Essity AB (publ) (ESSITYB) Earnings Call Transcript & Summary

Hello, and welcome to Essity's presentation of our interim and Q1 report for 2020. My name is Josephine Edwall, and I'm Head of Communications for Essity. Today, our President and CEO, Magnus Groth, will go through the highlights in the report, followed by a Q&A session, where our CFO, Fredrik Rystedt, will join. So with this, Magnus, I hand over to you.

Thank you, Josephine, and for the first time we are making this presentation from various locations, so that will be very interesting. I am making this presentation from home. So summarizing the first quarter, we entered a year of great uncertainty with a fantastic Q1 performance. We saw strong increase in net sales and earnings, as we have also previously reported. This is partially a consequence of the COVID-19 crisis, of course, and that's evident from the fact that we had a sharp sales increase in March of 19.7%. And that's really the first month when we saw a clear impact from the pandemic. And before that, we could see that we entered the year actually with a very strong underlying business performance, so gaining shares in more markets and categories than we've done previously and with a very strong innovation launch program ahead of us. So we had a good start and that was further strengthened by the impact from the pandemic. This resulted in higher volumes, better mix and cost savings in all areas. We saw lower prices in one business area, Consumer Tissue, but higher prices in Personal Care and Professional Hygiene. And we also had lower raw materials and energy costs in all our 3 business areas that had a big impact on gross margin, a positive impact. In the first quarter, we saw increased sales and marketing costs compared to last year, partly to support an ambitious launch and growth program that we have, but also due to low numbers comparatively last year. Just looking at some of the numbers here, to the right, operating cash flow was twice of last year at SEK 4.481 billion, and earnings per share almost doubled as well to SEK 4.61 per share. And even though this was an exceptional quarter and March, an acceptable month, we have been on a positive trend now for some time, as is evident from this slide, which shows the quarterly development over the last couple of years. Net sales increased with 10% and organic net sales with 7.8%. And as you can see here, volume accounted for 5.9% of the increase. And in -- starting with Personal Care, we saw volume growth in all categories, except for Medical. And in Consumer Tissue, we had very high sales growth in Europe, in LatAm, and significantly lower sales in China with Vinda due to the fact that they are at a different phase, as you know, of the pandemic. And in Professional Hygiene, finally, we had higher sales in Europe, LatAm and not least in North America and for the same reason, lower sales in China. So a very positive volume development, which also, actually, we will talk about that on the next slide, has a positive fixed cost absorption with a positive impact on the margins in this quarter. Moving over to price/mix. All business areas, again, had a positive price/mix. And the only category with lower price is Consumer Tissue in Europe and China to the extent that we have previously communicated. So small negative impact there. The divestment is -- the divestment we did last year in Turkey, a joint venture, which is part of our Cure or Kill program. And then we had a positive impact by the weakening of the Swedish krona. Moving over to adjusted EBITA margin. We decided to present in a slightly different format this year, focusing on the impact on gross profit margin, which increased by 560 basis points. And the majority of that comes from lower raw material and energy costs, 470 basis points. And out of those 470 basis points, a large part is pulp prices but also recycled fiber and oil-based materials were lower in the quarter and energy. We had a very good start to the year when it comes to savings in cost of goods sold, with SEK 260 million. And this is, to a large extent, from raw material savings and raw material rationalization. So we're happy that we can continue to work with savings even when our facilities are operating flat out and when they are more or less closed to different types of new projects since we are focusing on keeping the staff safe in the plants and the machines running. And as you know, our ambition for the year is to have COGS savings of between SEK 500 million to SEK 1 billion. So it's a good start, and we see more opportunities going forward. Moving over then to A&P. We have a negative impact of 30 basis points. This is partly because we had a tough comparison with last year when we had very low A&P of 4.9% to sales. This year, it's more normal, 5.2%. And a slight positive impact from SG&A. And again, SG&A and some other parts of the -- of our costs are, of course, positively absorbed by higher sales. So the extremely high sales in this quarter has also added to margins in this picture here. Then moving over to raw material development. After a long period now of declining prices, we're starting to see, as is evident from the graphs here, that price is starting to level out or even increase slightly. So starting then with the usual outlook for the next quarter, quarter 2, and starting with what we foresee a quarter over last year's quarter, we expect to have lower raw material costs in Personal Care and lower raw material costs in Professional Hygiene in the second quarter compared to the same quarter last year. And in Consumer Tissue, we expect to see significantly lower raw material costs in the second quarter compared to the same quarter last year, even though there is a negative impact from currency in all the 3 business areas. Then comparing sequentially, so Q2 this year compared to Q1 that we said behind us, we expect to see higher raw material costs in Personal Care and the negative currency transaction effect, even though we see slightly lower costs for oil-based materials. So this means that we expect higher fluff pulp prices. For Consumer Tissue, we expect higher raw material costs and also negative currency effect and the same for Professional Hygiene. So as is also evident again from the graphs, there is a slight increase now in pulp prices, while in -- when it comes to energy, and there's also a seasonal effect, we foresee slightly lower energy costs sequentially, but also compared to last year's second quarter. And in spite of everything that's going on, we focus on innovations and the long-term importance of hygiene and health. And of course, this is just increasing with what we are experiencing now. And here are some examples, starting to the left there, with the new face of TENA, much more modern, more feminine. Here are some examples of a new black TENA liner and also a fully breathable liner that we're launching now, adding to our already very strong inco retail portfolio. When it comes to wound care, we completely modernized our Leukoplast brand last year, and we are adding products in the skin sensitive range, which is important, especially for older skin. And here's an example of a product that is managing or reducing the amount of bacteria. It's waterproof but also skin-sensitive in the adhesive. Then moving right, we have 2 innovations that are both focused on sustainability. And of course, that remains as important as ever before. So starting with the feminine brands, in the middle there, we are making new claims on pack that all our paper-based packaging will now be based on recycled fiber, and our plastic packaging will have at least -- 50% of the plastic coming either from recycled fiber or plastics that has come from renewable sources. So that's a strong claim when it comes to sustainability. And Tempo, where we have changed the plastic, that's usually in the opening of these facial boxes to paper, so that the package is 100% paper going on. And then, of course, to the right, we have moved extremely quickly, maybe quicker than ever before, in adding a completely new category, starting to produce face masks in China and now also in Sweden and eventually also in Mexico and in North America. And initially, we're doing this to protect our own employees, but we see that there's a large demand from the health care sector, and we believe that there could eventually also be opportunities in retail, and this is something we're looking into currently. Now moving over to the 3 different business areas, starting with Personal Care. Organic net sales increased 8.8%, a combination of volume and price/mix. And as in the other business areas, a very sharp sales increase of 17%. So the stocking up or stockpiling that we saw was not only related to Consumer Tissue or toilet tissue, we also actually saw stockpiling in Feminine, in Baby Care and in incontinence care. So in all categories, except Medical, resulting in higher volumes, higher prices, better mix and cost savings with the exception of Medical. And as you can see down in the right-hand corner of this slide, we had around 0 growth from Medical Solutions. And we started out very strongly the first couple of months of the year. And then actually, this is the category that is negatively impacted by COVID-19. The reason is that we're active in 3 different subcategories, as you know, and 2 of them are adversely affected by the ongoing crisis. First of all, when it comes to compression, our customers or consumers are not able to reach the medical device stores, the health care centers or the hospitals where they need to go to fit new compression garments. So that has a negative impact on the compression part of the business. And when it comes to orthopedic soft goods and the orthopedics part of the business, which is also approximately 1/3 of Medical, that's negatively affected by the fact that people are staying home, which means that they are not becoming injured to the extent that they normally are in sports or because of age or for other reasons, while the third part of Medical Solutions, wound care, is relatively stable and not influenced by the ongoing pandemic. And we expect, of course, this negative impact to continue now in the coming quarters. Lower raw material costs, as I already explained, we have that in all the 3 business areas and also higher distribution costs in all 3 areas. This is related just to added complexity of border crossings and difficulties in rush orders, for instance, to some retailers in order to cope with very high demand and managing service levels. We also have increased sales and marketing costs behind innovation. And in addition, due to the medical device regulations that was supposed to come into play now in May, this is postponed by 1 year. We just heard this morning. It really doesn't influence Essity. We were well prepared for actually managing these regulations already this year. Then on a very positive note, after a couple of years of focusing on organic growth, we acquired 2 very important companies: ABIGO Medical, that is the provider of the technology for our advanced wound care products and, in itself, a very successful and rapidly growing wound care company based in Sweden; and a small technology company, Novioscan, based in Holland, which we see as an important technology development in managing incontinence or continence. Looking, maybe just one final comment on this page, on Fem Care, I just want to underline, you can see the growth there of 15.5%. And we have been growing share in most markets and most parts of Feminine now for a number of years. And this last quarter, we actually grew in every market where we are present, and I don't think that ever happened before. So continue to have a great momentum in Feminine Care. Moving over to Consumer Tissue. Organic net sales increased by 4% -- 4.3%, which looks very strange considering the stockpiling that we've been seeing. But of course, this is explained by the completely opposite picture you see down in the right-hand corner to what we're used to, where mature markets grew by 8.9%, and this is the stock-up that I mentioned, while the emerging markets had 2 very opposite impacts. LatAm had a fantastic quarter, growing really nicely, but this was completely offset by Vinda and Asia, which declined by nearly 13%. And so that explains the total growth of 4.3%. The impact on adjusted EBITA is nearly a doubling from SEK 1 billion to over SEK 2 billion. And again, there are some positive absorption effects here where we had very high volumes like in Europe, for instance, and a huge impact on EBITA margin also positively up to 16.9%. Of course, this was very much helped by lower raw material and energy costs and, again, partly offset by higher distribution costs. Finally, Professional Hygiene, and maybe this was the most, I shouldn't say confusing, but surprising development. We entered the year with a very, very strong product portfolio, great innovation and had a good development in January and February. And then in March, sales increased by 24.5%. And so actually, it increased more. There was more stockpiling in Professional Hygiene than in the other business areas. And this is, we believe, due to the fact that distributors felt unsure if suppliers would be able to continue to supply. So we saw significant stockpiling here, which is a little bit counterintuitive and surprising. And of course, this has a huge impact positively on net sales, adjusted EBITA and the EBITA margin, which came in at 17.5%. I think we have the same impact I mentioned before, high volumes, better mix, higher prices and cost savings, combined with lower raw material and energy costs, higher distribution costs. We also saw higher increased sales and marketing costs following low cost last year and, again, ambitious launch initiatives. Going forward, we do expect lower volumes due to the fact that fewer people are going to restaurants, staying in hotels and working from home and not working from offices. This will have a negative impact, and we saw that in China, for instance, in the first quarter where Professional Hygiene had a big drop in volumes in the first quarter due to lockdowns. Moving to the right-hand bottom corner again here, the total growth of 12.2%, again, had a strange breakdown of mature markets growing faster than emerging market. But again, the same explanation for the slow growth in emerging markets where Latin America grew by 23%, while Asia declined by 34%. So big swings here. And that's something that is difficult to forecast and something we will just have to see -- we'll just have to see how this works out going forward over the next couple of quarters. And before moving to the summary, then COVID-19, what are we doing? Well, first of all, of course, we are active in providing leading hygiene and health solutions. So we are currently focusing very much on providing our consumers and customers with hygiene and health solutions that can help them in fighting this pandemic and doing everything we can then to keep on producing and helping our consumers. In some areas, we have historically already made great efforts, for instance, in educating health care professionals and also children in the importance of hand hygiene, and we have doubled those efforts, of course. We also started manufacturing surgical and facemasks in several geographies. And we are supporting different NGOs, both locally and centrally, among them, the World Health Organization, which we believe are doing a very important job. And with all these fantastic efforts from our employees, I can't thank them enough. We are getting a lot of positive feedback from customers, retailers, distributors, but also end customers appreciating the support and service levels that we are providing, and we believe that these are making us winning their relative games. So even though there are huge uncertainties, we believe that we are benefiting from this in the long term compared to our competitors, even though our focus right now, of course, is to care for our people, contribute to society and thereby secure business success. So summarizing, strong increase in net sales and earnings, which was, to a large extent, a consequence of COVID-19, but we do have a strong underlying business performance. We are back in acquisition mode as visible from the acquisition of ABIGO Medical and Novioscan, and we believe that even though we're living in a period of high uncertainty, where safety comes first for our employees and when it comes to managing this situation, the increasing importance of hygiene and health for the long term is something that will help Essity develop and be successful also in the long term. Thank you so much for listening. And with that, I hand over to the operator to open up for questions.

