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

Good afternoon and good morning to all. Welcome to the 40th Annual JPMorgan Healthcare Conference. My name is Eric Wang and I'm an associate on the JPMorgan Healthcare team. It is my pleasure to introduce our speakers for today from Almirall; CEO, Gianfranco Nazzi; CFO, Mike McClellan; CSO, Karl Ziegelbauer and Head of Investor Relations, Pablo Divasson. Before we begin, just one housekeeping item for all our viewers. [Operator Instructions] With that, I'll turn it over to Gianfranco.

Hi. Good morning, everyone and thanks a lot for joining us today. My name [ Sedis ] Gianfranco Nazzi and I am the CEO of Almirall. Before I start the presentation, please let's move to Slide #2 and we can take a few second to review our standard disclaimer. Okay. So let's move now to Slide #3. In the next 20 minutes or so, I would like to give you a flavor of who is Almirall, so introducing you our company, why we decided to focus on medical dermatology. And then I will finish our presentation, focus on our key priorities before opening to the Q&A. So let's move now to Slide #4 and start introducing you Almirall. Almirall was founded in 1943 here in Barcelona, Spain, almost 8 years ago. We are a global biopharmaceutical company, focused on medical dermatology. We are pressured about science and we are truly committed to our noble purpose, that is positively impacting the patient life. The picture that you can see on the slide is part of our awareness campaign that's reflecting our focus on people suffering from some dermatological diseases where we are working on. There are atopic dermatitis, psoriasis, actinic keratosis and acne. And this part, as I said, of our global purpose because as we know the dermatology is where we can have the great impact on the patient life and also we can have a very nice position to become a partner of choice for other company that are joining our journey. So let's move now to a more detail view on Almirall and we can move to Slide #5. As I said, we are headquartered in Barcelona. We are engaged in the research, development, manufacturing and commercialization of pharmaceutical product, mainly on the medical dermatology space. We are a public listed company. We are listed on the Madrid Stock Exchange. We have a market cap of almost EUR 2 billion. And in 2020, we accomplished EUR 238 million of EBITDA and EUR 807 million in total revenues. We have a very well diversified branded product portfolio and the success is driven by our in-licensing but also acquisition product during the different stages of the development. We have a very extensive presence in Europe. We are also gaining some momentum in the United States. Our R&D is a pretty strong function. We have almost 50 years of experience. We have approximately 250 employees, which we develop a number of leading excretion along the year and we're investing on R&D and approximately 10% of our annual net sales in R&D. Let me now spend a few second to introduce the most important part of Almirall that is our people and we can move to the Slide #6. I am very proud of the team that we have in Almirall. We have a very solid human capital, a very diverse workforce of around 1,800 employees that are coming from 26 different nationalities. But most importantly, I'm very honored to lead a very experienced, fully committed management team that has an extensive industry experience, a very strong track record in meeting patient need, but most importantly also driving a sustainable growth. So let me now move through the -- why we decided to invest in medical dermatology and we can move to the Slide #7. The medical dermatology market is quite large and is growing double digit. And one of our strengths is our position in a very attractive dermatological indication. We truly believe that dermatology remain an underserved therapeutic area, with a very good opportunity to address the population. And why the population is growing, I can give you 3 examples. We have some demographic changes, the people is living longer, economic drivers, so the disposable income is growing. And also in term of innovation, so we are addressing previously unmet medical need through novel treatment. Our medical dermatology portfolio includes key treatment for each of the core therapeutic area like atopic dermatitis, psoriasis, actinic keratosis, acne, onychomycosis. On top of this, just to give you an example, psoriasis, that is growing at 8% compound annual growth rate, Almirall is the only pharma company with a full portfolio of product that are covering the patient journey. And in atopic dermatitis, that is a market growing at a 22% compound annual growth rate, we have our innovative product, lebrikizumab that is in track to be launched in 2023. We truly believe that this space is ripe for innovation and we believe that because of our skill and our experience and our R&D commitment to improve patient lives that we can continue to be a leader in the medical dermatology space. Let's move now to Slide #8 and I will share with you our strategy. So first