Ipsen S.A. (IPN) Earnings Call Transcript & Summary

Hello, and welcome to the Deutsche Bank Depositary Receipts Virtual Investor Conference, dbVIC. My name is Zafar Aziz, part of the Deutsche Bank team. I'm pleased to announce that our next presentation will be from Ipsen in France. Before I introduce our speaker, a few points to note. Please submit your questions in the questions box below the slide. Once the Q&A session is ended, don't log out. It will automatically transfer to the Ipsen booth, and you can continue to ask questions via chat and access shareholder materials. On a final note, all of today's presentation is recorded. It can be accessed by the Deutsche Bank website, adr.db.com. At this point, I'm very pleased to welcome Craig Marks, Vice President, Investor Relations from Ipsen, which trades on the Euronext Paris, under the symbol IPN, and in the U.S. on the OTC market as IPSEY. Over to you, Craig.

Thanks, Zafar. Hello, everyone. Good morning, good afternoon to you wherever you are today. I'm going to be spending around about 10, 15 minutes introducing you to Ipsen for those of you who don't know Ipsen so well, and then I'll be very happy, as Zafar Aziz said, to answer your questions. I'll move through a number of slides, and hopefully, most of it should be self-explanatory. But as I said, I'm very happy to take your questions. The next slide, if that can be moved. Michelle, next slide, please. So this is our safe harbor statement. For our next slide, so this is our agenda for today. So I'll give you a broad overview of the business. I'll give you an idea of our strategy and how that strategy is actually really working, meaning we've already upgraded our guidance twice for this year because of the success of the implementation of that strategy. I'll give you a sense as to our financials and the outlook of the business. I'll stop there, but there is an appendix over the slides you may find helpful. Next slide, please. Okay. So Ipsen at a glance. For those of you who are not so familiar with Ipsen as a company, there are kind of 5 key things to think about when it comes to it. So we generate around EUR 2.5 billion of revenue each year. We have a very strong Specialty Care franchise that at the moment is fairly dominated by oncology, but we do have a Consumer business as well. Our Consumer business is around 8% of sales; Specialty Care, 92%. Our Consumer business is under strategic review, right now. And we have said that, that business is noncore to Ipsen. So we are looking to focus on Specialty Care. The second tenet of Ipsen to think about is our geographic footprint. Although we're based in France, we're fairly evenly split 1/3, 1/3, 1/3 between the EU5, North America and rest of world, and we are expanding our geographic presence. We're in most key markets. The last key market that we're entering this year is Japan, but we're also entering a number of markets, for example, in the Middle East this year. And that geographic expansion will continue. Thirdly, our pipeline is advancing. We have a reasonably limited pipeline right now that's mostly focused on life cycle management, and we're a company that develops. We don't engage so much in research and discovery. We tend to do that to others. And we have an external innovation model, which means that we tend to bring in assets and develop those successfully and bring those assets to market. Sometimes we'll do that through M&A, through in-licensing, for example, or a number of other mechanisms. At the moment, we have 5 Phase III trials, and we also have 3 files under review. Our external innovation strategy itself is the focus of our capital allocation priorities. It's our #1 capital allocation priority to direct our funds towards external innovation, where we've already done a number of deals this year in clinical and the preclinical stages, and we're looking to do more over the course of time. The fifth element, as I'm saying, is really building and utilizing a very strong balance sheet, where we have negligible levels of debt right now, and we generate very, very strong levels of cash through the business. We are building at the moment a EUR 3 billion level of firepower to replenish the pipeline. And that's based on not exceeding a debt-to-EBITDA ratio of 2x. Next slide, please. Where we operate is in 3 therapeutic areas. So we're a reasonably simple business. We have 5 key on-market medicines. We have a number of others, but we don't have a long tail of medicines. We have -- in the market, we have 4 oncology medicines and one neuroscience medicine that we can talk about. We're looking to expand and really try our scope within rare disease. And we're hoping to bring to market potentially in the next year a medicine in the third rarest disease in the world called FOP, and we're hopefully going to be bringing that to market next year with potential FDA approval, if things work out as we're currently assuming. So at the moment, we are very much in oncology business. We have a very significant neuroscience presence, both in terms of where we've been, but also the capacity and capability that we have as well as some external innovation deals that we've done this year. Next slide, please. In terms of our breakdown of our sales. So as I say, special care dominates our top line. Within that, we have Somatuline. Somatuline, and apologies for the error on that chart there. But Somatuline is an oncology medicine, used to treat NETs. So NETs are neuroendocrine tumors. People who suffered from NETs would be people like Steve Jobs. We frankly know a whole host of people, well known and not so well known, have suffered from NETs. And there are principally Somatuline plus Novartis. We [Indiscernible] statin plus generic players in that market. So Somatuline kind of dominates our top line and even more so by profitability. We can talk about other medicines that we have as well. So Decapeptyl, Cabometyx and ONIVYDE are other 3 major medicines in oncology. And