[Operator Instructions] And our first question comes from the line of Christian Kopfer from Nordea.

Just a few follow-ups from me. Firstly, on Personal Care. If I look at operational leverage on the volume side, it seems to get a lot of tailwind, obviously, in the first quarter of SEK 800 million on volumes. But if I look at what you get on EBITA, it's around SEK 280 million. So if you compare that to previous quarter, it seems that you get less run-through of higher volumes. So can you comment on that, please?

Fredrik, do you want to comment on that?

Yes, I can try. I think it's -- I don't fully understand the question because if we look at the underlying performance, also in January, February for Personal Care, the growth was actually quite strong, and the margin was also reasonably strong. So there might have been a slight mix shift in the building up of the March sales. But as I said, both in January, February and March, the margins were actually quite strong. We've had some impact, as Magnus alluded to, for slightly additional A&P, as Magnus talked about, and also MDR, which has impacted Medical margins slightly, but it's still on the margin. So frankly, underlying margins are quite good for Personal Care.

So Fredrik, it was not any structural changes in this business area, if you look at operational leverage or...

No, not really any structural changes.

And your next question comes from the line of Sanath Sudarsan.

I hope all of you are well. I had a few questions. I think the first one I wanted to ask you about is, how do you see the pricing dynamics going forward? Of course, you have very strong demand, especially in Consumer Tissue, but you also had started taking price cuts ahead of the market. So in light of that scenario, how do you see the pricing dynamics going forward? Have you seen some competition also taking price action? That's one. Second, I think, again, this is for Fredrik, I believe. You guys are now, I presume, at steep gross margins and also at very high ROCE levels. How do you look at the evolution of this going forward? Of course, you can expect 2Q to have some negative operating leverage. But going forward, how do you see the evolution of ROCE? Are you willing to share a bit more with retailers, consumers to get back to the balance 15% target that you have?

