Almirall, S.A. (ALM) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the H1 2020 financial results and business update conference call. [Operator Instructions] I must advise you that this conference is being recorded today. I would now like to hand the conference over to your speaker today, Mr. Pablo Divasson. Please go ahead, sir.

Thank you, Alexia. Good morning to everyone on the call. Thank you for joining us to review Almirall's first half results. I hope everyone is safe and remaining healthy. As usual, you can find the slides to this call on the Investors page of our website at almirall.com. Moving to Slide 2, I would like to remind you that information presented in this call contain forward-looking statements that involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially. With that, please advance to Slide #3. Presenting today, we have Peter Guenter, Chief Executive Officer; Mike McClellan, Executive Vice President and CFO; Volker Koscielny, our CMO; and Bhushan Hardas, CSO. Peter will review the first half business performance and later come back to sum up. Volker will provide you with some detail around the new level for Seysara that we are very pleased about. Bhushan will provide you with an update on the pipeline, and Mike will give you detail on the financials. After that, we will open up for a Q&A session. So with that, I will pass you over to our CEO, Peter Guenter.

Thank you, Pablo. Good morning, good afternoon to everybody on the call. So to begin with, as of Q1, I wish to thank the health professionals who relentlessly work so hard and courageously in very difficult circumstances to mitigate the impact of the COVID pandemic. I would also like to thank all of my dedicated colleagues at Almirall, who have continued to put our patients first. Now turning to the business. You won't be surprised to hear that in Q2, we faced the tough realities of business impact during a global lockdown. We were naturally adversely impacted, albeit the impact varied across geographies. So whereas the U.S. was severely impacted, and I will come on to that shortly, domestic demand, for example, remains relatively resilient. It is sometimes easy to lose sight of the bigger picture during such challenging times, but when this crisis does finish, it is the underlying growth that we will show through. But these are indeed challenging times for all, and given the current situation in the U.S., in particular, it looks at this point in time, unlikely that we will be able to reach the guidance that we provided to you back in February before the COVID pandemic took full effect. So we are providing an updated guidance for you today as the impact has been deeper and for longer than initially expected, especially in the U.S., and now we have a slightly better sense of how this is all playing out. Mike will provide more details on the financials shortly. Across our franchises, which, together with our pipeline, is what will drive growth as we begin to exit this period, Ilumetri continued to perform strongly, and the reimbursement approval in France is a key building block for that product going forward. For Skilarence, no surprises here, but very much as we had guided for you at Q1 results. Seysara saw a stabilization in TRx and some recovery in new-to-brand prescriptions in June. And I'm pleased to have our CMO, Volker Koscielny, here today to provide you with some more detail on that product and some exciting news of a critical label update. But as with all areas of medical dermatology, where there is a short treatment time, acne prescribing has been disproportionately impacted by COVID as has our actinic keratosis business in the EU. Our pipeline leverage potential remains extremely significant, as you all know. The decision on the Bioniz option in CTCL is due later this year, and Bhushan will talk you through the recent positive interim data. Meanwhile, the EMA and FDA acceptance of filing for tirbanibulin in actinic keratosis takes us closer to launches in the EU and the U.S. early next year, and the more data we see on lebrikizumab and its competitors, the more confident we become in the outlook for that product. Bhushan will share some new data with you shortly that again increases our confidence around the profile of lebrikizumab for which we continue to plan for a 2023 launch. Finally, and irrespective of the very significant challenges we are currently facing, we remain firmly focused on additional external opportunities to generate sustainable value for shareholders. The next slide. You can see that across Europe, as expected, we have seen a decline in retail prescriptions and consumer health sales. The stocking effect we saw broadly across Europe in March reversed through April and May, and this, of course, had a major impact on our quarterly performance when we compare the first and second quarters. There are some green shoots, however, although last latest week growth versus June last year is still down significantly, it has improved versus prior weeks, and we have begun to see a pickup in face-to-face interactions with our customers. The U.S. is a different story to Europe. As the chart shows, there have been signs of a recovery in TRx growth from early June, after a big fall off in April and May. However, with the majority of U.S. states now experiencing a worrying rise in positive COVID-19 tests, that recovery appears to have begun to stall and all indications suggest that unless the infection rate is halted, we may experience a further decline in physician access, patient visits and prescriptions. We will, of course, be monitoring the situation very closely in the coming weeks and months as we resume our growth strategies. Focusing now on dermatology. This chart clearly shows that it, above all other therapy areas, has been the most adversely impacted by COVID with a 71% drop in patient appointments in the U.S. and 65% in Europe. The impact has varied widely within dermatology, depending on whether disease is acute versus chronic, severe versus less serious and so on. In general, severe chronic conditions have been less affected, whereas acute dermatology conditions have been significantly hampered by the absence of new patients. The use of teledermatology in place of in-person physician visits has also had a major impact with physicians, typically more comfortable prescribing standard generics when they cannot see patients face-to-face, even that these older, more established therapies have lower efficacy. Therefore, you will not be surprised to hear that the newer products, which characterize our dermatology portfolio, were adversely impacted in the quarter. Other diseases have