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

Good day, and thank you for standing by. Welcome to Ipsen Full Year 2021 Results Conference Call. [Operator Instructions] Please be advised the meeting is being recorded. I would now like to hand the conference over to your host and speaker today, Mr. David Loew. Please go ahead.

Thank you, operator. Good afternoon and good morning, everyone. I'm delighted to welcome you to our full year results call. I'm David Loew, Chief Executive Officer of Ipsen and it's a real pleasure to be here today to run through our performance and updated midterm outlook. Please note that our presentation is available on ipsen.com. Please turn to Slide 2. This is our safe harbor statement, which outlines the routine risks and uncertainties contained within this presentation. Also any commentary on growth you'll hear today will be based on constant exchange rates, unless stated otherwise. Please turn to Slide 3. I'm joined today by our CFO, Aymeric Le Chatelier as well as Howard Mayer, Head of Research and Development. Howard will be with us for the Q&A session later. Please turn to Slide 4. Here is the agenda for today's call. I will start our presentation with an overview of the business, after which Aymeric will take you through our financial performance in the year as well as our 2022 guidance and updated midterm outlook. After concluding our presentation, we'll be happy to take your questions. We are planning to finish before the end of the hour. Please turn to Slide 5. So let's begin with the business overview. Please turn to Slide 6. Our focus is on Specialty Care and 3 therapeutic areas: Oncology, Rare Disease and Neuroscience This emphasis is an important part of our vision of being a leading global midsized biopharmaceutical company centering on transformative medicines. Based on what we announced as part of our Capital Markets Day in 2020, we have now finalized the strategic review of our Consumer Healthcare business and have entered into exclusive negotiations with Mayoly Spindler for its sale. This is a major step forward in the execution of our strategic road map towards building a more focused Ipsen. Aymeric will provide more details later on. We are happy with this outcome as it provides a strong platform for this division to continue its journey. Please turn to Slide 7. We continue to perform in line with each of the pillars of the strategy that I unveiled in 2020. Firstly, we maximize all of our key brands with total sales increasing by 12% in 2021, led by the success of Specialty Care. We strengthened the pipeline with the completion of 7 external innovation agreements covering Oncology, Rare Disease and Neuroscience. While the record core operating margin of 35.2% was supported by early benefits from our efficiencies program. Finally, we made good progress with our focus on culture, underpinned by the strengthening of our leadership team during the year. For example, we appointed Stuart Campbell as our President of our North America business. Over a 20-year career, he has led global and local commercialization functions in Oncology and Specialty Care markets, most recently at Roche/Genentech. Furthermore, Mari Scheiffele, who was appointed to lead our International Specialty Care business, also has a diverse background combining her strong foundation in science with 20 years in the health care industry, having joined us most recently from Novartis. Please turn to Slide 8. Turning firstly to our key brands. It was another good year for Somatuline with sales growing by 7% and SSA markets performed well through the pandemic, and we continue to take share based on Somatuline's strong clinical profile and differentiated delivery system. In the U.S., which represents just half of Somatuline sales, there were no SSA launches in 2021. We noted the approval in December of a pharmaceutical alternatives through the 505(b)(2) pathway. In Europe, there was a very limited impact in 2021 from generic SSAs, where the launch in Germany of generic lanreotide led to a market share of only 4% by the end of the year. We also saw generic lanreotide win tenders in Denmark and Norway. In the rest of world markets, where there has been no real change in the competitive landscape, we expect a continuation of strong growth. For 2022, we anticipate further launches of generic lanreotide in other countries in the European Union as well as increased competition in the U.S. Please turn to Slide 9. Cabometyx continues to be a key contributor to our growth with sales up by 23% in 2021, we remain fully confident of achieving peak sales of at least $700 million. Through the year, there were strong volumes across most geographies. There was also an accelerated ramp-up in the rest of world countries and wider reimbursement coverage helped to enforce Cabometyx position as the TKI of choice in second-line renal cell carcinoma. The launch in Germany of the combination of Cabometyx and nivolumab in the first-line setting is progressing well. If you look across the monotherapy and combination settings, Cabometyx achieved an 18% exit share in Germany of new patients at the end of the year. We are looking forward to further reimbursement and launches of the combination in a number of other key European countries this year. Please turn to Slide 10. Decapeptyl's 17.5% sales growth in 2021 was driven by the excellent performance in China itself a result of the recovery from the pandemic. Outside China, we grew Decapeptyl's market share and continue to focus our efforts on the 6 months formulation. Onivyde sales grew by 7%, partially reflecting higher sales to our ex U.S. partner. As you know, these sales can vary by quarter. While volumes in the U.S. also performed well, growth was limited by the effect of the pandemic in the U.S. with patients still struggling, for example, to get timely appointments for scans and consultations impacting rates of diagnosis. We expect this to ease in 2022. Please turn to Slide 11. We also significantly increased sales outside of oncology. Dysport sales grew by 26%, partially helped by the recovery from the pandemic. A strong performance in aesthetic was seen in all key Ipsen and Galderma markets and the full recovery from the pandemic was accompanied by favorable long-term market dynamics. These included expanded access to services, growing consumer purchasing power, the increasing focus on wellness and beauty as well as new patient segments, including men and younger people. Our therapeutics business also performed very well, and we continue to focus on what is a significant unmet medical need, concentrating on spasticity indications and improving on the pro level of penetration of neurotoxin. Please turn to Slide 12. When I first laid out our strategy just over a year ago, I said that building our pipeline was central to our future growth. So I'm delighted that business development activity in 2021 was right across our 3 therapeutic areas. There were 3 preclinical oncology transactions completed in the year. This included agreements with Accent Therapeutics, BAKX Therapeutics as we expand further into hematological malignancies, including a focus on acute myeloid leukemia. In Phase III development, we added elafibranor in Rare Disease, and we look forward to a Phase III data readout next year. In neuroscience, the addition of mesdopetam in mid-stage development accompanied deals in the preclinical space, including an exclusive collaboration with Exicure. This deal gave us exclusive options to spherical nucleic acids currently under discovery evaluation for Huntington's disease and Angelman syndrome. Please turn to Slide 13. Our pipeline is growing. In Phase I/II, the development of longer-acting neurotoxins in aesthetics and therapeutics, is progressing well. While in Phase II, we have further opportunity in FOP with IPN60130, the FALCON trial dosed its first patient earlier this year. We also anticipate Phase IIb data from mesdopetam later in 2022. There are clearly a growing number of Phase III opportunities for Cabometyx and Onivyde, and we anticipate a busy period of news flow this and next year. Just as a reminder, final OS data for the Cabometyx combination in hepatocellular carcinoma is anticipated this year, but based on preliminary OS data the probability of reaching statistical significance at the time of the final analysis is anticipated to be low. The focus in registration is on palovarotene, which is anticipated for resubmission to the FDA in the first half of this year. We will also continue the review process with the EMA, which is in a clock stop period. Discussions are progressing with other regulatory authorities around the world. Please turn to Slide 14. We made further good progress with our CSR agenda in the year. Within the employees pillar, we have a balanced gender target ratio for our global leadership team by 2025. That ratio has already reached 42%. As an employer, Ipsen was awarded external and independent recognition awards and by the end of 2021, 19 countries out of 38 have been recognized. Turning to communities. You may remember that our revolving credit facility includes a key CSR element variable results by Ipsen versus CSR-based targets are rewarded with charitable donations. And one of these was awarded to international health partners, the charity supporting people in some of the world's more challenging places to get the medicine they need. We also saw a strong level of engagement in our Ipsen Motion initiatives, supporting patient associations as well as our Community Day. Finally, within the environment pillar, we announced our objective to halve absolute greenhouse gas emissions by 2030 as well as work closely with our partners to reduce science-based Scope 3 emissions over the same period. With that, I'll hand over to Aymeric. Please turn to Slide 15.

