 due to the expected positive cash flow development. Therefore, this leaves us with ample opportunities for further strategic investments while still maintaining a healthy profitability for the company. Regarding top line growth, we expect this deal to contribute from 2025, but the initial impact will be limited. neffy will likely deliver less than 1 percentage point of ALK's revenue growth in '25. We expect sales to gradually increase from '26 and onwards, and we estimate that neffy holds a mid-2030s annual peak sales potential of up to DKK 3 billion in anaphylaxis in the licensed territories. On top, there may be the upside to this potential from new indications in other disease areas. The in-licensing will impact cost of sales in the form of cost of goods, i.e., our purchase price and royalties to ARS Pharma as well as amortization of the up-front payment and milestone payments over a 15-year period. The in-licensing will also require additional sales reps and marketing expenses. Still, neffy is expected to become earnings accretive in a few years, more precisely towards the end of the current strategy period. After 2028, we expect neffy to contribute positively to ALK's earnings with an EBIT margin well above 25%. Let us turn to Slide 8, please. To sum up, we remain confident that this deal is highly accretive to our Allergy+ strategy. It allows us to start building sizable business revenue by at least 10% on average and it supports our long-term earnings ambitions without jeopardizing the 25 in 25 ambition. After the current strategy period, neffy EBIT margins are expected to exceed 25%. With this summary, I would like to hand it back to you, Peter, and Slide 8.

Thank you. Peter and thank you, Søren and Claus and will now move into the Q&A session, and I'll kindly ask the operator to go ahead.

[Operator Instructions] The first question we have comes from Thomas Bowers of Danske Bank.

Congratulations on the deal here. So a couple of questions from my side. So first of all, on Jext, so, I'm just a bit curious on how this will affect Jext going forward? Because I guess, you, of course, will be first detailing neffy. So does first generation Jext fit into the long-term portfolio. And then also, I see that you continue with Genesis, but is this maybe primarily for the U.S. market longer term? Or how does this actually fit into the neffy product? And then maybe just I get a few comments, if you can, on pricing, potential. Of course, you have pending market access reviews. But is there anything that, can I ask you against at least maybe a 50% premium here to Jext given that you have more temperature stability and also, of course, the very long shelf life. That looks quite impressive there. And then maybe, just my last question for now here. Just on -- we have, of course seen a lot of start outs in this segment. So -- and also given that ARS Pharma will supply a finished good to ALK. So anything that we should sort of be aware of that could potentially become risk or concern of course, for example, if the U.S. demand for neffy is potentially higher than expected, where does that sort of leave you with product supply to Europe?

Thanks, Thomas. This is Peter. I'll take the first question on Jext and Genesis and I'll ask Søren to help on the pricing part. And then on the stock out, I can also add a few comments in terms of our supply security there. So just first and foremost, I think with Jext, we do believe that there will be a cannibalization over time, but we are also very firm believers that Jext and other auto-injectors, including Genesis when that is ready in '28 will coexist and will actually be a great solutions for both people who prefer to stay on existing solutions like pens, and then obviously, the market expanding products like neffy. So we see that Jext will continue and we also see that Genesis fits in well. So for us, it's been important to get a global portfolio that allows us to execute globally with our adrenaline auto-injectors that will continue. And then obviously, with neffy, we now have a really fantastic product that fits into our portfolio overall and will help us really expand and get this market to materialize to the extent that we've seen on the potential. So all in all, we'll continue with both, and we continue to see them coexist also going forward. And we see ALK being in a position with both products that is quite unique in the market globally. So maybe Søren, on the pricing?

Yes. Thank you, Peter. Yes, Thomas, I can confirm that we will definitely target a price premium towards -- compared to adrenaline auto-injectors. And we do that because we think this will greatly benefit patients, and it will also be an advantage for health care professionals and society in general. So that I can confirm.

And then the last question, Thomas, on the stock out and risk of supply, we have built-in mechanisms in the contract that will secure us supply. As you know, it's been a market in the past that has been suffering from supply constraints and issues that now step by step have been resolved around Jext, but other pens in the market have facing similar. We don't believe that this will be the case around neffy. The device is well established. There are currently seven indications where the suppliers, and it's multiple suppliers or three suppliers, that are currently supplying the product to the market. So we believe this will continue. And then moreover, it's quite a simple product to further scale up when you compare to other devices. So all in all, we are quite comfortable both with the contract that we have in place and also with the device in itself in terms of avoiding any stock out and risk of supply.