been severely impacted, such as AK, with decreases up to 70% on a country-to-country basis. However, I'm pleased to say that the performance of our brand Solaraze is actually ahead of the AK market. So let's now move to the performance of our growth drivers, starting with Ilumetri. This slide shows you the market dynamics in the IL-23 class. You can see very clearly that anti-IL-23s are conquering the market, gaining in excess of a 34% market share of new patients within the biologics, though with growth naturally moderating a little during this pandemic. There are compelling reasons for the share gain that anti-IL-23 class has a strong efficacy profile with a key attribute being a proven lasting efficacy with convenient dosing and with no significant safety concerns. For patients suffering of psoriasis, it is indeed important that any therapy provides long-term control, patients need a long-term treatment strategy to reduce disease burden and improve their quality of life. In this context, Ilumetri has demonstrated clinically meaningful disease control by absolute and relative PASI with 8 patients out of 10 staying on therapy for 5 years. Ilumetri's product profile of long-term sustained efficacy, very good tolerance, delivering maintained control for psoriasis patients and ease of use are the key attributes that continue to drive its growth within the IL-23 class, capturing market share from competitors to achieve a 34% share of new patients in Germany. We think that coming through the pandemic, the profile of Ilumetri is really what is going to continue to make it a product for physicians to turn to. So the competitive dynamic is going strong for Ilumetri. We, of course, have to content with a sharp reduction of total biologics prescriptions in the early phase of the pandemic, but this has now reversed, and we are confident after the initial decrease in patients, that we will come back even stronger as our profile of one injection every quarter and low infection risk goes extremely well in the post-COVID world. Let me show you why we have this confidence. Here, we provide you with some incremental details across specific markets as to how Ilumetri was impacted due to COVID. I think we all understand that when we are not speaking about a life-saving drug that some patients will not have ventured out of their homes, even if allowed to or being unable to access their prescriptions and so not been treated. And of course, new patient starts are going to be extremely rare in such scenarios. Therefore, Ilumetri did see some adverse impacts with the drop-off in sales in April, but then picked up in May and was back to growth in June. We remain fully confident in its growth potential going forward, and I can tell you that the early data for July are more than encouraging. In summary, despite the COVID impact in the second quarter, we delivered a strong performance for Ilumetri, with sales more than doubling in the first half. And you've seen the return to growth in Germany, in Austria. You've seen the same across Switzerland, the U.K. and Spain. And we have begun the targeted rollout of Ilumetri in both Italy and Belgium. I also want to particularly highlight France where the Haute Autorité de Santé has handed down a favorable reimbursement opinion, Ilumetri is now included on the list of reimbursable medicines by the social insurance, and we expect to launch the product in September 2020. This launch is an important milestone for Almirall in that it represents the introduction of the medical dermatology portfolio of Almirall in France and provides a platform for adding on products like tirbanibulin and lebrikizumab in the future. Now let's take a look at Skilarence. As we've explained previously, Skilarence is a 2-stage growth product. Firstly, the big market shares to gain quickly with Germany and the Netherlands, where the DMF products were used in the past and where we now hold market shares of 80% to 90%. And we have also previously outlined to you the issue of compounding we have faced in the Netherlands, which has stalled our growth there and will now be reviewed in courts. Having said this, we have recently received favorable decisions from the Dutch Pharmaceutical Inspectorate (sic) [ Dutch Health Inspectorate ] against DMF compounding, which will be highly supportive in the pending court case. But no surprises overall in Q2, we mentioned to you at Q1 results that we expected an impact from COVID because patients on Skilarence need blood monitoring, and on top, new patient starts will drop significantly until the situation normalize. This indeed proved to be the case in Q2, but as patients get back in front of the doctors, that should now begin to pick up again. Let's turn next to Seysara. Despite the contraction in the oral antibiotics markets that I described earlier, Seysara TRx has stabilized post COVID with what represents a solid base to build from. Most encouragingly, we started to see an increase in new-to-brand prescriptions as lockdowns eased across the states. This gives us confidence that we can rebuild our position with Seysara as conditions normalize. And an important factor that we can leverage with physicians is the new label update, which really differentiates the product from the older generics that continue to dominate the market, and Volker will describe the new label to you shortly. Also, we recently announced that we have acquired the rights to Seysara in China, and we will start Phase III later this year. There is a large acne population leading to a potential of 13 million moderate-to-severe treated acne patients in the urban population by 2028. This is a highly attractive opportunity where we can launch an innovative product into a growing market with clinical development that is largely derisked. I think it is well documented that Chinese parents will make significant efforts to enable their children to succeed academically, allowing for social mobility, willingness to pay for education, in general, the best for their children, whether you look at premium diapers; formula milk; and there are a lots of case studies, is extremely high, and of course, the middle-class in China is growing rapidly. Given the significant impact of acne on psychological well-being, self-confidence and academic performance, we expect a very high interest from physicians and parents in the safe side of our value proposition and a high willingness to pay out of pocket. This can only be strengthened by the heightened awareness in China around antimicrobial resistance or AMR as a result of COVID-19. Now I'm delighted to hand over to Volker to discuss the U.S. label update I just referenced.