Thanks, David. I will now run through our 2021 financial performance as well as the detail of our 2022 guidance and updated midterm 2024 outlook. Please turn to Slide 16. We delivered a strong performance in 2021, leveraging our sales growth to improve the core operating margin and generate significantly more cash. Specialty Care performed particularly well, while our core operating margin grew by 3 points supported by our strategic focus on growth and efficiencies. The emphasis on cash generation led to an increase in free cash flow of 25%, while our EBITDA was up by 20%. As a growth business, we are determined to maintain our discipline over cost, working capital and CapEx so that we can further build the fund to execute our plan for external innovation, which is our primary capital allocation priority. Finally, we are pleased to announce that the Board of Directors is proposing a dividend of EUR 1.20 for 2021, representing a 20% increase over the period -- the prior period. Please turn to Slide 17. Looking at our core performance, you can clearly see operating leverage in our P&L and the record level of profitability over 35%. Sales growth of 12.3% at consultation rate was adversely impacted by foreign exchange rates, mainly from the U.S. dollar and some currencies in emerging markets. At actual rates, our sales growth grew by 10.7%. Our gross margin grew by 1 percentage point, driven by favorable movements in mix and manufacturing variances as well as the growth in other revenues particularly reflecting increased royalties received from partners and mainly Galderma for Dysport. Turning to R&D expenses. We remain focused on the long-term growth of our pipeline and the investment in life cycle management, palovarotene and the longer-acting neurotoxin, which led us to an R&D ratio close to 15%. And lastly, we were pleased to improve the ratio of SG&A cost to total cost by 1.4 points to 36%. In the next slide, I will go through the details of that performance. Please turn to Slide 18. In 2020, we committed to delivering efficiency and over time, improving the ratio of SG&A cost to sales. You can see here the progress we've made since 2020. We have made good early inroads with our efficiency program with benefits seen across procurement, project prioritization, restructuring and digital initiatives. We are spending smarter, simplifying our operation and accelerating our transformation. We also did benefit from reduced travel and expense costs during the pandemic as well as lower medical and marketing activities. In 2 years, we have improved the ratio of SG&A to total net sales by 3.5 points from almost 40% to 36%. We do expect to deliver further efficiency in 2022, offset anticipated normalization of activity after the pandemic as well as investment for growth. Please turn to Slide 19. Our improved P&L and cash performance strengthened our balance sheet further last year. We ended the year with a net debt at EUR 126 million meaning that today, we have more than EUR 2 billion available for external innovation after more than EUR 200 million spent in 2021 for business development, including the recent deal announced in December for elafibranor. This firepower is based on a net debt below 2x EBITDA and does not include the proceeds from the CHC business. Please turn to Slide 20. Regarding the CHC business. As you can see, we are delivering on our strategic road map and the proposed offer from Mayoly Spindler represent an enterprise value for our CHC business of EUR 350 million, including an earnout contingent payment of EUR 50 million. We expect to close this transaction before the end of Q3, subject to regulatory approvals and customary closing conditions. Please turn to Slide 21. This slide shows you the impact of the transaction with CHC on our profit margin given the specific profile of the 2 activities. So excluding the CHC of 2021 total sales were around EUR 2.6 billion with little R&D investment allocated to CHC, Ipsen ratio of R&D cost to total sales, excluding CHC, will have increased to 16.1%. The ratio of SG&A to costs, however, will have improved by 1 point to around 35%. Overall, this movement will have had the effect of increasing our core operating profit by around 2 percentage points from 35% to 37%. It is on that basis that I will now provide you on guidance for 2022. Our expectation for this year and turn to Slide 22. Our expectation for this year, which exclude, as I explained, the contribution from the Consumer Healthcare business after continued top line growth and a robust core operating margin. We have 2 key assumptions. As David mentioned before, we do expect further launches of generic lanreotide in other countries in Europe as well as increased competition in the U.S. We also expect to see the ongoing global return to normal health care systems. We anticipate based on the of those assumptions, total sales of more than 2% at constant exchange rate and a favorable impact of around 2% from currency based on the level of exchange rate last month in January. We also anticipate a core operating margin this year of more than 35% of sales. This guidance excludes any potential impact of incremental investment from external innovation transaction. Please turn to Slide 23. Turning to our midterm outlook to 2024. We are today updating our expectation to exclude any contribution from the CHC. At our Capital Markets Day in 2020, we stated an anticipated total sales growth between 2024 and -- between 2020 and 2024, between 2% and 5% per year at cost of exchange rate. As we continue to deliver on our road map and after producing outstanding results in 2021, we are delighted to update that to an expectation of a CAGR between 4% and 6% between 2020 and 2024. This assumes on the higher end, the approval of potential risk-adjusted additional indication from our pipeline. Regarding the OpEx line, we maintained our commitment to invest in R&D, supported by SG&A efficiency. For R&D costs, we expect the ratio to total sales over the period to increase, assuming additional external innovation transaction. We do, however, also expect our SG&A cost ratio to decrease further over time driven by our efficiency program. Finally, regarding our balance sheet to fuel our external innovation ambition, we expect to generate a cumulative remaining firepower of EUR 3.5 billion by 2024, including the proceeds from the sale of our CHC business and based on a net debt at 2x EBITDA. So now I will hand back to David for the conclusion. Please turn to Slide 24.