then in green, you can see Dysport. So Dysport has a really good place within the neuroscience therapeutic area. It's principally, it's, in effect, our version of Botox. So we are some way different #2 to Botox in a number of markets. We have a very good partnership with Galderma, who sell into the aesthetic space with us. So we have a very good partnership with Galderma and the book sales in the majority of markets in the therapy -- in the aesthetic space. In therapeutics, Dysport is used to treat a range of indications, including spasticity and cervical dystonia. So Dysport does work very well for us. It's a growing market at this stage, principally, within aesthetics, but we're also seeing very, very strong growth across oncology as well. Next slide, please. Okay. So in terms of our footprint, I was saying earlier on, we have a well-balanced portfolio, but we also have a very well-balanced footprint as well. So it's broadly around 1/3, 1/3, 1/3, North America, EU5 and rest of world. And so a lot of people tend to be quite surprised just the extent of our participation in North America, and we're really based in Cambridge, Massachusetts, where we have our commercial and R&D hub. Our R&D hubs are in the U.K., they are in France. We have a small presence in Shanghai. Next slide, please. So you can see here just a bit more of the breakdown. You can see that we have a very strong European focus in a number of markets, we tend to sell either directly or through distributors, and you can see the R&D hubs listed on the map there. Next slide, please. Okay. So now I'll turn to the strategy before I go to financials and outlook. Next slide, please. Okay. So apologies, it looks like there's something gone a little bit wrong with these slides in the transfer, but we can get that sorted out. I mean, our vision is to be a leading global midsized biopharmaceutical company. And with that, we really want to focus on transformative maintenance in those 3 therapy areas. So we're very clear where we want to play. We know we don't tend to play we're big pharma players. We know that the pharma tends to play in $1 billion-plus peak sales opportunity, so we tend to play below that. Although we do have a blockbuster, for example, with Somatuline, but we tend to play, especially when it comes to external innovation, business development and M&A, we tend to play in EUR 300 million to EUR 800 million peak sales target base. That's where we tend to focus. Next slide, please. Okay. So there are 4 elements to the strategy. It's really about: one, maximizing what we have, bringing the full potential of what we have to patients. Number 2 is replenishing our pipeline because our pipeline at this stage is reasonably limited. Number 3 is we think there's a lot of efficiencies to drive out of this business. There's some type of this business that we think we can target, and I'll talk about how we can do that and how we can impact the SG&A line and the ratio of SG&A to sales. And the fourth element of our strategy is really boosting our culture of collaboration and excellence, which has a significant ESG element to it. Next slide, please. Okay. So this might be a little bit difficult to read in that final transfer. But what we want to do, first of all, obviously, 4 tenets of the strategy: Number one, bring the full potential of the medicines to patients. That is about maximizing what we have with Somatuline, Decapeptyl and Dysport. Somatuline and Decapeptyl being in oncology, Dysport in neuroscience. Our newer medicines, Cabometyx and ONIVYDE, here we have significant life cycle management opportunities with those in oncology, and I can talk about those in a second. We have real potential with palovarotene, which we are looking to refile with the FDA in the first half of next year. I can talk to that, but I'm sure there'll be 1 or 2 questions on that. We're really looking to expand our geographic presence. And as I said, we've been doing that in places like Japan and the Middle East this year. And what we're also looking to do is -- I guess -- we've got a CEO in David Loew. He came into the business about 18 months ago. And he's really been driving just our overall levels of execution, especially commercial execution. And we performed very well, for example, this year. We have benefited from a COVID recovery balance. We benefited from markets that we play being attractive. We've also benefited from an improving level of commercial execution. So across the board, you're seeing just an overall improvement in the way we operate. Next slide, please. Okay. So the second strategy of the 4 tenets I was talking about was building a high-value, sustainable pipeline. In oncology, we do want to continue to focus on solid tumors, but we also think there's real potential in the hematological space. We think there are in niche tumors and sort of smaller biomarker spaces where big trauma doesn't play that we think we can get below the radar and get into there. Certainly, if you look at rare disease, again, we are very hungry to get into the rare disease space. We have one asset in Phase II right now, IPN60130 in FOP, and we also have palovarotene, which, as I say, we're looking to refile with the FDA in the first half of next year. In neuroscience, we are looking at, again, those rare diseases. If you look at a preclinical deal we did in the summer, that's in Angelman syndrome, for example. We also did a Phase II deal in neuroscience in the summer in dopamine-based levodopa-induced dyskinesia within Parkinson's disease. So there is a lot to go for in those 3 therapy areas. It's an exciting approach that we have to build up that pipeline, but we do need to build it because we know that our pipeline equals pharma and pharma equals pipeline. Next slide, please. So these are some of the deals that we've done this year. We've done 3 preclinical deals. As I say, we've done 1 clinical stage deal. So you can see mesdopetam at the bottom right. I was just