Eckert & Ziegler SE (EUZ) Earnings Call Transcript & Summary

Hello, and good afternoon. This is Harald Hasselmann from Berlin calling, and I welcome everybody for today's 9 months press conference. It's the last time that at least in this year, we are coming together to have a look on the numbers on the Teams call. For those who want to have more information on present conferences, you are invited to join them at one of the upcoming conferences. With me today is Karolin Riehle organizing this conference and also Julian Schröder. And as usual, as you all know that I will present to you the latest data. Some of that has been published earlier today, and then we will continue with the Q&A session. Forward-looking statement known to everybody. This is what we are talking about. Here, you see our enlarged Executive committee consisting out of the first one, Management Executive Board members as well as the entire group executive team, where also Julian Schröder is participating in it. I continue to open the presentation with some introduction charts. Some of you who are participating in the conferences are known to these However, they are becoming more busier every time I present in this chart, you see basically all the big pharma companies as well as the ones who have been swallowed or acquired or went into cooperation with big pharma. And the message of this slide is unchanged. It is really a very motivating slide because it demonstrates the urgency to produce drugs in the area of radiopharmaceutical oncology of cancer and Eckert & Ziegler is the producer of isotope is participating on that development. Now what is the expectation for the years to come? Basically, that chart mirrors the previous one that we do see a strong growth momentum in the years to come. We are currently here on the '25 expectation numbers, but there is still an upcoming and that is split up into radiotherapeutics on the one side, but then also technetium generator business in which we are also participating as well as other PET tracers in our 2 segments, the IP segment as well as the medical segment. Our customers in all of the most dominant isotopes, gallium, lutetium, Y90, actinium and hot cells. So basically, whenever we talk about the businesses of Eckert & Ziegler Medical segment, then we see big companies as well as smaller ones as our customers, and that is the main contributor of Eckert & Ziegler's success. Lutetium established isotope with quite a lot of companies regularly ordering our isotopes, whereas actinium equally long that list. However, the numbers in real qualities is, of course, still much lower than for the existing ones. And then we have our CMO, CDMO development in Braunschweig in Berlin, in Boston, where we are aiming for getting more and more customers on that list as well. Looking to the highlights of last quarter of quarter 3. Basically, very important is GalliaPharm has been approved in Japan, smaller country in terms of inhabitants compared to other Indian or Chinese countries. However, as the price level is high in Japan, the approval, which we achieved for GalliaPharm in Japan earlier in September was a very important cornerstone for the future of GalliaPharm. We are happy that Berenberg Bank has started to take coverage on Eckert & Ziegler also in September. Earlier in August, we did a share split. That's why the share price is around EUR 17 and not EUR 51. But basically, the aim is the same to increase the number of flow here and to optimize the liquidity of Eckert & Ziegler shares. And we have added one CDMO customer in July of this year for the Boston side, and they are also making use of our facility there. This is a picture taken 2 weeks ago here in Berlin, where we are setting up a new production facility for our GalliaPharm business. We were talking a lot about increasing capacity. Now the building here on the left side is from the brick-and-mortar part is ready. Now we will start with the in-cell equipment, all this in order to be ready in time. This is how it will look like. And here, we are going to produce then upscaling GalliaPharm for covering and matching the market demand. Equally important is China. This is how the building in China looks like. This is for those who have been here in Berlin, you know that this symbol of Eckert & Ziegler is also placed on the roof of our Chinese building in Jintang. This is how it really looks like. the entrance is here, and then we have the factory and the cyclotron area. And also here, you see that the cyclotron has been implemented inserted, built in meanwhile. So here again, our 2 important production sites are very much on track with our cost and time plan. Now let's have a look to the numbers. These are old figures as of '24, we are not able to produce full year's number to present them here. So this is known to you, split of revenue, split of EBIT adjusted. A always the lighter red part is the medical, whereas the green is the industry, the isotope product part. How does the first 3 quarters look like? Here are the numbers. We have published today morning that overall growth was 4% whereas EBIT adjusted could grow by almost 10%, precisely 9%. And for those who are still interested in the net income, there is a growth Pentixa adjusted of almost 30%, 28% precisely from 23% up to 29%. So let's have a closer look to the net sales. Basically, you are all aware that we have had a very challenging half year 1 with the cyberattack, with the discussions about tariffs with headwind in currency and things like that. That's why that was really a very unpleasant start of this year. Still FX adjusted, the growth is even stronger. It's almost 7%. And where is it coming from? You know the answer. It's coming from the radiopharmaceutical growth, 17% versus prior year. Looking to the income or the EBIT adjusted numbers, no surprise that most of the growth is coming from the medical business, where we have here an EBIT adjusted growth for the Medical business exceeding the sales growth. In isotope, it's a mixed picture because we have products which are heavily contributing towards the growth, whereas also we have in the product mix, those which have a weaker contribution. All in all, our EBIT adjusted margin is in the area of last year, 22% last year, slight increase up to 23% of this year. Looking into the 2 segments. Here, we see the double-digit growth of the Medical business, 15% growth almost EUR 120 million for the first 9 months. And here, again, due to the weaker U.S. dollar, if it was an FX adjusted picture, it would be slightly better. Where is it coming from? Of course, from our gallium generators, they continue to grow EUR 7 million increase, but then we have also the income license for the license agreement, EUR 5 million and EUR 4 million was achieved by our new business unit, CDMO, plus EUR 4 million compared to last year. But also in the smaller ones, we had a positive development in our seed business in our prostate seed business, EUR 1 million better than last year. The EBIT adjusted stronger growth here from EUR 9 million higher than last year. The gross profit has increased by 18%. So we have a gross margin now almost 50%, 48% to be precise, 2 percentage points more than last year, whereas the EBIT adjusted margin also could increase by 10% from 23% to 26%. So all in all, a good result for the Medical business. And even if we were looking to the net income here, the result is positive. Isotope, a mixed picture. You know that the first half year was weak. But if we look to what we also announced earlier on that the second part of this year or the second half year will be better than the first one, then we have seen here the improvement. The Q3 results in terms of sales were 4% higher than last year. So that is a good development. And still, we are suffering by a lower income -- order income from OWL logging with high margins that is so far disappointing, but we have in the other isotope business and the spec business, there's a stronger growth. And that gives, as I mentioned earlier, the picture. But to face reality, it's 6% lower than last year. That is not satisfying, although Q3 has been, as announced earlier, demonstrated how the recovery could look like. Simultaneously, also the EBIT adjusted numbers due to the lower margin products, which were stronger growing contributed to that profit decrease in the EBIT adjusted as well as the net income. That is not where we wanted to land. However, we should not forget that 2024 was an extraordinary good year, whereas now we are more coming back to the original or to the typical to the historic values. Still, we have an EBIT adjusted margin of 18% for those of you following the isotope segments for a longer period. And if you look backwards, you would see that we were coming from 12%, 14%, 16%. So 18% is still okay. But of course, sky is a limit. We would have been even more happier if the results would be better, and we are working heavily to come back to these better numbers. This is a slide which shows you the transfer and transition from the EBIT reported to the EBIT adjusted. And you see the medical column, the isotope product and others. Look to the total ones, please. You see that the EBIT reported is here EUR 48 million and then it's basically EUR 3 million higher, EUR 50.8 million is the EBIT adjusted. And where is it coming from? You see it's a currency effect, it's hyperinflation. These are the 2 main topics contributing to that effect. And