Okay. I can start then with the pricing dynamics, your first question. And currently, there is very little discussions about pricing in most markets. It's more about keeping the supply chains up and running and managing fluctuating demand. Maybe with one exception, and this is Lat America, where we had a massive depreciation of the local currencies, and there will be need for price increases going forward to compensate then for the increase in raw material costs due to local currency deviations -- or depreciations. I don't know if you want to add to that, Fredrik, before moving on with the second question?

No, not really. I think, Sanath, maybe just one obvious conclusion. As you said, Magnus, we've had some price adjustments in line with our expectations for tissue in Europe. And of course, most of the pricing negotiations were completed prior to the COVID -- or prior to March. So it's in line with expectations. And you're right. I mean, we've seen some currency depreciation, as you said, and we, of course, need to -- and we'll try to compensate as far as we're able to. Maybe, Sanath, should I continue then with the margin question? I'm not sure I fully understood. But first of all, we don't really give forecasts on volumes or sales for the coming quarters. But as Magnus elaborated on here, we clearly see, of course, impacts from potential -- or from lower sales in Professional Hygiene and potentially Medical and other issues. So of course, repeating what we have seen in Q1 is not what we are anticipating. All the uncertainty is very, very high. So of course, we're impacted from an operational leverage perspective. And just as you said, and although it's really difficult to kind of separate what exactly is fixed and what's variable in our cost structure, you can say that if you take our total cost math, roughly about 35% to 37% of cost or 31% or in that ballpark of sales, if you put it that way, is, at least in the short term, relatively fixed. And of course, the main parameters there being personnel and depreciation and some other cost buckets. So of course, a significant reduction of sales or volume has also a very big margin impact. So we will see that impact most likely as we go forward. I'm not sure if that was your question, Sanath, but that's...

And I think that's very helpful. I was just trying to understand how do you keep up your ROCE level, which, right now, is, I think, 18%, so -- which is much ahead of your target and was much ahead of your target in Q4 as well. So in terms of the balance for the business and value proposition for consumers, how do you balance that? And if I may just add on both these points made, what's your past historical learnings in EM versus DM when there is kind of a recessionary environment globally for the business?

Well, so if I start maybe -- Magnus here. I think it's impossible to say right now, and we don't make any forecast either when it comes to gross margin or ROCE development going forward other than what you just stated that they are, of course, incredibly high for all the reasons mentioned in the first quarter, and they will normalize going forward. How that will play out, I think it's not possible to say today. EM/DM learnings, well, I guess, what's so uncertain now is to what extent we will have a recession or maybe even some talk about the depression, what will the impact be in some countries, will there even be social unrest due to high unemployment, food shortage and so on. And that, of course, all could have a big, big impact on the economy here in a couple of quarters, and I don't know or can only speculate like anybody else. What we have seen, though, in previous economic downturns is that Essity and previously that, of course, the SCA has done quite well and managed through those situations with reasonably stable sales. But of course, what we see today, we never saw before. So very difficult to give any outlook on that. You want to add, Fredrik?

Exactly to that point, we have been -- we've been resilient in past recessions as -- for a very long time in most of our businesses. But you're right, it's different this time. I think one thing that you already said, Magnus, but is worth highlighting, is typically some of the emerging markets tend to depreciate their currencies. And this is also why we have a more flexible pricing possibility in those countries. So we have been able to compensate quite often when that has happened by raising prices. And of course, the uncertainty in this case is whether the economy or the economic GDP development will allow full compensation or so. But the uncertainty is very high. So of course, we will try, as you said earlier, Magnus.

And your next question comes from the line of Karel Zoete from Kepler.

I have 2 questions. The first one is on the mix, as mix wasn't quite strong in the first quarter. Is that something we can expect to continue? Or has the promotional share been very low and once that normalizes, the mix goes down as well? And the second question would be on China. What are your learnings now the lockdown there is stopped? And does the business go quickly back to normal? Any insights here and how that would play out in your European business potentially.

Okay. Maybe I start with the second question and leave the mix question to Fredrik. Of course, we don't give any numbers about the actual quarter that we're in, and I don't have that information either. But I guess, what we saw was a gradual opening up of China. To what extent that will continue, we don't know. And also to what extent that will go back to normal, we don't know either. But we do believe that there is a shortage of product in the entire supply chain. So with the retailers and the distributors and all through the chain, so there should be kind of a -- at some point, some kind of recovery. But how big it is, I think it's very difficult to say. What we could see from the first quarter in China was that online sales was 40%, which was an all-time high. So there is a big channel shift here ongoing where we are well positioned. What we, I think, expect for the second quarter is more challenging conditions in Southeast Asia, which is approximately 20% of Vinda sales, as they enter the same phase of the pandemic as Europe is in now. So some relief in China, but more challenging business conditions in Southeast Asia. Fredrik, you want to talk about the mix?

Yes, I can start, and then maybe you can fill in, Magnus. I think just if we look at historic figures, we have seen a very -- we've actually seen a positive mix for quite some time. And typically, product mix is -- has been favorable. We have invested a lot, as you know, in innovation, and this has clearly paid off from a product mix perspective. We've also worked very hard with the portfolio strategy of the group. So category mix has also been positive. We are typically growing where we have higher return. And finally, I think on the positive side, brand mix has also been positive. So we tend to, in most of our -- where we have both retail brand or private label and branded business, we have grown in the branded side. So all those 3 parameters have been positive also before. There has been a little bit of negative geographical mix as emerging markets has been growing a little faster than the mature markets and, of course, with slightly lower margins. So that's been history. And if we look at January, February, mix was quite positive also before COVID. And then March, with that additional volume, we saw actually a quite strong growth in our branded assortment, in Consumer Tissue, contributing to a good mix and just generally a very, very strong growth in the mature side of the business and therefore also bringing in additional mix. Now the future is, of course, quite difficult to estimate, and we don't do that. We don't provide those forecasts. But generally, of course, the ambition is to, as things over time normalize, to continue the good mix development that we've seen for quite some time.

And your next question comes from the line of Oskar Lindstrom from Danske Bank.

A couple of questions from me here. I mean, just again, coming back to the pricing or price/mix that you had in the quarter, what do you see -- the price/mix you said was primarily a consequence of mix -- improved mix, which is not so much a COVID-19 impact, but more part of a longer-term trend. I mean, what do you feel that the competitive environment is like now? Are competitors using the relatively low raw material prices to cut prices? Or is there sort of still a focus on recovering margins among your competitors? And also, is the European -- lower European Consumer Tissue price now fully in the Q1 results? Or should we see more impact from that in coming quarters? That's my first question.

Okay. When it comes to impact on, then, mostly what competitor behavior in Consumer Tissue in Europe, but actually also globally -- excuse me. Sorry about that. I think that all competitors have been completely focused on supplying because there's been such an over demand in many product areas. So everyone's been focused on fixing the logistic, the distribution, the warehousing, keeping the plants running, safety protocols for employees, minimizing the risk for reducing absenteeism in the plants. So there hasn't been any time actually for any pricing or price/mix discussions, in general. I think this goes for -- and in the relative game, the winners have been those who have been able to just supply. That's been the fact in the first quarter, and I think that's still where we are. So I don't really have any information to give on pricing or price/mix developments. And the impact of the low single-digit price cuts that we took in Consumer Tissue that we announced in the Q4 presentation, I think they're all in, more or less, now.