of all, our goal is to maximize our current portfolio, life cycle manager as well and future launches, but also expanding in the commercial -- our commercial presence in the key market especially in Europe, where we have a solid market position. Second, we want to continue to further research in the immuno-inflammatory disease like atopic dermatitis, psoriasis, alopecia areata and vitiligo because this is a scenario where we are already a solid franchise. Additionally, we are expanding our expertise in the nonmelanoma skin cancer disease such as actinic keratosis, basal cell carcinoma, squamous cell carcinoma. We're starting this field with our portfolio and our R&D colleagues and we have a very strong capability and we see a very strong opportunity in this space. And finally, we are exploring the dermatological rare diseases because it's a clear market with a clear unmet need. And again, through our experience and knowledge, we truly believe that we can be a very strong player also in this space. So let's now take a look to our journey since 2014 and we can move to Slide #9. Over the past few years, we have been transforming our company into a global research focused biopharmaceutical dermatology leader. And our efforts in growing our portfolio resulting to be our medical dermatology one of the leader in Europe. In 2014, we completed a very important divestment for our company, for our respiratory franchise that we sold to AstraZeneca. And this transaction give us a very solid financial baseline and help us to accelerate our strategy to become a global player in the medical dermatology space. Then in 2015, we acquired the Poli Group that reinforced our position in Germany, mainly driven to Ciclopoli and other dermatological products, but also help us to improve our international business and help us to network to some geographies like China, Asia Pac, Eastern Europe and Latin America. And another very important turning point for us was in September 2018, where we expanded our US portfolio, the acquisition of the Allergan medical dermatology unit. I think that we share and we share with you and we demonstrate that we have a very positive track record in term of strategic acquisition and in-licensing product. And something that I'm truly proud of it's Lebrikizumab that we completed this transaction from Dermira in 2019 and Lebrikizumab today represent our most important and promising asset in the near to medium-term. So let's now have a look to our current dermatology portfolio and we can move to Slide #10. As I said, we are commercializing dermatological therapy to treat several diseases like psoriasis, actinic keratosis, acne and most importantly, we are on track to launch our first biologic on atopic dermatitis in 2023. But let me give you a little bit of color on our franchises. So I will start with the psoriasis franchise. Here, we have a biologic product, Ilumetri, an anti-IL-23 that we launched few years ago. We have an oral treatment, Skilarence. And then for patient with mild psoriasis, we have a topical product called Wynzora. And I want to stop a second and highlight the case of Ilumetri. Ilumetri was the first biologic that we launched. As I said is the anti-IL-23 class to treat the moderate severe plaque psoriasis. And we have a very strong position across Europe. And if I look for a second, our German situation, I'm very proud to say that we are growing in the IL-23 class. In the new patient market share that we are achieving, we achieved a market share of 32% and we are competing with very strong multinational player like [ Avian ] and [ Janssen], but in addition and I'm very proud of this, we are gaining a very positive momentum and contribution also from new country in Europe like Italy, Spain, France and UK. And this is giving us a very strong momentum for the future. The other franchise I want to share with you is the actinic keratosis. Today, we are market leader in Europe with Solaraze that is a non-steroidal anti-inflammatory treatment for the treatment of actinic keratosis. And then we recently launched Klisyri that again is used for the face and scalp. I think that we are gaining a very strong momentum in covering the full spectrum of the disease and we'll launch Klisyri in Europe and the US in 2022. And most importantly, we see a prevalence increasing of the prevalence of the Asian population and this is going to give us a nice franchise to work also for the future. And finally the last franchise I want to share with you is onychomycosis is an area where we have a leading product Ciclopoli and it is a topical solution for the treatment of the [ nail ] fungus. And recently, we signed an agreement with Kaken Pharmaceutical to the right of efinaconazole, that is prescription best-in-class treatment for the onychomycosis. So I think as you know we have quite a strong momentum and now I want to share with you something about our pipeline, so we can move to the Slide #11. Our pipeline is quite late stage and very promising and we are going to continue to leverage our regulatory expertise in order to complete