then you know that we have had the cyber attack, which was also then giving some headaches. For us, that is why we have then EBIT adjusted a higher number of EUR 15.8 million compared to EUR 46.7 million in the previous year. A regional split -- most important is that Asia, that is the third line here, continues to grow. 16% of our overall revenues is coming from Asia, meanwhile, and that is here a strong growth from EUR 28 million to EUR 36 million, and China is the largest contributor to that development, and that proves our decision to establish a site in China for the Chinese market because we do want to participate in that growth. Looking to the other 2 and still more important region that is Europe and North and South America, Europe, slightly below 40% North and South America above 40%. And the reason I talked about isotope business, that's the reason here, including also the FX effect. that the growth was negative in this year compared to the previous ones, and that is compensated by the incoming growth for the European areas where we see the largest market is Europe and then followed by the other ones. They all have now introduced GalliaPharm and that also contributed to that sales in countries where GalliaPharm was not on the market yet. Radiopharmaceuticals run rate and also where is it coming from? We have slightly changed that slide here. The dark part is the pure medical contribution, whereas the lighter blue is the revenue deriving out of isotope products, and that is mainly the South American, Argentinian and Brazilian business with our technetium generators and some cold kits. Here in '22, we acquired that company, and they are contributing. We are well aware of the hyperinflation effect. But it is now out of basically up to 10% is deriving out of that isotope South American business, and we continue to grow last year to this year, and we expect to land compared to also to our guidance of EUR 150 million to be achieved by the year-end. That is slightly more than extrapolated because we are still awaiting license income here for Actinium. It is the entire mixture of Y-90, lutetium, actinium, the generator business and then the other business, as mentioned here. I skipped the quarter business and rather would like to bring your attention to our balance sheet. You see left part and right part or active passive part of the balance sheet, EUR 450 million is the overall balance sheet number. That is quite an amount. Cash is EUR 120 million or cash equivalents. But then the other remaining part is also equity, strong equity number, and we have once again reduced our liabilities. It's by now EUR 50 million. And here, we have some KPIs I want to present. A is the EBIT adjusted that was presented early on, above EUR 50 million is still the number compared to EUR 46 million of last year. Then cash flow from activities slightly below last year, but that is a temporary effect as receivables have increased and things like that. So that will be flattened and come back to the number we are used by the end of the year. That is just because of fixed date of end of September. The rest is pretty much in line with the previous year. I mentioned loan liabilities have been decreased by EUR 5 million. Cash is higher than last year. Equity ratio remains above 50% and the overall headcount 1,100 people are working for the company. Financial overview, cash flow, EUR 40 million; equity, 50%. Here, again, you see the number, and that is the revenue balloon getting bigger with the dark blue as just presented. Outlook. That is a slide I used to present also during the previous presentations. There is still a lot to do for the remaining part of the year. But we are -- despite all the challenges which we have had at the beginning of the year, we remain confident to deliver of the numbers which we have presented, EUR 320 million in net sales and approximately EUR 78 million in EBIT adjusted. So these are the financial numbers. And now I mentioned early on, this is the last time that we have here a Teams call for this year, then only by Q1, you will see me again here on screen. But for those who want to talk to Julian and myself in presence here is the calendar. There's Jefferies next week, then Eigenkapitalforum Equity Forum in Frankfurt, then a small one in Dusseldorf and then the bigger one is JPMorgan conference in San Francisco at the beginning of the year. Having said so, I close the presentation and stop here sharing my screen, and I'm more than happy to open the discussion with all of you. I see here 35 participants, and I would ask you to raise your hands electronically. And no surprise, [ Tim Bunderich ] is, I think, the first one and then the others are to follow. Tim, please go ahead.