All right. And my second question is on the Medical Solutions segment, I mean, which continues to perform poorly. And I mean, I realize the negative number in this quarter was due to the impact of the pandemic. However, I mean, it's been performing quite poorly for -- since you acquired it, and it's quite far in terms of organic growth from, I think, you mentioned 4% market growth when you made the acquisition. I mean, what's the plan here for improving performance in Medical Solutions? And what's the sort of time line? Or when do you think we will have -- we'll see better performance here?

Yes. We've been working according to a plan that we have discussed several times here and felt quite good and moving into this year with actually big improvements in organizational setup, in go-to-market, in modernizing the different brands and the product portfolios, and so on and so forth going into the year, and we also saw the positive impact at the beginning here of the year. A lot of this now is just not possible to continue with -- due to the situation that when it comes to the compression part of the business, consumers and customers cannot actually buy the products at this point in time because they are not able to access the medical device stores or the health care institutions where they need to go to do the measurements. And for orthopedics, as I mentioned, there is a negative impact from just the fact that people are staying at home. So lesser -- lower demand. So I think this is now a temporary negative impact that also slows down our possibility to really kick start and get this business going, where we were feeling that we had a great momentum here at the beginning of the year. So that's just a fact, and we'll get back to this as the situation normalizes.

All right. And just my final question is on the FX. I mean, as you mentioned, there've been some quite large currency declines in some emerging markets. I've seen around 20%. I mean, has this impacted your earnings already in this quarter? And how long will it take for you to sort of recover in -- through price increases? I mean, does that happen next quarter, or are we talking 6 to 12 months?

Fredrik, do you want to...

It's a super difficult question to respond to, Oskar. First of all, there's been very little impact this quarter to start with. So this is mainly ahead of us. And of course, it -- so currency depreciation is largely having an impact on purchased raw material, as an example, or other purchased goods, and then, of course, one we need to compensate through increasing prices. And as I mentioned earlier, the ability to do so will, of course, depend on the economic situation for the countries that are impacted. So it's very, very difficult to say. But we have been able to do that before. We had -- just as an example, 2015 was a very similar situation in terms of currency, and we were able to fully compensate at that point through price increasing. But of course, the situation is very, very different at this stage. So we -- I just can't -- we just can't say whether we are able to do that. We will try, of course.

All right. But then it's not as if you have sort of any automatic clauses in contracts or anything that sort of kick in immediately.

No.

And your next question comes from the line of Iain Simpson from Barclays.

Can we talk a little bit about input costs, please? In particular, it'd be great to know how you see pulp prices developing from here and whether there's any sort of COVID-19 impact on the supply/demand balance in pulp. It would also be great to get comment on your oil exposure. In particular, I suppose it's a raw material for superabsorbent polymer but also feeds into your energy and logistics costs. So anything on the sensitivity there, and how much of a lag before it shows up in the numbers would be welcome. And then if I may, looking at Professional Hygiene. Clearly, a very strong performer in March, with the distributor stock loading. But when you think through your Professional Hygiene business, what proportion of sort of end demand remains open during lockdown and what proportion gets shut? I mean, I understand it's mostly sort of restaurants, hotels and offices, but any idea as to how to think about that would be very welcome.

Fredrik, if you start with question 1 and 2. I will talk to question 3 about Professional Hygiene.

Yes, okay. I can start with the oil-based. So it's, of course, oil-based -- we got oil exposure in a couple of areas. So mainly, of course, in the raw material purchases that we have for Personal Care. So the oil-based, it could be back sheets or SAP or other types of products and adhesives, whatever. And if you look at the total cost of those oil-based materials in Personal Care, they were amounting to roughly about SEK 10 billion or a little bit lower than that. So it's a significant exposure. Of course, it's -- that's the total purchase, but it's not fully kind of oil-based. There is a lot of kind of other content in those products. So oil is not fully impacting. You cannot translate an oil cost reduction fully in the material. We've made a couple of examples historically, Iain, and you may remember that. But assuming we have a total of 10% oil decrease and that's sustainable, then over time, indices for the plastic polypropylene, for instance, will go down. That will actually mean, if you take an increase in -- or a decrease in polypropylene, that will mean for us about a 2.5% decrease in SAP. It's a little bit different depending on material. So if you take nonwoven, for instance, the impact is slightly bigger. So the oil price, providing that it actually stays on this level, will have a positive impact. But just to remind about the obvious, we have a fairly long lag here, about 6 months. So the impact is not kind of anytime soon. So we will have to see the sustainability of it, and then we will see a positive impact as we go forward. We also have about a lot of oil in, of course, in the transportation costs. So if you look at all the transportation costs, it's about 20% to 30% of the total transportation costs we have. And also there, we have a considerable lag. We got lots of contracts where you have kind of price adjustments that are done when we kind of renegotiate the contracts and then there are more floating oil-based products. So there's going to be a positive impact, but also there, with a lag. So this is more in the future.

And pulp prices, did you mention that?

Yes. I don't have much to say there. There's been, of course, a lot of analysis already made by others, and it's inherently very, very difficult. I think the -- there has been some attempt to increase prices already at this point of time, and we've seen some limited price increases on softwood pulp and not so much for the others. But of course, the expectancy is more towards the latter part of the year that pulp cost will increase, but it's, of course, inherently difficult and uncertain in these times.

Okay. Yes. And what we're seeing is an increase in recycled fiber because of a lack of supply. Since people are working from home, they're using less -- there's less sorted office waste to turn into recycled fiber, and that could also potentially then drive pulp prices going forward. Moving then to Professional Hygiene. We have approximately 40% of sales in hotel, restaurants and catering and 26% of sales in the commercial area. So large exposure actually to those areas that are heavily affected. So they will be impacted, for sure, by the lockdowns that we have in big parts of the world today. And then we have approximately 12% in health care. So that's a smaller part of our sales, but, of course, that's growing extremely well in these times, in all areas, not only in tissue, but also when it comes to soap and hand sanitizers. So that gives you a feeling for the breakdown of the Professional Hygiene sales in different areas.

And your next question comes from the line of Linus Larsson from SEB.

And maybe if I may then continue on Professional Hygiene and the very strong price/mix that you reported in the first quarter, 4.3%. Would it be possible to break that down in any way? Have you agreed on any price changes in the quarter? What's the sequence of events going forward in terms of contractual developments? Is this a reflection of new customers coming to you? Is it mix? If you could just add some granularity to that figure would be very helpful.

Difficult to add granularity, but here's an area where we believe that based on our strong brand, our strong product portfolio and our high service levels that we are actually winning, especially against the smaller suppliers who we know, to some extent, have had supply problems. And we also entered this year with a very strong portfolio and increasing share of strategic sales from higher-margin products. So all of that is contributing. Just out of interest, we have a number of customers, many customers who are asking us to replace jet air dryers with paper towels. So this is a trend that can, of course, not offset in the short term the negative impacts from lockdowns. But in the long term, I think this is a trend that's beneficial for Tork and Essity.

And there's nothing in that number, in the first quarter, which -- anything that happened during the first quarter that would suggest that you have a backlash in terms of price/mix to expect in, say, the second quarter?

I think the issue is volume, as we've mentioned many times, rather than price/mix. Fredrik, do you have anything to add here?

No. I think -- no, I fully agree. I think we had a very, very strong price/mix. So it's a bit positive on price and a very good mix. And of course, this was -- and the comments made earlier as to what happened during the quarter, Jan, February was very, very strong and, of course, further improved by March. So for most of our areas, we had a very good mix of sales in the March figures. So the number looked very, very strong. So partly, of course, as we have said many times due to COVID, but the underlying performance is strong. So nothing more to add.