The next question we have comes from Martin Parkhoi, SEB.

Martin Parkhoi, SEB. Firstly, some questions on the potential milestone regulatory payments of the USD 320 million. How back-end loaded is this? And let's imagine that you hit the DKK 3 billion in peak sales as you hope for, how much of these USD 320 million will actually be paid because I guess that some of that is related to much higher sales than DKK 3 billion. And then also back a little bit to Thomas' questions on pricing. Are there also milestones related to the pricing that you expect to obtain? And then finally, just on the territories that you have been able to obtain the rights, was it your decision on these? Of course, I understand that you wanted Europe. But on the other markets that you did not obtain rights for, was that a decision by you? Or was it a decision by the seller?

Thanks, Martin. So let me start out by answering the pricing and the territories, and then I'll let Claus answer on the milestone payments. So just very briefly, there are no milestones connected to pricing. So that's the very simple answer. It's connected to the sales achievements and revenue targets we set in. So no pricing milestones. Obviously, we have an interest that the product is priced fairly. And then on the territories, it's been a negotiation like anything else. Just to be clear, many of the territories not included in the deal or actually all of them either neffy or ARS wanted to launch themselves. This was the case for the U.S. Otherwise, they've been partnering both in Japan. They had a partner before we entered this deal, the same in China and the same in Australia and around New Zealand. So you could say we took the rest. And without answering on behalf of AIS, then I think there has been a benefit to having one partner that could cover the rest of the world. And then obviously, you have the other territories with other partners or ARS themselves. So -- and then maybe on the sales milestones, Claus?

Yes, I can do that. Thanks, Martin, for that question. You're right. We have milestones in there over the next 15 years for around USD 320 million. That is what we call backloaded, meaning that the last part of this or a significant part of this is only coming when the sales is quite high and actually also way above what we are calculating in our business case. We are not going into details much more than that, but it's just to understand that what we have in our business case, then we will, of course, pay a part of the milestones, but also just to say that it is back-loaded. So we have to get much higher than what we have in our business case to pay the full amount.

Okay. If I could just take one follow-up question maybe for Peter. On the strategy plan that you put forward, you also had some ambitions on your -- some comments on your R&D ratio. I guess there will not be a lot of R&D costs for you on this project since it's already approved. So it appears that it could actually dilute your R&D ratio. So do you still stick to the range for '25 to '28 that you put forward on the R&D ratio in connection with your Capital Markets Day earlier this year?

So thanks, Martin. I think the short answer is you're right that this is obviously a commercial-ready product. That means that there are limited R&D investments. What we're happy about is the additional indications we've gotten that will hopefully lead to more work. The urticaria is an important area for us. We have not changed the guidance and our long-term ambitions. But what's important to say is, obviously, we always take into account changes to the opportunity space and changes to the pipeline. And based on that, we'll choose where we invest the most. That being said, when you acquire a product like this, you also want to make sure that you give it sufficient attention so we can execute in a great way. And then it's up to Søren to ensure that happens accordingly. And on top of that, we remain committed to building a pipeline -- a balanced pipeline going forward. So we have a lot on the plate, but we -- we're not changing the guidance we put out earlier.

The next question we have comes from Jesper Ilsoe of Carnegie.

So a question on the market share potential. It seems when you look at other rescue markets such as the glucagon rescue market and seizure rescue market that these products achieved more than 50% market share quite quickly for nasal sprays. What have you basically penciled into your assumptions for your peak sales? Because it seems on your slides that you assume the market to be 3x as large by 2035, then comes premium prices on top. So that potentially implies a quite conservative market share. Is this correct that you have applied a quite conservative market share? Or perhaps you can just detail a bit more what you've basically plugged into your assumptions for the peak sales potential on neffy? And then a question on the EBIT margin potential. So just to understand sort of the cost that you expect over the coming years in your strategy period. You say it's accretive to earnings by 2038. So perhaps you can just help us with the modeling how much incremental investment it actually requires because I guess this is pretty plug and play and can be used with the existing sales force. So just to understand sort of the SG&A implications in the coming years would be helpful.

Sure. Thanks, Jesper. I'll let Søren talk about the market share potential and then Claus on the EBIT.