the development of this asset. And also to -- the same time, we are very active to look to inorganic, reinforce the pipeline with early and late stage opportunity. As I said, we have achieved very numerous -- successful in product launches, which highlight our capability, not only to develop, but also to commercialize the product. We believe that we are very well positioned to grow our leading dermatology franchise and to unlock significant mid-term value through innovation. In terms of in-license, I will spend a few second sharing with you that we are focused not only on in-licensing early preclinical development product, but also we are looking to the later stage, an example is lebrikizumab case and Phase 3 or later the product. We have a strong mid-term sales growth potential and lebrikizumab as I said represent for us a key asset that I want to share with you a little bit more color in the slide that is following the Slide #12. As I said, legibikizumab is one of the most promising asset and recently, we also reported positive top line Phase 3 result, is a novel monoclonal antibody targeting the IL-13, a key cytokine for the atopic dermatitis pathology. It is important to understand that atopic dermatitis is an antimon-mediated chronic skin condition that has a significant impact on the well-being and the quality of life of the patient. This condition can occur at any age, but typically it starts at the very early stage on the childhood and then change the severity over the time. And the prevalence of the atopic dermatitis in the pediatric population is very high, could be as high as 20%. The atopic dermatitis is growing and is quite diverse and despite the recent treatment advances, there is a huge unmet need to provide option to treat the patient. And we truly believe we need that the moderate to severe population where lebrikizumab is going to be focused is a key market and legibikizumab can have a potential at least EUR 450 million at peak. Why we say that there is a huge potential because although there are several significant new opportunities, new product that enter in the market, the disease is quite diverse. And this is going to give us the chance to give an answer to the patient to suffer with this terrible disease. So at the end of December, we published the [ Adena ] Phase 3 top line results where we met all the primary and key secondary point. I want to underline that this is the third pivotal trial that meets all primary and second key endpoints and is putting us in a very well position to submit to the EMA at the end of 2022 and we are waiting for obtaining the approval in the mid late 2023 in Europe. So let me now shift gear and give you some example about our long-term innovation and we can move to the Slide #13. Recently, I'm sure you read the news, we make an agreement with Ichnos Sciences and we got the exclusive rights to develop and commercialize the ISB 880 which is a monoclonal antibody for use in autoimmune diseases. ISB 880 is a first-in-class, fully human high-affinity humanised monoclonal antibody that target human IL-1RAP. Why ISB 880 is different, it is so important because the blockade of the IL-1RAP simultaneously abrogate multiple disease driver among the IL-1 family of the front inflammatory receptor, including the IL-1R, IL-33R and IL-36R. And these cytokines have been implicated in numerous autoimmune condition and this open the opportunity for ISB 880 to be positioned across broad disease indication. IND-enabling work has been conducting and filing for the regulatory underdevelopment and we believe that ISB 880 has a great potential to treat underserved patients across a range of [ autoimmune ] dermatological disease and based on the data that our partner Ichnos has achieved, we plan to initiate -- this is very important, our first-in-human study in the first half of 2022. I'm getting close to the end of our presentation and I'm going to finish with our key priorities. So we have 4 main priorities. The most important one is that we want to execute on recent and future product launches. And for this reason, we want to keep investing on building success in order to grow our business. Second, very important, we want to strengthen and focus our R&D pipeline, both internally, but also working externally, identified partnership with University [ Biotech ], but also for any strategic acquisition and in-licensing opportunity. Third, we mentioned about our expansion across Europe. We have a strong footprint across European market, but we truly believe that we can further expand our footprint here. And finally, we have a very solid balance sheet and this is going to give us opportunity to be opportunistic on the M&A and find accretive bolt-on and in-licensing deal. So we want to build, of course, further critical mass that can help us to leverage on our fixed cost, but always keeping in mind our prudent financial approach in order to leverage our liquidity. And with this, I finish the presentation today. I totally thank you for listening and now we can open to the Q&A. Thanks a lot for your time.