talking about that one in dopamine-induced dyskinesia within Parkinson's disease. So we're looking to get the Phase IIb data for that next year. The other 3 are in the preclinical stage. And obviously, you'll need plenty of candidates in preclinical space to get to an on-market momentum, and we know that, that will take time. But we're very excited about the deals we've done. For example, in oncology, there's plenty of overlap between BKX-001 and the METTL3 projects, where we've also signed this year because we think that there's a real place in the hematological space, plenty of opportunity there for us. So a good set of deals. I would expect more. And sorry, if we can get to the next slide, please. And next slide again. So in terms of our pipeline, I'll finish on just a few more slides. So in terms of our pipeline, as you can see, it's is not as full as other pharma companies. We're looking to fill that. We've been filling that this year. So if you look at Phase I, we dosed the first patients at the start of the year in our long-acting neurotoxins. We think there's real potential for those, both in aesthetics and therapeutics. In Phase II, we have that FOP asset in rare disease and mesdopetam that I've talked about that within Parkinson's disease. The Phase III is one to watch because we have a number of readouts in 2022 and 2023. So if you take Cabometyx plus TECENTRIQ from Roche, we have potential combinations in non-small cell lung cancer and in metastatic castration-resistant prostate cancer, both in second line, but also we've got a readout next year for ONIVYDE in second-line small cell cancer. And then in 2023, we have first-line pancreatic readout, again, for ONIVYDE. So some real shots on goal to extend what are fast-growing medicines, and we think there's real potential if the data comes through in our favor. Next slide, please. So the third element of the strategy was about delivering efficiencies, and we think we can do that in a number of ways, whether it's digital transformation or manufacturing efficiencies. If you take the example of smart spending, we know that we have 15,000 suppliers on our books, and that's just too many. We could reduce that by a factor of 3 to 5. And so we can hugely reduce the complexity we have in the business, the overspend that we have, the duplication, and that's what we've been doing ever since our CEO came on board around 18 months ago. Next slide, please. In terms of ESG, this is a slide from our half year, where we've recently committed ahead of COP26 to a net zero target like many companies. So you can see that we divide our ESG focus into employees, communities and the environment. You can see our 2024 targets there. I won't go into too much detail now, but we are making real progress with our ESG targets. And suffice to say, it's really capturing the engagement within the business, and it's really getting a significant amount of engagement within the business as people really start to understand what we're trying to achieve. Next slide, please. Okay. So I'll finish on the financials and the outlook, and then I'll be happy to take questions. So as I said earlier on, we upgraded our guidance earlier this year. We thought our sales growth would be more than 4%, and then we thought in July, maybe more than 8%. And now we think more than 11% for the full year. But we do think there'll be a hit from FX of around 2%, but certainly very strong double-digit growth in sales this year. On our margin, we are benefiting from a lack of generic competition to Somatuline, which is typically on average, higher margin than the rest of the business. But certainly, our core operating margin, we think, will now be around 34%, which is higher than it's traditionally been. So we're doing well both in terms of sales and profitability for this year. Next slide, please.. So this is a slide we used about half year results back in July, but it just shows the fundamental -- the soundness of our financials. So very strong levels of EBITDA for the first half of the year, free cash flow of nearly EUR 300 million, and debt of EUR 337 million. So we are prioritizing, as I say, our capital allocation priorities towards external innovation. And that's what you hear around any building you'd go to at Ipsen is where, how can we generate funds for external innovation? Next slide, please. So with a danger of repeating myself, this is what we're looking to focus on. So there would be limited evolution of the dividend. We have no material interest at all in the share buyback outside of recovery management incentive plans. We don't have many calls on our cash, as from a CapEx perspective for milestones. So it's really about building towards this EUR 3 billion of cash. We probably had a little bit more than we anticipated at the half year as we built that 2024 target of EUR 3 billion. And that EUR 3 billion does exclude the sale of any assets. Next slide, please. So finally, before I go to questions, the outlook to 2024. So this is a slide we used at our Capital Markets Day around 12 months ago. And obviously, we've performed well in 2021 so far and according to our guidance for the year. But we think total sales will average -- we'll see an average growth rate of 2% and 5%. We have said we aim to lower SG&A costs as a percentage of sales, driven by some of the efficiencies I talked about a moment ago. We do anticipate, if we're bringing in assets into the pipeline of developing those assets, we would see higher R&D costs as a percentage of sales. But we certainly are also seeing a culmination of crystallization and an ending of some of those expensive Phase III trials in life cycle management for Cabometyx and ONIVYDE, which will go a little way to offset again increasing costs in R&D from external innovation. And I talked about the EUR 3 billion cumulative firepower for pipeline expansion. So that concludes the presentation. I'll now be very happy to take a look at the questions that come in.