And also then in the same business area, Professional Hygiene, on the volume side, like you have said several times, very strong in the first quarter. But now we are at least 10 days into the second quarter, are you seeing a reverse in terms of buying and the stockpiling that did take place? Is that now reversing in the second quarter?

We can't comment on that, Linus. So I think it's -- and I know that it's very, very difficult to estimate what will happen here going forward, and we don't know either. The only kind of reference that we have is what happened in China and in Southeast Asia, where there was a considerable decline in sales for all the reasons we just mentioned, basically lockdown.

Yes. That's fair enough. And just one final question. You said, Magnus, that you are back in M&A mode yet. Your Board of Directors prudently decided to postpone the dividend. Are you suggesting that you might do even big type M&A in this sort of environment in the next couple of quarters?

We have incredibly high uncertainty currently in the world, and most of us are working from home and unable to travel. So I think the opportunity to close any transactions here in the foreseeable future, it's almost -- it's very, very, very difficult. So that, and also the financial uncertainties and the uncertainties where -- around pricing and so on will make it very, very difficult, if not impossible, to make any transactions. And of course, so it's the same logic as our decision to prudently not provide a dividend at the Annual Shareholders Meeting. But of course, with the statement that the Board will come back with a proposal for an AGM later in the fall depending on when we have a better outlook on the uncertainties surrounding the current situation. So of course, that statement also goes for M&A in addition to the fact that it's almost impossible to work on this right now.

And your next question comes from the line of Virendra Chauhan from AlphaValue.

Yes. And I have one on the EM versus the mature market growth. So while you have said that in mature markets, probably stockpiling played an effect. I know I'm just trying to understand why we didn't see a similar kind of effect play out in the emerging markets, probably was. Why is there a difference in customer buying behavior, if that's the case, firstly? Or was it something of a supply side constraint and -- which particularly hindered your performance in Asia? So that's the first question. And on the second question is that with the March growth of 19.7%, it effectively looks like January and February was relatively weak at sub-2% growth rate. So any comments on that as to what really drove that, I mean, apart from maybe China and emerging markets' weakness coming earlier in the quarter? Was there any other factors at play? So there's 2 from my side.

Thank you. So I'll start with the first and leave the second to Fredrik. And actually, we did see considerable stockpiling also in Latin America, which then explains the high-growth numbers that we saw there. And also in some other, what we define as emerging markets, like in Eastern Europe and Russia. While that was completely offset by the very negative growth in China and in Vinda, which was done mostly from China, so actually -- and, of course, in China, this was due to the lockdown. So we did see stockpiling in Latin America, which is at a different phase, as you know, of this pandemic. They are just entering into maybe the worst part right now. So I think that's -- there are no other reasons really why the numbers look so low for emerging markets. There was stockpiling where there were not lockdowns. And there was also some impact on sales for Vinda from the fact that 25% of production was closed until early mid-March because our biggest plant in China is located in Hubei -- in the Hubei province, which is part of the Wuhan area, which was closed. So we did have some capacity constraints in China at the end of the quarter when things started opening up a little bit again. So minor impact from that. When it comes to the underlying growth in January and February, Fredrik, could you elaborate on that, please?

I guess, from the numbers we have provided, you can calculate basically what was January, February, and you come to the number of 1.2%. And this is, as Magnus already said, very much impacted by Vinda. So if you would do the same calculation, excluding Vinda, January, February, you would come to a growth number of 3.2%. So clearly, normally, Vinda is contributing a lot to the growth of Essity. But of course, this time, it was just the opposite. So excluding Vinda, as I mentioned, 3.2%. So strong underlying growth in January or February, without the COVID impact.

Okay. So maybe just one quick follow-up, if I may. Is the Hubei plant operational today?

Yes. Everything is up and running and working well.

And your next question comes from the line of Faham Baig from Credit Suisse.

I have a couple of broad questions, if I may. Firstly, if I could start with underlying tissue demand. So I want to try -- include both the Professional Hygiene consumption and the Consumer Tissue consumption. Net-net, do you think that -- does this environment prove a headwind for you guys or tailwind or neutral? Because whilst you're seeing reductions in footfall in the various out-of-home categories, I would expect you to see significant retail consumption as people are more a term. And partly related to that, your European growth, I guess, in March was probably between 20% and 30%. But the demand for the tissue category, I believe, in March was 50-percent plus and probably is trading at a similar level in April. How do you match that gap between your sell-in versus the sellout data we're seeing? And do you expect that sort of restocking measurements to take place in the foreseeing months and quarters? And on the second question. We are, like you say, in lockdown, constrained at homes, et cetera. How will that impact your decisions around innovation, your decision on A&P spend, your investments going forward and also your CapEx levels for this year as well?

Wow, and it's already 10:00. I think I will try to answer this as best I can, and then there's room for one last question after this. These are very interesting questions. Yes, what's the impact net-net on tissue? We've tried to really dig into this and understand what it will be, and actually, we don't know yet what the net-net impact will be. What we do -- what I agree is that, of course, consumption at home increases. So it's not only stockpiling. There's also net impact from just more usage at home of tissue products. So that's partly offsetting the reduction in Professional Hygiene. But I would be surprised if that would be a complete set of -- just for the fact, for instance, that paper hand towels are frequently not just at home, for instance. So -- and also, of course, you maybe -- you don't use napkins to the same extent as you do away from home when out having fast food and so on. So I think the net-net effect will still be negative for those reasons in that many of the Professional Hygiene categories don't really exist at home. Maybe in toilet tissue, the difference will not be that big. Number two, yes, the lockdown impact on A&P, innovation, CapEx. It's -- since the plants are more or less closed to external contractors, engineers, different types of projects, it is likely that cap expenditure will be lower than the SEK 7.5 billion that we have mentioned before. How much lower? We'll have to get back to that. It's very difficult to say. When it comes to innovation, so far, we're able to continue working. But eventually, if innovation leads to changes in our supply chain, of course, that will be more difficult in some cases. But for now, we're continuing with innovation work, of course, the R&D work and so on and with the product launches that are possible to do, and we have a pipeline there. And A&P, where we were expecting and I think also forecasting a higher A&P this year than last year, percentage-wise, and also higher in the coming quarters and this quarter, let's see where that ends up. Of course, there has not been the same need for A&P in Consumer Tissue as maybe we had expected. So I don't think it's going to be higher rather, if anything, lower, but too early to tell.

Could I follow up with one question, please? On Consumer Tissue, would it be fair to assume that the current supply is lagging behind the current end-market demand? And if so, how are you looking to bridge that gap going forward?

No. There is enough supply, for sure, for the demand, then there might be some variations in the supply chain, if -- depending on where the stockpiling has taken place, if it's in the homes or with the retailers or -- which I don't think or with distributors and so on. But there's not a lack of supply.

Maybe to add, Magnus, I guess, the inventory levels are quite low. At least to our perception that inventory levels are quite low with perhaps retailers, distributors, and also our own inventory, to some degree, is -- so part of the increase that you mentioned has been met with lower inventories generally. And of course, there is a rebuild that will happen.

To some extent.

Yes. To some extent, yes.

Operator, could we have one last short question, please, before we sum up?

Yes. Your last question comes from the line of Karri Rinta from SHB.