Thank you, Peter. So I am pleased to tell you about an important FDA update to the microbiology section of the Seysara label. Propionibacterium acnes, or P. acnes for short is commonly associated with acne. This bacterium shows a very low potential to develop resistance to sarecycline, the chance to develop spontaneous mutations is as low as 1 in 10 billion, even at higher concentrations. So this is now included in our label. Why is this important? First, doxycycline has been used since the 1970s, and depending on geography, significant bacterial resistance has been reported. For example, in the U.S., more than 50% of strains of P. acnes are considered resistant, as you know, and not least due to the topicality of COVID-19. So for example, AMR may contribute to COVID fatalities. AMR today is considered a global health emergency. One highly publicized initiatives is the AMR Action Fund, the collaboration between industry and WHO to which Almirall, we are proud to say is contributing. Beyond the societal health impact, on an individual patient level, resistance has been associated with poor clinical outcomes and response. Importantly, there's also an increasing interest in off-target activity of a broad spectrum antibiotics, such as doxycycline, on other bacteria or bacilli, particularly those inhibiting the healthy gut microbiome. This is important as there is mounting evidence that disturbs gut microbiome may be associated with autoimmune or auto inflammatory diseases, such as inflammatory bowel disease, IBD. So for example, it has been suggested that doxycycline increases the risk for Crohn's disease by -- to develop Crohn's disease by twofold. It is for this reason that there's clear guidance today from the American Academy of Dermatology or the CDC to avoid treatment strategies leading to AMR. Finally, it is clear that there is increasingly high awareness amongst patients and healthcare professionals along the topic of AMR. And again, this is only emphasized in the current COVID-19 context. And we believe that this will result in change prescribing the idea moving forward, particularly amongst dermatologists who account to a high percentage after prescribing of oral antibodies. I want to emphasize again that Seysara has been specifically developed for acne. We are seeing early and deep effects. And particularly the early onset of action is very important to motivate these mainly young patients to complete treatment course with Seysara as we know that with all the antibiotics, adherence is a major challenge in these patients. I would also like to point out that Seysara has been prescribed for close to 100,000 patients, and that we have not seen any emerging safety signals in the real-world setting. In particular, we haven't seen any signals around the occurrence of inflammatory bowel disease. The resistance message I just highlighted will form a cornerstone of our sales and marketing campaign going forward. We have also invested in increased resources in our medical affairs team, in particular, more medical science liaisons in the field. The campaign will be supported by an extensive continuing medical education program. So in the quote here, you see us nicely summarized by Dr. Graber. We consider Seysara to be a treatment option of choice. And with our new label update, it is clear that Seysara offers a superior product proposition compared to historic, older antibiotics such as doxycycline. Finally, we have conducted extensive consultancies with the majority of leading experts in this field in the U.S., and there's an unanimous verdict that this product has changed their practice. It is now our job to communicate this value to the dermatology community. And with this, now let me please pass on to Bhushan to provide you with a update on the pipeline.