Yes. Thank you very much, Jesper. So yes, I can also say that when looking at our business case, that is driven by a combination of both market share gain and market expansion. And as I alluded to before, our ambition is to become a market leader in the anaphylaxis market in Europe and also in other markets. And then there are, of course, upsides to the potential that we have outlined.

Claus, maybe on EBIT.

Yes. I will, thanks, Jesper, for the question. Looking at the EBIT margin going forward, we are keeping to our long-term financial targets and we are seeing here. You are right in your assumptions that this is a product that are fitted very well into our you can say, current cost structure, meaning that we have sales channels. This is in the beginning, mostly focused on Europe and Canada. We already have people on the ground. We have the organization. We have the competencies. Of course, we are now over the next couple of years going to invest into this. We want to make sure that this product deserves the investments that entails and that we can drive the sales forward and make this into a commercial success also. So that, of course, means that the sales and marketing costs over the next years will increase. And we, of course, will make sure that we invest more significantly here in the beginning to make it a success. And then over time, the sales and marketing ratio to overall sales will then go down year-on-year and then add more and more to our total EBIT margin. That's correct.

So maybe Jesper, just to add to what Claus is saying, I think what's been a driver in this case, what we really like is to fit with our existing sales channels and with our existing infrastructure, so we really believe that we can both utilize what we have. And then obviously, to Claus' point, also continue to invest and then hopefully see a positive halo effect across the portfolio. All right. Did that answer Jesper?

Yes.

[Operator Instructions] We have a follow-up question from Martin Parkhoi of SEB.

Great. Yes, just a follow-up question on what happens in situations, can there be any reasons for not being able to use the nasal administration if you potentially have a cold or other thing like that, would that -- if that would be the case, would that then be necessary to carry both an injection and nasal spray at the same time at home?

Thanks, Martin. Søren, do you want to.

Yes, you could say neffy is approved on the same basis as adrenaline auto-injectors. So it is truly a substitute. So there are no, you could say, concerns in that case. Nothing in the labor on that.

The next question we have is a follow-up from Jesper Ilsoe from Carnegie.

So just a question on the next indication under this collaboration which is [ Needle-less ]. Can you just explain a bit more the potential in that market and also whether or not the Phase IIb study is a high-risk study or whether it should be pretty plug-and-play to get decent data there?

Let me start out, yes, but then Per. You can supplement. I think, the short answer is urticaria is an interesting area. It's also a new area for us. So we've done some preliminary market research that has indicated that this is a very interesting market. We've been looking as a carrier for a number of years and the acute flare is quite an interesting area. So when you take it high level, currently, you have around 5 million people that are affected in Europe, on a yearly basis. And those patients are typically symptom treated with antihistamines or Solar, so a biologic anti-IgE antibody. So the problem is this is not solving and hence, there are a need for new and other solutions. And this is where the adrenaline fits in quite well and where the initial Phase I and Phase II studies have proven to be quite interesting. So that's why we found this as a very good fit to what we do. And maybe, Per, you can talk a little bit more around urticaria?

Yes. Thank you, Peter. So adrenaline has shown it potential in urticaria treatment due to likely impact on stabilizing the mast cells of the immune system. And what ARS has shown in the first Phase IIa study is that they've shown effect here where patients reported improvement in both the itching and hives. So now they need to go into a Phase IIb study in '25, and that is expected to be followed by a Phase III study. So we are looking towards 2028 before this approval can come through. Whether it's plug and play, I mean, nothing in clinical development is plug and play. But at least, we have good early indications here from their initial studies in this field. Currently, today, the majority of people who have urticaria, they are treated with low doses of antihistamine, then step up in antihistamines and for those who are not responding, they go on to treatment with omalizumab or solar. But still in that patient population, we do observe patients who have symptom breakthroughs, and here, we believe there is a potential to help these patients with symptom breakthroughs helping them in the acute phase of that with low doses of adrenaline. And that is what we are going to, and ARS is going to investigate future clinical development program. So quite exciting new indication area.

Thank you. Ladies and gentlemen, at this stage, there are no further questions on the conference call. I will now hand back to management for closing remarks. Please go ahead.

Excellent. Well, thank you very much, everyone, for all the good questions. If you have follow-up questions, please do not hesitate to reach out to either one of us. And with that, we wish you all a good day, and thank you. Goodbye.