Thank you, Aymeric. We are now coming to the conclusion. Please turn to Slide 25. You can see from our updated midterm outlook that Ipsen is a growing business, and we have a strong platform to sustain that growth. We do recognize the challenge to Somatuline sales from the entry of SSA competitors in both Europe and the U.S. but as you can see on this chart that we first presented in 2020, our growth plan incorporates this gradual impact. Our core and innovative brands are all performing extremely well and will continue to grow. We have the infrastructure to support these brands, and there are plenty of opportunities to unlock more potential for our pipeline and commercial execution. Finally, external innovation is a key factor, and I'm pleased with the progress we are making there. Please turn to Slide 26. We're all -- we are executing in line with our strategy and with today's news, we are becoming a more focused Ipsen. We delivered strong results in 2021, starting with top line growth across all of our core and innovative brands. We achieved a record core operating margin last year, and I'm delighted with the early results from our efficiencies program. This means we now have an even stronger balance sheet to fund our external innovation plan. After it requires a year for the pipeline, we now enter a period of several clinical development milestones. We are looking forward to Phase III data readouts for Cabometyx and atezolizumab in second-line non-small cell lung cancer and Onivyde in second-line small cell lung cancer. We're on track to refill palovarotene in the coming months in the U.S. and mesdopetam is anticipated to see Phase IIb data later this year. Finally, the execution of our external innovation strategy led to the completion of 7 transactions last year right across the 3 therapeutic areas. Our strengthened capacity and firepower gives us an excellent platform to execute further in 2022. Thank you for listening. Aymeric, Howard, and I will now be happy to take your questions. Please turn to Slide 27. Operator, over to you.