Thank you, Volker. As we are all familiar with the mechanism of action of lebrikizumab that we have discussed in the past, and how we further emphasized that it has the potential to be the best-in-disease for atopic dermatitis. Since we've met last time, there has been significant data relays from our competitors. Novartis has decided to discontinue development of Ziarco, its H4 receptor antagonist for atopic dermatitis at Phase II level. The study results for IL-31 in conjunction with topical corticosteroids was also published this year in the New England Journal of Medicine. I will not be discussing the data for this, but I will encourage you to have a look at it. On the other hand, Tralokinumab presented its Phase III data at American Academy of Dermatology in the virtual meeting. Similarly, our partners Lilly presented some new Phase IIb data on lebrikizumab. Though the data is derived from 2 different studies and no way we are making any direct comparison, nevertheless, we thought you would be interested in getting a sense as to where lebri stands today. The first thing we will do is go over the mechanism of action, which you have already seen before. Lebrikizumab is a monoclonal antibody designed to bind IL-13 cytokine that does not prevent it from finding IL-13 receptor alpha 1, but prevents a standardization with IL-4, thereby blocking downstream signaling. It also does not block its binding to IL-13 receptor alpha 2, which is a decoy receptor, has believed that it plays an important role in endogenous IL-13 cytokine regulation, which may have an effect on anti-inflammatory properties. On the other hand, Tralokinumab is also a monoclonal antibody against IL-13 cytokine, but it targets a very different epitope. Tralo prevents IL-13 cytokine from binding to IL-13 1 receptor (sic) [ IL-13 receptor alpha 1 ], thereby preventing standardization to IL-4 receptor and inhibits the downstream signaling pathway. Tralokinumab also bind -- prevents binding the alpha 2, which is a decoy receptor, thus, blocking its endogenous regulation of IL-13, which may have an anti-inflammatory property. And the most important thing is lebrikizumab has a fairly high affinity as compared to Tralokinumab. Slow disassociation of IL-13 lebrikizumab complex gives lebrikizumab an advantage in specifically blocking the downstream Th2 pathway for a long period of time, and this is dose dependent. This is, we feel, is a fundamental difference between the 2 mechanisms of action and 2 IL-13 monoclonal antibodies, which actually translate into some of the clinical advantages that we have that we are going to look at shortly. So before we go into the data, I remind you that the Phase IIb data from lebi is a stand-alone on slide, as this says here. Placebo-adjusted effect in EASI-75 at 16-week, 31% when it is dosed every 4 weeks and 36% when it is dosed every 2 weeks. Just to remind you, the main phase of our Phase III is every 2 weeks. And in -- while maintenance phase, we are looking at both regimens, which will be good. When we look at IGA, which has a direct correlation with EASI-90, we see 16 and 27, respectively, which is a very high number. In the next slide, as a reference, let us look at the published data from Tralokinumab. EASI-75 at week-16, the patients are going to be slightly different, and the studies are different. So for your ease, we have made placebo-corrected adjustment so we can look at the numbers. The 2 Phase III studies show placebo-corrected EASI-75 to 12% and 22% with dosing every 2 weeks. As I mentioned early on, lebrikizumab Phase IIb data results show more than 30% in both regimens. IGA response, which is placebo-corrected, shows that there is an improvement of 9% and 11%, respectively, that when we saw in lebrikizumab Phase IIb results, it is 16% and 27%. The next slide. This is the most important perimeter in atopic dermatitis. Most of the patients come to the doctors complaining about the itch and not because of the rash. But all of the co-morbidities and psychosocial and developmental affections in atopic dermatitis are directly related to intensity and longevity of the itch. As per the recent data presented at the AAD, lebrikizumab, there is already improvement in itch by day 2 on treatment with further improvement at day -- at week-16. There's an improvement in sleep by, first, on-treatment assessment at week-1, and there is a further improvement at week-16. This is extremely important for our charge growth. Important in disease severity, as assessed by the POEM, which is Patient-Oriented Eczema Measure by the first onset of the treatment and 16 weeks and the dermatology health-related question, quality of life questionnaire shows improvement. So all these things actually are saying that patients are benefited by lebrikizumab much, much earlier and much more effectively. But when we look at the data, the way FDA wants us to look at it with the clinical relevance of more than -- equal to or more than 4-point improvement in the scale, the placebo-adjusted data shows improvement of 20% with dosing every 4 weeks and over 40% with dosing every 2 weeks. In the next slide, if we now look at the tralo Phase III data, the placebo-adjusted improvements in pruritus score were 9% and 11%, respectively, in 2 clinical trials at week-16. As just mentioned, lebrikizumab show improvement over the same time period of 20% and over 40%, which we think is a significant advantage and offer benefit to build patients and their treating physicians. But we will only be able to make claims once we have the Phase III data on lebrikizumab. The next slide. Before I close on lebrikizumab, I would like to remind you of the economic opportunity. As you know, we exercised our option when we looked at the Phase IIb data and made an assessment, which we just saw earlier on. The patient number with moderate-to-severe disease are large and growing. Despite the launch of dupilumab, the penetration of biologics is extremely low, we believe there is clear need for new and differentiated treatment in atopic dermatitis. With lebrikizumab in our pipeline, it gives Almirall a unique opportunity to help these patients live a better life. As a consequence, we remain confident that we will deliver peak sales of lebrikizumab of approximately EUR 450 million. Next slide. This is, again, extremely exciting to us today. We have a strategic deal with Bioniz regarding BNZ-1. For those unfamiliar, the BNZ-1 is a first-in-class extracellular peptide that inhibits 3 cytokines, namely IL-2, IL-9 and IL-15. It has been shown to selectively modulate Tregs, NK cells and central memory CD8+ T cells. This could have an important goal in treatment of cutaneous T-cell lymphoma, a rare form of non-Hodgkin's lymphoma that affects skin. BNZ-1 is part of a platform technologies, which could be potentially used for various immune-mediated pathologists. The good news is that the recent interim data for the cohort expansion of BNZ-1 in CTCL patients at 2 milligrams per kilogram confirm the initial observation of clinical efficacy in this patient population. The data showed that BNZ-1 was well tolerated and no dose-limiting toxicity was observed. In addition, over 80% of the subjects showed improvement in tumor burden as assisted by the modified severity weighted assessment tool, which is also called mSWAT, in absence of any concomitant medication. This is extremely important. Most of the patients in CTCL will have more than one treatment in a real life. About half achieved a partial response, at least 50% reduction, and from the baseline and mSWAT score for patients achieving a partial response, the main duration of response was 277 days, which is about 9.2 months at the time of cut off, this will expand as the study completes. Again, an average time for a patient to switch treatment today is 5 months. Bioniz expects the study to conclude during this quarter and will submit a request for an end of Phase II meeting with the FDA that will occur in the fourth quarter. Almirall has a choice to execute an option by end of 2020 based on the evaluation of Phase II results. If we choose to socialize, we would initiate a Phase III program for CTCL in 2021, and at the same time, we would also expect to initiate a Phase II study for alopecia areata, for which we have a really strong scientific rationale. And this slide talks to the commercial opportunity we foresee in CTCL. Around 40,000 patients are living with this disease in United States and in Europe. And about 1,500 new patients are diagnosed every year in United States. Patients routinely switch between therapies due to toxicity as well as suboptimal efficacy, and as I said before, average time is about 5 months. Consequently, if BNZ-1 continues to deliver the efficacy profile that we have seen in our Phase II interim data analysis, it could be launched in 2023 and become a treatment option for these patients. We estimate the market will be worth $1.6 billion by 2025. Now I hand it over to Mike to walk us through the results, financial results.