Thanks so much, Gianfranco. That was very helpful. Very informative presentation. We have a couple of questions that have come through and definitely open to the whole team. So for the first question that comes through, it's related to guidance for 2022 and mid-term as well. If you wouldn't mind elaborating on your expectations on the business at the core level, how will you grow or EBITDA? What will drive product growth? And how should we be thinking about gross margins?

Mike, you want to take this one?

Yes. So we'll give our full guidance for 2022 in February, but already in November we gave a few ideas to everyone. We would expect sales momentum to continue in that kind of mid-single digit for the core sales. We'll have to see how that impacts the total core EBITDA. We're still fine-tuning what is going to be the investment needs for the new launches, as well as R&D and we'll give an update on that in February. And we kind of have already guided towards gross margin being around that 67% level as we talked in November. So nothing has radically changed. If you look towards the mid-term, we've got a wonderful opportunity to grow the top line. We are launching new products. We don't have a lot of patent expirations in the mid-term. The only product to keep an eye on is the Efficib/Tesavel product in Spain, which is an in-license of a second brand of JANUVIA. It will face generic competition towards the end of 2022. So that's really our only product that's going to have a little bit of a drag. The rest will be fairly stable, plus we've got the new launches adding to the momentum we already have for Ilumetri which is growing well, Seysara, which is rebounding and Klisyri which is just launching. So I think we're in a period of growth of the top line. We need to manage, of course, the investment in new launches in R&D, but we should in the mid-term also be able to grow the profit.

Thank you, Mike.

Perfect. That's very helpful. We have another question that's come through related specific to one of your pipeline programs here related to Finasteride for androgenic so topical finasteride for androgenic alopecia from your pipeline. If you could provide an update on this product, that would be very helpful?

Karl, you want to take this?

I mean, yes, this is a product that we have been commercializing for quite some time, including in different countries. I think we'll continue to work on that and provide you an update on that with any specific opportunity.

Yes, let me add to that, Karl. This is one of the 2 products that we designated a couple of years ago as the legacy products that we were not going to self-commercialize, but we were going to do through partnerships. We have licensed out the rights to finasteride to various countries in Europe, as well as Eastern Europe and even some of the non-European countries. You might have seen recently, we licensed this product for the Middle East Africa to Hikma. So we'll monetize these products as best as we can. They really didn't fit with our core new launches that we had. The other one in that category was a second [ omecriosis ] product that we've also licensed out to other companies. So those we won't see coming across these new launches in our portfolio, but we are monetizing the rights through partnerships.

Great. Our next question is related to Ilumetri. Specifically, how is the recent market share performance of new patients in Germany in the IL-23 class? What are your expectations of market share going forward? And what are your expectations of the growth curve of new country launches?

Yes, so I can take it. So Ilumetri is doing very well. The performance I was commenting, we reached on the new patient on the IL-23 market share of 32% and is keep growing, you may recall from the latest quarter reviews. So we are very pleased and very happy because as I said, we are competing with big multinational company of the size of [ Avian ] Janssen. But most importantly, we are -- the goal is not to be fully dependent on Germany, that is growing, is doing very well. Also other European marketing company start making good momentum. We have Italy, we have France, we have UK, we have Spain that are moving and increasing market share. So I'm very pleased with the performance and we can expect to further grow also in 2023 and the year to come. Commenting what will be the market share in Germany today? I think, as I said, we are competing with the big guys and already owning 1/3 of the market, the IL-23 market on the new patient is already a very strong achievement. So we are going to focus to continue to work on this direction.