[Operator Instructions] And your first question is from the line of Jean-Jacques Le Fur form Bryan Garnier.

Actually I have 3 questions, if I may. First one is regarding the CHC divestment and try to understand to have the impact on COGS since I think this business has some factories and so on. The second on that is, would we have a sort of an idea of the level of debt you want to divest with? This is my first question. The second one is I know you are reluctant to do that, but could we have an idea of the split of Somatuline sales between U.S., Europe and rest of the world to better understand where you are now? And lastly is that in the press release, you mentioned an impairment of about EUR 9 million due to an unfavorable clinical study. So which trial and drug are concerned by this impairment?

Okay. I think Aymeric can answer those questions for you since they are mostly of financial nature.

Yes. So thank you, Jean-Jacques. Regarding the CHC. So you have in the presentation on the Slide 32, the full detail of how much the CHC is contributing to our P&L. And what is the new Ipsen excluding the CHC. So regarding your question on COGS, it is true that the gross margin of the CHC business is much lower, around 67% as compared to 85% for the overall group, and so 87% for the Specialty Care business. So yes, there are a significant improvement of our gross margin excluding the CHC. Your second question related to the transaction. The transaction is going to be debt and cash free. So we are expecting -- and I think behind your question is, are we going to get most of the enterprise value? And the answer is yes. And I can also say that there will be limited tax to be paid given the early carve-out that has been done for the business. So the proceeds are going to be closed to the enterprise value. Your second question was related to the split of Somatuline. I think we already provided that information through calls. So overall, we have a good 50% of the sales, which are coming from the U.S. Then you have around 30%, which are coming from Europe and rest of the world account for 20% of the sales of Somatuline. And your last question, I mean, it's a minor impairment, so there is nothing behind -- I mean, it's a EUR 9 million adjustment to the fair value of Somatuline intangible according to IFRS.

Your next question is from the line of Michael Leuchten from UBS.

Michael Leuchten from UBS. Two questions, please. One, bigger picture, David. You outlined the deals that Ipsen was able to do last year. So very active in BD, you've now managed to get to a very clean solution for Consumer Health. I was wondering if you could talk to what you've changed, what's allowed you to become much more active and, frankly, successful with the BD strategy, than maybe previously was the case? Any comment would be great. And your commentary around expectations for branded competition in the U.S. for Somatuline. How do you expect that is going to look like? It's a different device from the competitor that probably have to do some patient management effort as well. So how do you think that will happen? And at what cadence do you think that could happen?