Thank you, Bhushan. Now I want to take you through the financial part of the presentation. As Peter mentioned in his introduction, and you will have seen from the reports of other companies, Q2 was a difficult quarter as the impact of wholesaler destocking in April and May was compounded by reduced prescribing due to the lockdown. While we did see improved trading conditions in June, our net and total revenues declined by double-digit amounts in Q2 versus 2019 after the solid growth we reported in Q1. Overall, particularly given the stocking and timing impacts, we believe the first half results are more representative of our ongoing performance. Here, our net sales declined by 1%. And if we dig a little deeper into this, we consider this an encouraging results as our net sales grew by 6% if we exclude the Aczone generic impact. Of course, Aczone is still part of our product franchise, but for those looking to get a sense of the sustainable growth outlook for Almirall, the generic impact will annualize at the end of Q3, after which our reported growth will revert to a more representative figure. If I turn next to total revenues, as we guided earlier this year, other income is down significantly, so we experienced a decline of 8% for the half year. On gross margin, again, we see the adverse impact of the generic competition to Aczone, resulting in a gross margin around 70%, which is very much in line with our expectations. In terms of operating expenses, SG&A declined in line with total revenues as increased new product investments were offset by lower promotion activity in Q1 due to the COVID situation. Combined, this delivered an EBITDA decline of 17%, in line in the first half. If I turn to Slide 30, here, you will see, we've decided to increase our product sales disclosure to better help you understand the dynamics of our business. The discrepancy between the resilience of our performance in Europe and the sharp contraction in our U.S. dermatology business is clear. Although, as I mentioned, much of the latter is due to the generic impact on Aczone even before we factor in COVID impacts. Our rest of the world business benefited from strong orders from partners in the first half. And I'll remind you that the other net sales include the impact of the acceleration of deferred income that we mentioned in the first quarter results, and I will discuss later in more detail. Turning to Slide 31. This slide gives you much more granularity that we have previously provided in our dermatology business, again, in the interest of improving transparency and assisting your understanding of our business dynamics. In the EU, we are pleased by the performance of Ilumetri, which has continued to deliver strong growth even with the COVID backdrop, as Peter discussed. You can also see the significant impact of the slowdown of the AK market due to COVID-19 has had on Solaraze despite the fact that we actually gained market share in the first half. The U.S. was heavily impacted by the generic competition to Aczone as well as the COVID-19 impact on the uptake of Seysara, and the legacy U.S. business. I'm now moving to Slide 32, the sales evolution in the first half. And here, there are a couple of things I'd like to highlight for you. The existing portfolio net sales increased around EUR 31 million. EUR 26.5 million of this was due to the deferred income release recognized in the first quarter. The deferred income included in other net sales will normalize for the full year to a difference of approximately EUR 22 million, resulting in roughly EUR 52 million in this year versus EUR 30 million in 2019, with a final amount of around EUR 18 million to be recognized in 2021. I'd also like to clarify the quarterly split to clear up any confusion that we may have created in the first quarter call. In last year, we saw a quarterly deferred income of around EUR 7.5 million per quarter throughout the year. This year, we saw roughly EUR 36 million in the first quarter. And we will see around EUR 5 million, EUR 5.5 million in the remaining quarters of the year. That gives you on the half year, the EUR 26.5 million described on this chart. On the opposite side of this, we took a hit of close to EUR 35 million in the U.S., of which EUR 27 million was due to the generic Aczone. To repeat my earlier comments, this impact will annualize in the end of Q3, and without this impact, our first half net sales would have grown by 6%. Moving to Slide 33. Having reviewed our sales performance, let's take a brief look at the P&L. I addressed most of the key factors here on my opening slide, but just to call out that other income reduced from 2019 as expected, and as we have previously communicated, as milestone related income from AstraZeneca has fallen away and we have now switched to a predominantly royalty income model. The net result is that despite lower expenses, decline in our revenues and the other income led to a 17% reduction in the first half EBITDA, landing at EUR 137 