My first question is on the gallium generator. Could you talk about the current capacity utilization? And how soon are you going to benefit from the increased capacity that you're currently working on?

Yes. Give me all your questions and then...

Okay. So I have a few. The other one is on the implicit guidance for Q4. Evidently, the EBIT in Q4 needs to be significantly stronger than what you've seen so far in the Q1 to Q3. So I think the expectation is that you're going to receive a license payment. Is that still your expectation that this is going to come? And I think it was supposed to come in December. So what is the risk that this first off doesn't happen or that it gets shifted into 2026? So that's my second question. And then the other question is on Asia, China. What is driving growth here? I mean performance was nice. Is that also the gallium generator? And that once again brings me to the question of capacity utilization and how quickly you are going to benefit from the higher capacity to capitalize on the growth in that region? And then a last one in Q3. I mean, you did have very strong catch-up effects in Q2 from the cyber attack that hurt your business in Q1. Did you still experience catch-up effects from this in the third quarter? And that's it for the moment, and I'm going to jump back in the queue.

Wonderful. So question number one is the GalliaPharm capacity. I do expect that our new plant, our new site will be ready end of '27 or somewhere first half year of '28. We have enough capacity to produce on our current site until the end of '28. So there is -- we will be ready with the new site before we will make use of the second site. And still, once we have opened the second site, we can still continue to produce on the first one. So if you ask me about our currency utilization, it's still below 100%, and we will be perfectly matching the overlap reaching capacity while the new site is open by then. Second question was the guidance. Yes, right, you are. There is license income still to be generated, and we expect this to come in, in the Q4 accounting procedure. So that will happen in that one. Now can I promise you that everything will be incorporated before December 31 or will be something handed over to the beginning of next year. We are striving to get most of that into this year, and that is the composition of the guidance to be confirmed here that we will have enough license income to be in that guidance corridor. Asia and China, yes, it's also GalliaPharm related, not so much the Gala farm in China yet, but in Japan. So we are selling already the GalliaPharm to Japan on a higher price level than average, and that contributes to also the strong improvement of profitability and then there are neighborhood countries. But if you ask me what are the biggest countries for the time being, that is Japan starting in this year and then China next year. And the last question was the cyberattack. Most of the recovering process has taken place in Q2 because that was the production lack of GalliaPharm. Now we still have some issues which are still pending, but they are all together in terms of revenue in a single million-digit amount. So as a nutshell, I can say the cyber attack has been fully recovered. Super. Then I take the next question that is Alexander.

I have a couple. Maybe the first one on your CDMO business unit. Maybe you can talk a little bit more about it. My understanding was that the activities are rather negligible for the time being in the short term, but yet you record 4 million more revenues alone in this quarter. Just maybe you can put it in the context what are those revenues? Is there any continuity to those? Or is it a onetime payment? And whether it's related to the cooperation with the Arches, I believe it's called for PSMA therapeutic.

Yes. Give me...

Sure. Yes, I'll throw in a few more I have. The would be interesting to hear an updated or refresher on CapEx outlook for the coming years, given that already you have made quite a bit of progress on the erection of new buildings, et cetera. That's the second. And the third is around IP part of radiopharma revenues. There was a jump in 2024. Can you also elaborate what was that driven by? Is that acquisition or it was organic? And then maybe generally, more broadly, what's the outlook for the technetium generators in this vertical and also the related kits? That would be it.

Yes. The Q4 question regarding IP, I'm happy that Julian will jump in once we have approached at that stage. Let me start with the CDMO part that the increase by EUR 4 million is not Q3, it's EUR 1 to 9 million compared to EUR 1 to 9 million of the previous year. So it's a 9-month comparison, not only Q3, right? Archeus is a big customer or supposed to be becoming a big customer for our Boston site. And the original idea of the CDMO business was to start with that business in order to attract customers to buy our isotopes. Now what we do see is that for clinical studies, not necessarily we have to provide them with the isotope, but they are making use of our facility, in particular, in the well-established site in Braunschweig and there, the customers -- for those who are visiting us, you would see who the customers are. I'm not allowed to give names here on that conference here. But the number of kits which we are there producing, the number of label products is heavily increasing, and that's why we have really good development of these customers making use of that services. And I'm pretty sure that also in the next year, that will continue. And without giving too much details here on the CDMO activity in the original idea was say, okay, if it's plus/minus, we will be happy with not negative gross margin as long as they contribute to an increase of isotope orders. Now that business is also positively contributing to the overall gross margin, and that's why we have given an extra Will it be as big as the other GalliaPharm and things like that? Probably not. But we will take that with us in order to demonstrate that Eckert & Ziegler is a fully fledged service provider. CapEx, that is -- there is one big issue which is still pending that is scaling up the facility of actinium production because what we currently see is that the clinical studies are ongoing. But if you then speak to big pharma, we see here and there slight time delays, and that's why we are putting still a foot on the brake by saying, let's not, for the time being, spend here EUR 50 million. That is a number which I originally mentioned, EUR 10 million for property, EUR 1 million for the building, EUR 10 million for the cyclotron, EUR 10 million for hot cells and other, EUR 50 million, you can easily spend. And that kickoff has not taken place yet. All the other investments, CapEx and that you have seen on the KPI overview chart is increasing for our business in South America in Brazil, where we are investing in a new site for our lutetium site in Boston and also here in Berlin, where we put money in order to foster our CDMO activities. So overall, I expect that the number this and next year will be around EUR 20 million. Technetium kits, that is a business which is increasing for South America, though. We do not have a North American approval yet. So it's sold in the South American countries, and these numbers are increasing. It is very price sensitive, but to produce in South America is an advantage to other production hubs, but we are not at the end of our task list yet because, of course, we want to also have a presence for Europe and North America that is pending on approvals yet. That's why there we have still more growth momentum to come. Julian, can you please help me in the IP question for Q4 of last year?