Yes. Karri Rinta, Handelsbanken. In your EBITA deviation analysis, you have the other line, and it's minus [ 19.4% ] for the first quarter. Could Fredrik maybe go a little bit deeper into the minus [ 19% ] and maybe single out some of the biggest items and say as much as possible about the outlook?

Sorry, the other line?

EBITA. So earnings. So minus [ 19% ] year-on-year?

Yes. I mean, we -- we have -- we can maybe provide those details to you in a separate call, Karri, if that's okay with you. But just generally, as we've already alluded to many times before, we have increased our spending on innovation and investments in growth in more sales resources as we have talked about. And we also have some additional cost in -- which is partly related to COVID also in the production side. So these are the main -- the bigger items that we have in that line. So mainly SG&A, A&P and COGS increases and those last partly a consequence of COVID.

Roughly, how much is that last one?

Yes. We do -- we haven't specified that in detail, Karri, but it's a part of the number.

Okay. So with that, thank you so much for calling in and for your questions. And to sum up, we had an excellent start to the year. I'm very proud about all the efforts our employees are doing now to deliver these products that are so important to society, to our consumers and to our customers, and continuing to go to work every day in this environment. And we are entering a time of great uncertainty. But for the long term and for the short term relative to the competition, I believe that -- I'm convinced that Essity is very well positioned. We entered this year with a lot of confidence and with good momentum, and we will make sure to put that to use now in this very unusual circumstance that we're in. So thank you so much for listening and stay safe.

Thank you. That does conclude our conference for today. Thank you all for participating. You may all disconnect.

Great. Good morning, everybody. Thanks for joining us for the first session which we'll kick off with Regeneron. I'm Matthew Harrison, one of the biotech analysts here. Before we start, I have to read an important disclosure statement. Please note that all important disclosures, including personal holdings disclosures and Morgan Stanley discloses, appear on the Morgan Stanley public website at morganstanley.com/researchdisclosures or you can pick up a copy at the registration desk. And so with that, we can get down to business. So happy to have with me from Regeneron, Marion McCourt, who runs commercial; and Jay Markowitz, who is SVP of Portfolio Management.

So I thought to start off, we would try and just address some of the overriding topics that investors have around Regeneron and then maybe we could spend some time on EYLEA as well as some of the other businesses. So I guess, and you get asked this all the time I'm sure, but one of the biggest issues or overhangs related to Regeneron is people's concerns about international pricing. And so I just wonder what's your perspective on government pricing actions? How you think that may or may not play out? And how you think that may impact your business?

Well, thank you for the question, Matthew. And before Marion and I both address that, let me thank you and Morgan Stanley for inviting us. And like you, we have a cautionary statement that our comments may be forward looking and they may not come true. So to your question about international pricing, I mean if it weren't so painful, I'd find this whole thing somewhat amusing. But like what happens is there was a Gallop poll that was recorded last week that showed that the pharmaceutical sector actually has the lowest rating of any industry, including the federal government, we're below oil and gas, for instance. If tobacco were part of that, we may even have been below tobacco. So from a political standpoint, it's an obvious target. From a rational standpoint, that's less clear to me. So I think that we haven't done ourselves any great service by some of the behaviors past and even present, and the latest is all drug companies are guilty for the opioid crisis, for instance. But if Harry -- if Willie Sutton were in charge of the government in running health care, he would go with the money, and we have a $3.5 trillion health care system, drugs are 10%. Now again, with Beth Rosenthal, who is a physician and a reporter and no advocate for the pharmaceutical industry, had an op-ed in the New York Times a week or so ago pointing out that actually hospitals are aware most of -- or much of the health care dollars are spent, and that prices for health care and hospitals in the United States is a lot more expensive than in other places in the world. Similarly, if you look at physician services, they are a lot more expensive than other places in the world. So yes, drugs are more expensive in the United States compared to certain other countries, just like other products and services in The United States, where you can have free trade that corrects whatever price discrepancies there are occurred to balance that. And yes, there have been abuses of pricing in The United States, both initial prices as well as price increases. I would argue that America is well served by having a vibrant, innovative industry like the biopharmaceutical industry based in the United States. When you look at certain countries that have been not as receptive to drugs, you've seen that the companies that make them are not basing their organizations there, not providing the kinds of jobs we get in The United States. Now for a company like Regeneron, we don't set ex U.S. prices because we're not at this point marketing and selling our drugs outside The United States. So we set our price in The United States. Our collaborators set the price outside of The United States. We work to ensure that when we set a price, it is reflective of the value our drug provides. Our collaborators try to do the same thing, but it's not in our hands. So just as it would seem outlandish, say, for the government to tell a hospital or a doctor that this is what it costs for a stay in a day in a hospital in the United Kingdom or in Spain, this is what it should cost in The United States. Or if you are doing an endoscopy or surgical procedure or joint replacement, this is what it costs in other countries, this is what you have to charge in The United States. I think many of us would say that, that doesn't make a lot of sense, may not really be fair. And that what's happening now for some reason, just being picked up for the drug industry to do that. And again, I don't -- I understand from a political standpoint, when you have an industry that is viewed so negatively anything you do that is perceived to be in the interest of Americans and at the expense of companies that everybody thinks are just awful, you get a lot of political support for. Marion can speak more to the specifics about how that might affect our business.

Sure. Happy to quickly. I think as Regeneron, what we're looking for in terms of most important contributions that can be made through some of the reforms and even certain finance proposals that's being looked at is affordability for patients, making sure it's an environment where innovation continues to flourish and making certain that some of the practices related to things like price increases are something that we look at in a very appropriate way, in a balanced way with some mechanisms to ensure for making sure that pricing is appropriate. As for competition, we're very comfortable in a competitive environment and making sure that products are allowed to the marketplace that meets standards of the FDA and we compete appropriately. But the crisis and the issue, of course, is making sure that patients can afford their medications at all ages and that physicians and prescribers have freedom of prescribing.

And just maybe to be specific, just so everybody is sort of have the same view, I mean if you talked about Part B exposure broadly for your business and what that looks like?

So I think that as we move into discussing EYLEA, certainly EYLEA has been a tremendously successful product 8 years into the market, still very much a growth driver and still a very vibrant part of our business. I'm really excited. As many of you know, I'm coming up on approaching 2 years at Regeneron. I'm incredibly excited about the portfolio broadly, and I'm sure we'll have a chance to talk about some of that this morning. But certainly, we're keeping a very keen eye on what's happening within the Part B dynamic, not only for our ophthalmology business, but also for other areas of our business as well, in our oncology business, which is a significant area of our future as well.

And then, Jay, maybe just ask you before we get of this, I mean do you have an alternative proposal that you would suggest because to your point, it seems like the political scrutiny is going to continue. I mean what would your suggestion be? Or how would you think about an alternative proposal?

Well, I think it starts with what is the problem we're trying to solve. And I think that the issue why people are so outraged is that the amount of money they pay out of pocket every month is very high. And so to me that is a function more of the reimbursement system than the prices. I am not in any way being an apologist for some of the bad pricing. So I do think that prices should be related to value, and I do think that there should be some sort of rationale for price increases, okay? But again, patients are indifferent. A patient may not know what a very expensive surgical procedure or a hospital stay may cost because they don't pay. They don't care. Why is it that -- being -- having a chronic illness is punishment enough. Why are we then continuing to exact a financial penalty on a patient every month when they get a refill for a medicine knowing that, that may reduce compliance and that means that they are not taking medicines that are keeping them healthy. Why are we -- why do we have a system where patients have to go without insulin. Again, you read some of these reports. It's not because patients don't want to take them, it has to do with the fact that they are being required to pay out-of-pocket money that they may not be able to afford. It really is not rational. So again, I think the drug industry should do its part in terms of being responsible with pricing, using value as the metric, which is not simple because it's value to whom and so forth and that's -- we have no time to get into that in detail, I don't think. But making sure that patients should be incentivized actually to take their drugs, not to not take them.