million. On Slide 34, going down the P&L, nothing particular to pull out from here aside from an impairment charge on the legacy portfolio in the U.S., which impacts our pretax profit. This generated a normalized net income of nearly EUR 60 million and a normalized earnings per share of EUR 0.34 per share. Looking at the balance sheet. In addition to the comments provided on the slide, I simply want to highlight what we view to be the most important factors. First, we finished the first half with a leverage of 1.6x net debt to EBITDA, similar to year-end, which gives us flexibility in the current environment and also for additional M&A activity. Based on the updated guidance for the year, we expect the ratio to land between 1.6 and 1.8 by the end of the year, absent any significant M&A activity. Second, we refinanced our revolving credit facility by signing a syndicated finance contract for the amount of EUR 275 million for an initial period of 3 years with a possible extension of an additional year which will be used for general corporate purposes. This financing agreement replaces the previous one, which had a maturity date of February 2021. On Slide 36, let's take a look at the cash flow statement. We delivered a strong operating cash flow in the first half, generating EUR 68 million, aided by a collection of a sales milestone from AstraZeneca. We made significant investments during the first half, including the Phase III milestone of lebri and a sales related to Crestor milestone. We do not expect a significant amount of investing activities again until Q4, where we could have a payment related to the option agreement with Bioniz for the underlying CTCL asset that Bhushan described earlier. And finally, given the ongoing COVID-19 situation, I'd like to highlight that Almirall continues to maintain good financial liquidity. As you just saw, we have nearly EUR 100 million in cash on the balance sheet and an undrawn revolving credit facility of EUR 275 million as well as other avenues of credit with no debt repayment scheduled until the end of 2021. Therefore, our capital allocation strategy priorities are clear and remain unchanged. Our dividend payment was delayed this year due to the postponement of the Annual General Meeting to July as a result of the COVID-19 situation. A gross dividend of EUR 0.203 per share has been approved with a scrip dividend option similar to last year. Now on Slide 37, we're presenting our 2020 guidance, updating for the impact of COVID-19. For net sales, we now expect a low to mid-single-digit decline. For EBITDA, we expect an outcome in the range of EUR 230 million to EUR 250 million, which is EUR 10 million to EUR 30 million below the low end of our previous guidance. Essentially, the COVID impact has been deeper than we had anticipated on certain products, and the recovery to normalization will take longer than we previously communicated. Currently, we anticipate a progressing normalization in the EU during the second half but as the U.S. has more uncertainty, we are not anticipating normalization there until the end of the year. We will expect OpEx for the full year to be a slight decline versus 2019, but we will see increased investments on our launch products in the second half. This is what we have contemplated as the basis for our new guidance. Additionally, to update you on our thinking around government measures in Spain, while we think there is less risk for government actions in 2020, we would like to point out there is about EUR 100 million of sales in our Spanish business that is most likely to be at risk for price reductions in the future as this represents products already facing generic competition and reimbursed at generic price levels. Our OTC business of around EUR 55 million in Spain is not expected to be under price pressure nor do we anticipate an impact on our innovative growing business. On Slide 38, I'd like to provide a different perspective on the company's transformation in the recent years. We are looking at EBITDA, including, excluding other income and deferred income. What you will see is the core EBITDA has been growing the last few years, while the significance of other income has been declining. As we mentioned, other income will comprise mostly of royalties on a go-forward basis beginning in 2020, and given the current performance of the underlying products, we expect this to be significantly lower as we've already seen in 2020. As you can see, we expect core EBITDA to decline by approximately 19% at the midpoint in 2020 to land between EUR 170 million and EUR 190 million. You may be interested to note that if we exclude the impact of Aczone generic competition, our guidance implies roughly flat core EBITDA despite the COVID impact. Going forward, we will focus on driving the significant growth potential of our core EBITDA once the Aczone generic erosion annualizes and the core -- COVID-19 impact subsides. I'll now hand back over to Peter for his closing remarks.