Great. That's very helpful. Maybe transitioning to another one, lebrikizumab specifically, are you planning to do a head-to-head study against you being -- what further studies will you be starting for Phase 3b and any sort of revised sales estimates that might be kind of coming up, as well as general thoughts on the AD market given recent announcements on JAKs and other [ IL-30's ].

Yes, I can comment on the Phase 3b. So first of all, we just got our data on the Phase 3 top line result very recently and we are now in discussion what exactly we're going to do to further explore this exciting asset. As mentioned, we have met the primary and all the key secondary endpoints. We have started already 1 Phase 3b study in patients who are either not eligible for Cyclosporine A or has failed on this treatment and we are currently further elaborating on this strategy what else to do and we'll keep you updated.

Thank you, Karl. In terms of big sales, we commented that we foresee a EUR 450 million [ BP ] sales, but it's very early to review this target. We are very happy. We are very confident. As I said, the market is growing and there is a lot of opportunity for monoclonal antibody, but we are going to review the sales when we are going to have a little bit more information from [Technical Difficulty].

I think we're just experiencing a technical difficulty here, but I think the team should be back shortly. Go ahead.

Hi, everyone.

Can you hear us again?

Yes.

Great. That was very helpful. I think another kind of question that came in was for Klisyri. Just in general, maybe if you could touch on what targets do you have on US commercial access, payer coverage and market share? What is current coverage? And then kind of on a separate note, are you still thinking about peak sales of roughly 250 million?

Yes, so I think I can take this one. So the coverage is increasing. You may recall during the last quarter, we gave you a data that we achieved a 37% or EUR 70 million commercial live. And we are fully on track to achieve the target and communicate it by year-end. So I'm pleased with the result in term of market access. In term of market share, we are 3.7%. The market share also is gaining momentum and is growing. So for the time being, we are fully committed with the [ PTR ] sales that we communicated that there is a mix between Europe and the US. But so far so good and the team is gaining momentum. We have also a stability on the team on our US team and this is going to help us to achieve our target.

Great. And maybe just a bit about along those lines. When are you thinking about initiating a large field study and kind of the costs involved in the study and expectation for launch?

Maybe Karl?

Yes, I can start with that in terms of the large field, we have to distinguish between the US on the one side and Europe on the other side, while in the US, we have agreement with regulatory authorities on the design and are currently working through the results of a first PK study that we are analyzing and progressing. While in Europe, we are still thinking about what is the best potential approach and how we want to take this forward there.

Great. Incredibly helpful. So another question that's come through. So the presentation today focused a lot on kind of prescriptions and the science. Just kind of curious to see how you think or how you view OTC performing, specifically what your plans are for this part of the business moving forward?

Yes, so we have an OTC franchise in Spain, that is quite strong and in Germany is a very stable and a business that is growing. So we are very happy with these 2 country where we have this big foundation. So we -- the idea is to keep it and to go opportunistic if there are opportunity in those 2 country. As I said, it's part of our portfolio and is giving us a solid contribution in the year to come and the business is up and running and doing very well. Although, as I said, it's not part of the medical dermatology strategy that we said during the presentation.

Great. Maybe transitioning a bit to Seysara here, if you wouldn't mind elaborating on your current coverage, GTN, how that will evolve in 2022? And how talks are progressing regarding access? How should we think about access and sales ramp for 2022?

Yes, so here like with Klisyri, so we communicated in the quarter 3 that we have assets of almost EUR 80 million, 80 on commercial life, almost 40% and we are absolutely on track to achieve the target that we disclosed to your end. In term of market share, we are all flattish on the 4% market share, but we see also there a momentum because of the change of the label and we can see a new communication, a new plan for our sales rep. As I said, the stability that we see today in our field force is one of the most important pillar that we are building for the future. So I think that we communicated back in July that we downsized the PTR sales, but we are truly committed on the number that we shared with you guys in July.

That was very comprehensive. Maybe also talk about Wynzora little bit, how we should think about the rollout in the EU, as well as the sales ramp up?