Okay. So why don't put EYLEA and then we can go through some of the other businesses, but EYLEA, obviously, a handful of things have happened in terms of potential drivers. So maybe if we could just tick through them a little bit and talk about what the impact of those are. So first, can we start with diabetic retinopathy and just talk about what is your outlook on that market because I think a lot of investors look at it and say, we see big numbers, but it sounds like a market where compliance may be low and coming back to the doctor may be low and your ability to penetrate that market may be low. So why you guys feel differently...

So I'm very happy to. So certainly, the recent diabetic retinopathy indication, it's a different kind of market opportunity for EYLEA versus our prior indications that had more of an established patient population. Now all the patient populations across wet AMD and diabetic eye disease, other indications, those patient populations are growing because of the demographics and because of the rise in the incidents of -- and prevalence of diabetes. When we talk specifically about diabetic retinopathy, that's a place where we are really creating education and understanding of the severity of the disease in making sure that patients coming to the treatment continuum. So there's education certainly for consumers as a possibility, but more importantly, at the start, for physicians, injectors, retinal specialists who are treating these patients. And to put some numbers on it, there are probably about 3.5 million patients who have diabetic retinopathy. About 1 million of those patients would be at highest risk and potential candidates for treatment always -- as deemed by their physician. But today, less than 10% of those patients are actually in the treatment continuum for diabetic retinopathy. And the reason that's so important to these are the patients that potentially go on to lose vision and have loss of vision untreated that then can't be reversed. So we're quite passionate on this topic. We've a lot of endeavors in market in terms of how we're approaching this new indication. And we do believe that we can make a very meaningful difference for patients for the treatment.

And just -- I mean, is your aspiration to take that 10% and make it to 50%? Or is it just to convert that 10% from laser to actual treatment?

So certainly, it is an ambition to make sure that more patients are coming into the treatment continuum. And in fact, we're really heartened by early days in launch, but there is tremendous interest among specialists, among KOLs, so that while we have a lot of work to do and it's very early days, we do think that this will be one of the important growth drivers, diabetic eye disease for EYLEA. And we certainly believe that EYLEA will continue to perform very well in the overall anti-VEGF marketplace as well.

Great. And so then a couple of things. prefilled syringe got approved. I mean we saw when Roche launched with that for Lucentis, they -- it seemed like they took a couple of points of share. I mean do you think -- do you see that it's just more of a defensive play that you maintain share with that? Or is that actually something you can take share with?

Absolutely, it's something that as market leader, it's very important that we provide efficiency and convenience for offices. And for those individuals who want to use the prefilled syringe, we're excited to be bringing it into the marketplace. It will be in 2019. We'll launch when we're ready to launch, and we look forward to bringing that line extension into the marketplace for EYLEA. And we do think it will be important though, and we do think it's something that the market will be very receptive to. We have a lot of interest, as many of you know, in the prefilled syringe for EYLEA.

And then you're investing in potential higher doses or higher concentration, should we think of this as your way to compete against Novartis? Or what's the pathway for that? And what's the outcome?

Right. So I think when you think about EYLEA, and I'll share with you that, years before I came to Regeneron, EYLEA had become a product that was on a blockbuster, whatever you want to call it, type of trajectory. And over the course of time, adding indications, adding sophistication in various phases of our market, commercialization approach is something that's really, really important. So I think that all of these elements are part of our bringing into the fold, not only opportunities for EYLEA today, whether it's some of the work that we've done at this phase of our commercialization with our field force footprint, with our marketing and our educational, promotional messaging, work that we're considering in the future with the consumer footprint, work we're doing with technologies, the machine learning and artificial intelligence, all of this together becomes where we're headed with EYLEA. And certainly going forward, looking at dosing delivery, it's also an important aspect of life cycle management.

And Matthew, let me just add to what Marion said. So when these anti-VEGF therapies were first approved, there was a lot of concern, not only about the effect of VEGF inhibition in the eye, but also about systemic exposure to these drugs when they were injected into the eye. And if you look, there are warnings and risks, for instance, about cardiovascular, potential cardiovascular risk. And so when EYLEA came to market, the goal was to have the right balance of efficacy and safety and to choose a dose that was the lowest, most effective dose. Subsequently, we learned that when other companies tested doses at 6-fold or greater molar excess to what we achieved with EYLEA, the safety looked okay. And just as we have a q4-week dosing for EYLEA for some patients who for whatever reason, whether it's because of the pharmacokinetics of EYLEA within the eye or high levels of VEGF production or who knows what require that to maintain or improve their vision, we realized that maybe coming out with a higher dose formulation may be of benefit to patients. The other thing that I think is remarkable is that despite over a decade of work in the clinic, nobody has come up with something that is either as good as blocking VEGF of adds to VEGF, which is pretty amazing, but again, not that surprising given that drug development is very risky and biology is challenging. But in addition to testing a high-dose formulation, we are also in late preclinical development with a new molecular entity that we hope will indeed be a best-in-class anti-VEGF therapy that unlike any other drug to date could be better than EYLEA in terms of the important clinical outcome, which is vision.

And Jay, just to clarify, I mean, is that new mechanism or just better VEGF?

No. Yes, it's -- we don't know it will be better, but it is a VEGF blocker. That remains the only validated target for these diseases.

Okay. And then maybe just one final question before we can move on to some of the other businesses, but one of the things I hear in support of the brolucizumab talking about is the anatomical benefits, drying out of the eye, things like that. How do you compete against that? How do you view that as a potential competitive threat or not?

Sure. So I think the first is to consider that we participate in a market with competition today. And then as I go on and think about future competition, it's always really important to keep an eye on competition. Competition makes your participation in the market stronger. But when I do look at potential aspects of the very high bar that EYLEA sets, it is really important to look at the end game of what's the impact of visual acuity, what's the experience of the product, what is the safety profile of the product, what is the totality of the clinical data and then specifically taking a look at some of those aspects, dosing flexibility. So we'll always keep a very close eye on all competition as it relates to all the categories we participate in, but specific to EYLEA, it's a high bar. We feel very confident in the performance of EYLEA going forward across multiple indications. As many of you know, about 60% of our business today is indeed wet AMD indication. And we look forward to continuing to accelerate market opportunity and being a very strong part of the leadership of that market.