Thanks a lot, Mike. So today, we have tried to provide you with as much as detail as it's useful to help understand the current position of our key products, how they might continue to be impacted over the next few weeks and months due to COVID and why we are optimistic about our outlook as market conditions begin to normalize. There are many things we can be optimistic about, including the resilience of our business in Europe, the performance of Ilumetri, the improving outlook for Seysara, our strong financial management and balance sheet and, of course, our very exciting innovative pipeline. Hopefully, sooner rather than later, there will be a return to normality and those businesses with a strong growth potential, as demonstrated by our core EBITDA evolution, will be able to reap the rewards of that strategy. So though we doubt it like many others, have had to reduce our expectations for this year, we remain extremely confident in the future. With that, I'll hand it over to Pablo for the Q&A.

Thank you very much, Peter. Alexia, back to you for the Q&A, please.

[Operator Instructions] Our first question comes from the line of Trung Huynh from Credit Suisse.

It's Trung Huynh from Credit Suisse. Firstly, thanks for the extra color on the normalization of COVID to your new guidance. Beyond this, can you talk about the pushes and pulls to get you to the top end of your guidance versus the bottom end of your guidance? And if there is no return to normality in the U.S., should we think about forecast below this EBITDA guidance? Secondly, on Slide 48, you show your leading product sales. Your rest of product sales are approximately half of those sales and grew 6.4%. Can you talk about the dynamics here? And what if those products have significantly outperformed? And do you think this will continue for the rest of the year? And finally, how much will it set -- how much will it cost to set up marketing organization costs to tackle the Chinese market? And when do you expect to start incurring these expenses?

Thanks, Trung. I'll take the question on China first, and I'll give further questions on the high end or the low end of the guidance to -- and the rest of the products to Mike. So look, on China, we still have a bit of time to make up our mind what kind of go-to-market model we will contemplate. So as I mentioned to you, as we will start the Phase III later this year, by the way, we think this is a highly derisk development, given the experience we have with the product in the U.S. And although we're very excited about the potential of the drug, and you have understood that we will launch this without reimbursement request. And we still have to make up our mind whether -- in which type of construction we would launch the product. But as I mentioned to you today, a little bit early days to give you more granularity on that. Mike, the question on -- the 2 questions on the top end versus the low end of the guidance, what may move the needle here?

Yes. So I think, clearly, the top and the low end of the guidance could be impacted by the normalization of COVID. We do have some ability to further squeeze expenses if we see that the normalization is taking longer. In our current guidance, we do anticipate, as I said earlier, a little bit of a reinvestment in the launch products. But we'll see if there's no access to physicians, it could impact sales, but it also could impact the money we spend. So that's probably the larger end of that. You also mentioned the U.S. Same thing in the U.S. if things do not normalize, we'll have to manage that within this guidance. So we feel like we've put forward a good range, and we have some possibilities to manage within that. And your question on the overall -- the Slide 48, the rest of products. Just remind you that the deferred income is impacting that line. If you take that out, it's a slight decline year-on-year, partially a COVID impact and partially just older products that continue to decline. We would expect, post this year and post the deferred income, that line to maintain just a gradual decline in the coming years.

I would like to add one comment, Mike, on the guidance and the play between sales and OpEx. At the end of the day, there is a natural hedge against the market not reopening or less reopening because quite automatically, of course, our SG&A will continue to be at the low end because just the activities are not there. So it's kind of a natural hedge, if you will, on the EBITDA line against an even worse situation than we may imagine at this point in time.

Our next question comes from the line of KC Arikatla from Goldman Sachs.

I have 2. The first one, Mike, are you able to provide more detail on the Spanish price reform? What is the level of price cut that you are anticipating? And how broad-ranging will this be? And also within this one, you mentioned that you don't expect any impact on the OTC side of the business. Maybe if you could give us an analog what happened back during the global financial crisis? How did the OTC business do in Spain back then, please? And the second question on lebrikizumab. We have seen several clinical trials being delayed because recruitment has been paused given COVID. When do you expect lebrikizumab Phase III study to finish recruitment? And when can we expect the Phase III readout to be out, please?

Okay. So I'll take the first question, and maybe I'll pass the second one on to Bhushan. So in terms of Spanish price cuts, we're not anticipating a significant impact this year. I mean there are some discussions still going on, but we think that if there's anything, it will probably be more of an effect in 2021. What that could be and what form is still not certain. We just highlight the risk because we do have a significant business in Spain. And as I mentioned, there's about 100 million of those products, which are facing generic competition, reimbursed at generic prices. And that is a bucket that in past crises has been a little bit more under pressure. The OTC business, I don't think it saw any significant price decreases in the last round of financial impacts, and we don't expect that in this round. Of course, we are subject to demand variations from COVID. We expect COVID to normalize in Europe and in Spain over the course of the second half. But we'll keep a very close eye on how that business develops. Bhushan?