Yes, also Wynzora is a decentralized procedure. So we have up today 8 or 9 is keep moving the target, counter where we got to the authorization and we are going to launch, as we speak, with the first one will be Germany and the UK and we are going to leverage our field force. As I said, we have a very strong portfolio in psoriasis. And Wynzora is going to complete the one-stop shop offering, treating all the spectrum or the patient suffering with psoriasis. So it's going to be a very strong complement for our portfolio in psoriasis.

Great. Maybe shifting gears a little bit related to the expenses side of things, starting with SG&A here. What are your expectations on spend growth this year? And will this have a step up in 2022 to support the new launches at all?

Mike, you want to take it?

Yes, so in 2021, we'd already talked about having a little bit higher than 2020. Of course, 2020 was really the COVID impacted here. I would see that going up again in 2022 just because we have the new launches. We have Wynzora on top of the Klisyri rollout in many of the countries and the prelaunch expenses for lebrikizumab, which is such an important asset that we will fully invest behind it. So we'll give more flavor on that in February, but we will expect to invest more in SG&A in 2022 and into 2023 as well because we will be launching then lebrikizumab. At some point, we will start to flatten that out, but the next 2 to 3 years will be investment years just because we have such great opportunities.

Thank you, Mike.

Great. And maybe as a follow-up, just maybe speaking a little bit about R&D, kind of what your expectations are for 2022, how this will be weighted first half or second half? And your general strategy is it to focus mainly on Phase 1 and 2 assets for in-licensing or more so particularly?

Maybe, Karl, do you want to take it?

Yes, I mean, usually, R&D spend is usually a bit more weighted to the second half of the year. I mean, we're looking at maybe 11% to 12% in 2022 in terms of R&D investment. And as we just now have the top line results on leprikizumab and we are thinking about next step, next studies that will be, of course, the major driver for the increased spend in R&D over the next essentially 3 years to come.

Perfect. Couple more here for you. Given the number of launches this year, what are some of the related cash outflows. I know you probably touched upon a little bit earlier, but just in general, maybe something highlighting some of the key cash outflows for reaching these milestones this year?

Mike?

Yes, so we will have some milestones that we reach for both lebrikizumab and some of the smaller assets. I would expect that we'll have an uptick in the investment in cash outlays in 2022 in the investment line. We had a very strong year so far through the first 3 quarters in 2021. So we would expect operating cash flow to continue to be in good shape, but there will probably be more investment in 2022 than we saw in 2021 because we didn't have a lot of milestones reached in 2021. We have a big one with the submission of lebrikizumab in Europe and then some further ones in 2023 with the launch that we're expecting to do. So we will have some robust years there, but we'll manage it. We're in very good shape in terms of net debt to EBITDA. We were at 1.4 at the end of September. We're managing that very well. You might have seen, we also refinanced our convertible bond that's been paid off in December with the issuance we did earlier in the year. So I think we're in good shape. We'll continue to generate good operating cash flow, but we will have more investment need. And we also, of course, as Gianfranco mentioned in his presentation, we're looking at doing additional licensing or bolt-on acquisitions. So we may use cash for that, though we don't have anything right now on the radar screen past the Ichnos ISB 880 that we just completed a couple of weeks ago.

Great. That makes sense. I believe we have time for one last question coming up on time here. Just in terms of strategy, are you reviewing assets outside of dermatology or adjacent therapeutic areas. What is your focus within the German footprint, just thinking about therapeutic areas?

The strategy is to focus on medical dermatology. So that, as we said there we have 3 main areas of focus and in a very opportunistic way, you were mentioning before asking what about the OTC. So if there are some country and I make the example of Spain and Germany, where we have a strong franchise in OTC, we will have some opportunity. Again, very opportunistically, we are going to do, but the strategy is to focus on medical dermatology.

Great. I think that very much brings us to the end here. Once again just want to thank the team for a very informative and comprehensive presentation and Q&A. Thank you to all of you for tuning in. Hope everyone has a great evening, morning and afternoon wherever you're tuning in.