So one question we had was, how do you plan to deploy your EUR 3 billion cash balance? I mean it really comes down to external innovation. The deals that we've been doing have been back-end loaded and certainly milestone-weighted. So you're seeing a little in the way of upfront, but that will build over time. We do want to focus not just on early stage preclinical and early clinical, but also late-stage deals. Those late-stage deals are a little bit harder to come by, especially in terms of valuations. The valuations are pretty hot right now. But we certainly think there's scope to be able to map out a path for late-stage deals. We have significantly revamped the way R&D and our hunters work together. We've hired a chap just over a year ago, Philippe Lopes from Merck. He's done that for a number of years for Merck, and [indiscernible] is really doing a great job with his team on identifying the assets to go for. Another question. So what is the rationale and expectations for your agreement with Accent? Well, I think whether it's Accent or anyone else that we talked about earlier on, whether it's IRLAB or Exicure or Accent or whoever, I think there's a real potential for these medicines. We are developers of assets, and we have a very good track record of developing preclinical and clinical stage assets. The rationale is clear. Expectations, I think, it's probably too early right now to talk about preclinical assets and what our expectations are. But suffice to say, we're very excited about whether it's the synergies in acute myeloid carcinoma or whichever disease area is, we think we have real potential with those assets to develop them, but they are clearly some years away. In terms of other questions, let me have a look at what else is coming in. So what are the drivers of your strong revenue growth during the year? And do you expect a similar performance in 2022? So I think what we've seen this year, I think number one is our commercial execution has been very strong. We've also seen a lack of generic competition to Somatuline that we were expecting. We expected to see significant levels of competition in Europe to Somatuline, and we haven't quite seen that yet. So that is in the post. I'm sure it will come along at some stage, but we just haven't seen that level of competition yet. And the generic player in question hasn't materially launched yet, but I'm sure they will in due course. We have had a COVID recovery balance, and there's no doubt about that. But I think we're also in a very, very attractive markets. So if you imagine where Dysport plays in the aesthetic space, Zoom and Teams have been a real boom for us. They've been very helpful for us. And so people are definitely getting their shots of Botox. They're definitely getting their shots or Dysport. Markets like Brazil and the U.S. are extremely attractive for aesthetics. I'm sure you can appreciate that. And we're just in attractive markets. We're either holding share or we're taking share where we operate as well. So a combination of growing markets, growing market share, commercial execution, COVID recovery bounce. And I think just having the right level of focus. I think all of those things are playing to why we are performing the way we're performing. In terms of 2022, it's -- we give our guidance here in February. But I think what we were at pace to remind people about back at our Q3 results around about a month ago, was, clearly, there's no COVID recovery balance next year versus this year of any weight. There's also clearly tough comps. There's also the potential for generic competition versus Somatuline in Europe. So I think people do understand there's a few more challenges in '22 versus '21, but we'll give the guidance in February on that. Okay. I don't see any more questions, but I'll be very happy to take any more questions if they come in. Okay. So I'm not seeing any more questions. Please let me know if there are more. Otherwise, we can -- I see there is one more that I may have missed. Now what is the time line for commercialization of Cabometyx? So in terms of Cabometyx, so it's on market now principally in the renal cell carcinoma indication. We are rolling out, and that's principally within second line. We're rolling it out in combination with OPDIVO in Europe in first line right now. It's in Germany. It's been in Germany now for about 4, 5 months and is going well. We're just starting to roll out in places like Italy. I think you'd probably see the much fuller rollout of Cabometyx plus OPDIVO as a combination in 2022. And then in terms of the 2 readouts of Cabometyx plus TECENTRIQ in second-line non-small cell lung cancer and second-line metastatic prostate cancer. Those readouts are in 2023. So the potential to come to market, let's say, in 2024. And if the data comes through, we file and get approved that would be, again, a real boost to the sales of Cabometyx, which is already growing very, very strongly. So I'll just have a look to see if there are any more questions. Okay, so there are no more questions. We've just bought 2 minutes, which is great for you guys. So thank you very much for listening. I really appreciate you taking the time to listen to me and to listen to the Ipsen story. I think it's a very strong story. It's clearly a very good growth business with real potential and real upside, and I think backed up by very strong levels of free cash flow generation and negligible levels of debt. I think it's a very sound story, and I'm pleased to be with the business. So thank you for your time, and have a good day.