On lebrikizumab, yes, there was some delay in recruitment because of COVID in the U.S. as well as starting up the recruitment in the EU, but hopefully, that should come to an end. We should have a first patient in Europe very soon next month. There wouldn't be a significant delay because we have all the mitigation plans to make sure that we stick with our original communication on completing as well as launch date of 2023. 16 weeks data will be announced in the middle, and I don't know exact timing but that should be sometime next year.

Yes. We're working really hard with our partner Lilly to mitigate the impact of -- on the clinical trial, let's say, time lines, the mitigated COVID-19 impact. So we're really looking at everything we can compensate, we can accelerate on different, let's say, parts of the whole equation, so that we can stick with our initial plannings.

Your next question comes from the line of Peter Welford from Jefferies.

I've got 3, please. Firstly, on Seysara. I appreciate, obviously, the commentary all around the label update and the dynamics in the U.S. market there. Given acne is typically less of a summer market, I think, to some extent, but could you just outline when we should start thinking about your reps getting back into the field? Do you thinking -- starting to see an impact on the new patient dynamics there? And how we should sort of think about looking at the TRx curve going forward? And secondly, then on Ilumetri. Obviously, Germany looks as though you've gained a significant market share there. But obviously, I think that's an acne market where you've had a long-term presence. What sort of targets, I guess, have you set internally for market share within some of the other key markets in Europe? Perhaps like France, for example, where you said you don't have an established dermatology platform. And how should we think about potentially the market shares evolving in those markets? And then finally, just on the cost base. Obviously, COVID-19 has brought up some interesting challenges for everyone. And perhaps you can just comment on whether or not you think there's any aspects of your costs that potentially are going to be sticky, I guess, following COVID-19, thinking of new ways of working and the like? And give us some sort of feeling of how we should think about that going forward?

Yes. Thanks, Peter, for the questions. I'll start, and Mike, don't hesitate to chime in. So based -- first of all, your question on Seysara, so what we have seen in the last couple of weeks with the gradual reopening of states is indeed an encouraging increase of new-to-brand prescriptions. We have seen a face-to-face activity of our reps picking up again. We are -- latest data is about 30% to 50% of face-to-face interactions compared to where we were before. But as we also mentioned to you and we also baked into our guidance, we think that the situation in the U.S. is highly volatile, and we wanted to be careful with what's going to be happening because at the end of the day, I think today, nobody really knows. But again, it's very clear that with the progressive reopening of the states, with the progressive reps coming back to see the physicians and the patients coming back in front of the physicians and our new label, which really we see as a very, very significant step, we remain very optimistic on reigniting growth for Seysara once the opportunity is again there. On the Ilumetri, as you rightfully say, we're very encouraged by the initial market share updates in the country like Germany. And we provide you, in general, more details on Germany because it is by far behind the most important market in Europe. It's about 40% of the biologics market in Europe for psoriasis. So it's very significant. And you are right to say that we have a good legacy in that country in dermatology, but we see a very consistent picture in other countries. We have provided you some granularity today in the call. When you look at countries like Austria, like Switzerland, you really see the product doing the job. And I think even beyond the customer centricity we have with other hematologists, it is really the value proposition of the drug across the board, which is very, very compelling. It is really the sweet spot between efficacy, easiness of use, cost effectiveness, and especially in a post-COVID-19 world, the value proposition of that with just one injection by quarter, you basically treat in a very effective and well-tolerated way. The vast majority of your patients is a very compelling value proposition, I think. So in terms of market share, I think we said in the past that we targeted to go to 6% to 8% market share in the total biologics market. And we are now in Germany, for example, 1.5 year to the launch, and we are about already at 4% to 5% of that total market. So it's clear that we are doing extremely well with the drug, and we're going to do everything we can to really push it even further. Mike, on the cost base, post-COVID-19, you want to answer?

Yes. So clearly, there will be some things that will be a little bit more sticky. We don't expect travel to pick up as quickly as some other rest of the parts of business. Clearly, some of the lessons we've learned on digitalization of our contacts with physicians, for conferences, virtual meetings, there will be some efficiencies clearly in that. However, we will need to invest in our new launches. We need to continue to drive Seysara, Ilumetri. We will be launching tirba next year. Clearly, we will have to invest more, and we will be comparing to a year, which has some really, really low expenses in this year. So clearly, our goal next year will be to have a leveraged growth of our core EBITDA versus our sales, excluding the deferred income and the other income. So we're still going to look for efficiencies. We're still going to try to drive leveraged core business. But we will have, of course, a very low comparison next year on expenses. Because this year, the activity just isn't there, assuming that we can get back to normal level of activities next year.