And just the fact that you asked that question, Matthew, I think speaks to how effective the competition has been at moving attention to something that is actually peripheral. So if you look at the labels of medicines approved for wet AMD, you see really 2 things in there about the drug in terms of clinical benefit: one is visual acuity and the other is safety. And I would urge folks, who are may not be familiar with the data, to look at the visual acuity for EYLEA and look at its safety and tolerability profile and compare to any of the competitors or to the potential competitors. That's what -- if drugs get approved for these indications, those are the data that actually go in the label, why? Because the FDA realizes and actually the data support this from many studies, it's a very experienced division, that some of these other things are not in a surrogate for vision. If they were, then people who showed this, that or the other thing, would show better vision. The fact that they don't tells you that it's not a valid surrogate, because it doesn't have an impact on the clinical end point of visual acuity. So those are the things that go in a label. Those are the things that by regulation, law, et cetera, ethics, companies are obliged to market their drugs on. We are very satisfied and confident in our label for EYLEA. And in the experience that we've had with over 25 million injections in patients over the 8 years this drug has been on the market. So I mean those are just, again, some facts. The fact that this discussion has gotten pushed in a direction that really moves away from those key end points of efficacy, safety and tolerability, really, hopefully, it will not change medical practice because I don't think that, that would be in the best interest of patients.

So a couple of things. I want to make sure we tick through some of the JV products and then talk about I/O a little bit as well. So maybe just 2 questions on the JV. I think the first one is, so you turned profitable on the JV this quarter. DUPIXENT clearly a big driver of that, but there's obviously an underperforming asset, which has significant spend against it. And so one of the questions that I'm sure you get asked a lot is, what do you do about that asset and PCSK9, obviously. So is there a point in which you say, the spend against that isn't worth it? And you can dramatically rise the profitability of the JV by cutting some of that spend? Or do you bulk up on extra products that you can use -- leverage that sales force again, maybe you could just talk about strategically how you're thinking about that?

So I'm happy to take that. And first as you pointed out, we are very pleased with the performance of DUPIXENT and across our collaboration made some important inroads. But specific to the point on PCSK9 market category and PRALUENT, some of the comments we made in the most recent earnings call were very deliberate. Now in terms of the importance of PRALUENT, its LDL-lowering impact, the increment to the label related to mortality, all very, very important, but we do believe that moving more towards a footprint of commercialization that has greater profitability, potentially associated with it is really, really important. And different products need to be commercialized in different ways. A really important category, an important product, but we did make deliberate comments related to how we're going to think about bringing that product into the marketplace and different techniques. As to adding to the potential cardiovascular portfolio, not so much a topic for us to discuss today, but we are very serious about some of the steps we intend to take with Sanofi related to our promotion of PRALUENT, realizing it's got a really important patient population with unmet need, but how we participate in the market and how we commercialize needs to be right for the market today and the product opportunity. So we have work to do there, and we're very -- and we're working very diligently on that.

Yes. We are in the business of trying to sell drugs for a profit. And we don't intend to trying to make up in volume for the fact that each sale generates no profit. So we're really thinking about improving the profitability. Again, taking a step back, it really is an indictment of the health care system, I believe. Given how -- given the role of cardiovascular disease and morbidity and mortality as leading cause of death in the developed world, that a class of drugs that cuts cholesterol in half, improves cardiovascular outcomes and has a great safety profile is not being embraced by the prescribing community and is not given the kind of reimbursement that it deserves. That being said, our job is not to change the world. Unfortunately, we are not empowered to do that or maybe fortunately, and so we have to live with this reality. But it really -- it is astounding to me that drugs -- the drug class like this is not used more broadly.

And then, I guess, outside of AD and asthma for DUPI, which we're clearly starting to see the trajectory. Maybe you could just talk about some of the label expansion indications that are upcoming over the next 12 to 18 months and your views on the outlook for them?

So -- absolutely. Certainly, atopic dermatitis and asthma have been important. I will comment on atopic dermatitis that while we're in market today for -- excuse me for adults and more recently for adolescences, we did see some really exciting Phase III data recently that we spoke about on our recent call for the pediatric patient population, and these younger patients have substantial need. So certainly, we look forward to the potential of that incremental to our label. We most recently launched the indication for chronic rhinosinusitis with nasal polyps. So we're just starting to see the uptake associated with that indication and the marketplace has been very, very well received. These patients, as many of you know, are individuals that have tremendous pain, sinus pressure. They've lost their sense of taste and smell, and certainly DUPIXENT offers an alternative for them that can't be achieved in other means. There haven't been other products for this indication, and surgeries often require repeat procedures and patients fail to get the relief that they need. Other indications going into the future, I'm sure, Jay will add to this, but eosinophilic esophagitis is going to be an exciting indication for us in the future, again, an area of significant unmet need, and many, many other indications potentially across the type 2 allergic cascade, food allergies, other areas across this pathway where indications will allow us to continue to bring opportunity to patients who have situations and conditions that haven't been relieved by what's available on the market today.

Yes, I mean, look, the decades of research have supported the fact that IL-4 and 13 are at the center of this so-called type 2 allergic pathway. And so all of the diseases that were approved for and that Marion mentioned, I would just echo her comments about food allergy just because of the logic -- logically, there should be a role, given the role of immunoglobulin E and the fact that IL-4 is what induces class switching from IgG to IgE, and these allergies are associated with an imbalance where you have a higher level of IgE and the IgG as a binding enough allergens so that these patients have the response, so that's another one. But -- and we're early in development for that. But even if we didn't do anything in any other indications, I just would remind everybody that tens of millions of people have the diseases for which were already approved, and we are treating just a small fraction of them. So I think that given the benefits that we're seeing in these patients, with the great safety profile, we think that we'll continue to make inroads in just these approved indications, namely atopic dermatitis and asthma where there remains a tremendous amount of unmet need and most patients are not getting DUPIXENT.

So maybe in the last 2 minutes here, we can just tick through some of the upcoming data. So one, you've got a C5, you're going to report data on towards the end of the year. I think earlier in the year -- I think Glenn might have talked about how we are seeing immune -- other agents were seeing immune reactions when you switch from Soliris. So maybe you could just talk about your excitement around that agent or how we should think about that data?

Yes. So we're in lightening round, I'll be brief. C5, we know, is a validated target. We have an antibody, we believe, that can be delivered subcutaneously effectively. Yes, we bind a different epitope. Soliris and Ultomiris bind the same epitope. So this risk of immune complex formation is not there, whereas with Roche-Chugai molecule because it binds another epitope you can get immune complexes. We are cognizant of that when we have a strategy to either mitigate it or remove it. We -- also, I should remind folks as well that we have a collaboration with Alnylam, and we also have access to their siRNA that we depending on our single-agent data, we may or may not decide to move together in combination.

BCMA bi-specific?

BCMA is validated target. We've seen with the CAR-Ts, with the BiTEs, now with an ADC that binds BCMA that you get responses. The issue, I think, has been what multiple myeloma is not a curable disease unfortunately thus far, and so some of the issues have been relapsed. We believe we have a molecule that has the potential for chronic administration that hopefully will lead to more durable responses.

And then, I guess, last one, CD3, CD20 specifically, follicular, I think, has been your initial registration strategy, why follicular? And then, I guess, you've always called that study potentially registrational, what do you need from regulators to change that designation?

Yes. Well, we view both follicular and DLBCL as potential paths for accelerated approval. It's just that in follicular, we had a 100% response rate and 70% to 80% CR, so that was just the obvious one. And the reason we say potentially registrational is because when you have the discussions with regulators, it's all about the data. So until we have the data in more patients, we can't be more definitive. But we are looking across the spectrum of b-cell non-Hodgkin's lymphoma and across all lines of therapy with this reagent, which we believe has an excellent profile that could be used to relapse refractory, but also in earlier lines of therapy.

Perfect. Great. Thanks very much for being here. Appreciate your time.