Alexander, good to see you. Now first, I learned that wording can be very confusing with us because we have IP and medical. And we have IP sales within medical, and we have medical sales within our IP isotope product segment. So let me know what exactly your question was aiming at.

It was referring to the chart that you now adjusted where you show radiopharma revenue and then there is a different color showcasing what part comes from the IP-related. So my question was what was the jump in 2024 related to?

Okay. So basically, the radiopharmaceutical revenues coming from the IP segment is the Latin American business. It's all about the technetium generators and the SPECT tracers. So it's mostly [indiscernible] and parts in Brazil. Looking at this, the nominal numbers is it's EUR 0.5 million more this year compared to last year. Last year, this field has quite an impact in Q4. So -- and that's basically it.

Nicolas, I hope we don't have to change to French, but here we go. Nicolas.

I will speak in English. Just 2 questions on my side. Would be interesting just to come back on Japan and your comments about the pricing there. What is the reason why it's so high there? And would you say it's even higher than what you have in the U.S.? So this will be the first question. And then if you could kind of quantify what's the opportunity in Japan that you see either on the top line and also on profitability as you say, it was having a good impact on margins? And then the second question, which is maybe a bit broader, but is to -- it would be nice to kind of have a view of how things are evolving on the IP part -- sorry, on the lutetium part and on the actinium part. Do you still have negotiation ongoing, things that we can expect in the future? And from the answer you gave on the CapEx investment, it sounds like you are maybe a bit, let's say, more cautious on the actinium side. Is this overerpreating things or maybe you -- as you said, you see the pharma not willing to move as fast as they used to be a year ago?

Okay. So Japan has always been a higher-priced country with pharma prices. You see this everywhere. And the overall, the price level is comparable to North America, to the U.S. and also our prices are in that range, what we are generating in the U.S. market. And that's why the overall number of generators will for sure, be less than in the U.S. But overall, in terms of price and margin, it's very much comparable. And we are together with Novartis. So we have filed our approval for the Japanese market together. And as they have now received all the approvals they need, it was good for us as we have achieved, it's good for them, and that's why we can do that together. And I expect one of -- the first wave of generators, which we have sold to Japan will be seen or is seen this year and the next wave is then coming next year. Regarding the lutetium and actinium business, we have still one prominent product in the market that is Pluvicto with lutetium. But if you speak to big pharma, they want to achieve both. They want to enter into a generic market or let me call a generic or me-too market in the prostate cancer area, but also endeavor new possibilities for other cancer areas. Our biggest customer for the time being is Eli Lilly. And for them, we are producing already by now for their composition because they acquired the Later in which we had a supply contract with, but now it belongs to the Eli lilly group. And for them, we are producing already out of Brunswick, but we are very optimistic that also then once Boston is ready, lutetium will be also shipped out of Boston. Actinium, I'm not saying I'm cautious. I would rather say I'm realistic. And the product development takes time. And for good reason. I mean, at the end of the day, it's treatment of human bodies. And all of us, we want to have a product which is safe -- and that's why it takes time until all the clinical studies are successfully performed, accomplished and brought to a reasonable end. And that takes as it takes. And I don't want to invest now EUR 50 million. And then if you speak to scientific people, some of them are very supportive for Actinium. But then if you speak to others, they are saying, yes, the next wave is lead or Copper 67. I don't want to borrow you with all these isotope names, but the development could be relatively fast. And then I want to stay flexible. And if we now press the CapEx button, we would be still in time to match '28, '29 commercial starting point of big pharma entering into the commercial field. That's why I'm saying let's be reasonable with shareholders' money in order not to overinvest here at the very beginning.

Okay. Super clear. And maybe just a quick follow-up on the Biopharma agreement. If I remember rightly, it was EUR 100 million of total sales of lest that you were kind of eligible to get. Did you already collect some of that or it's mainly tied to approval of the drug?