Yes. Thank you. Two great questions. Indeed, we're kind of proud that we were able to make these 7 deals, and we will continue to increase that number. And the way we have done this is that we actually beefed up quite significantly the business development team as well as the external innovation team under Howard. We have also strengthened the deals, the teams in terms of the quality of getting people attracted to Ipsen that really know how to make deals. I mean, Philippe Lopes has a very long deal sheets and experience that he brings in, and he has been able to attract people and then Howard recruited Christel as the research head, and she also attracted several people in the external innovation space. So I would say that was one point. The second point is we have also changed the methodology. The teams in the past perhaps spend a bit too much time on doing very deep dives on things where from a certain business, I would say, we might have come to a conclusion of the arbitration quicker rather than diving deeper. And so making a kind of a triage earlier on, on which are the things we want to focus on because we are a midsized company. I mean, we -- there is so much we can digest, right, in terms of workload. So by being more targeted, I think that really helps to increase again, the ones that we think are interesting. So I would say those are the most important pieces. There was, of course, also in a way increased appetite again from the board with Clemencia. There was a bit of a resistance to doing late-stage deals. They wanted to achieve some trust with new CEO, new research Head and et cetera. And I think we have proven to the Board that we are diligent. We are fully transparent. We are being careful on how much money we bet on what and we try to really do it kind of milestone-based payments, to keep you upfront in a reasonable terms and then have more milestone and royalty driven deals. And that's what you have observed, for example, also with the latest deals that we have just done with GENFIT. On your second question regarding the branded competition on Somatuline. Indeed, a 505(b)2 means that it's not a generic and it cannot be replaced just by the pharmacist. It's difficult to say how Cipla is going to launch it because in a way, if you have a different looking device, you're right, you need to do with some patient education. And we have not seen them yet starting to do that in a more massive fashion. They seem to be focusing more on the pharmacist. So it's something that we will have to watch what are they going to do. And we will, of course, try to continue our differentiation strategy with the new device that we are having. So in a way, that's what we are going to focus on. But we have to see how they behave and what they are going to do. So it's a bit early days. I think what gave us courage is that despite advance having done a fairly concerted effort in Germany, they got only 4% market share.

Your next question is from the line of Elizabeth Walton of Credit Suisse.

Elizabeth Walton from Credit Suisse. A couple of questions, please. Firstly, if we can have another question on Somatuline. You had a solid set of sales in 4Q. It looks like limited impact from generics so far. You mentioned this 4% share gains by competitors in Germany. Perhaps you can share your latest competitive intelligence view around the competitor launches in Europe. What other markets could we see launching -- with generic launching this year? And is there a reason why we've seen such limited impact in Germany. Is that something that's related just to the timing of the competitor launch or something else? And then just secondly, on palovarotene, we saw a surprise approval in Canada earlier this year. I'm just curious, has this changed your level of confidence at all in the U.S. or European approval. And I see that you've confirmed a resubmission time line for the front half of the year. Should we also expect a possible advisory committee meeting in the front half of this year as well? And then finally, if I can just squeeze a third question in to expand a little bit in terms of your ambitions for external innovation. Clearly, it's a key pillar of your strategy for growth , did 7 deals last year, but there's still definitely room in your pipeline to build on. Perhaps you could talk about how you see the M&A market at the moment. Have you seen perhaps any changes in attitude of biotech CEOs to undertaking partnerships given the current market dynamics?

Very good. So quite a good list of questions. You're right, on Somatuline, we have seen a very limited impact. And you alluded also to Germany asking for the reasons clearly, Advanz has started to -- or has for the launch, built up a whole organization. And -- but I think our differentiation strategy works. We have also had a good key account management strategy. I would say. So those are the typical tactics that if you execute them well, you can hold grounds, and this is what has happened. In terms of competitive intelligence, in this field, it's really hard to say what happens when. As I said, we are assuming that Advanz is going to launch in other markets. We see recruitment activities of employees in the field happening in France, Spain, Italy, for example. So remains to be seen when they are going to come. Are they still going to have enough capacity is another question because they could have launched since a long time in many, many, many more markets. And so that has not really happened. So there is a bit of a question mark there in terms of the capacity that Pharmathen, which is the company which is sourcing for Advanz really has and Pharmathen is also sourcing Cipla from what we know. So it's a key question, and it's hard to judge how much capacity they really have and how much they can add and in what time. I mean what we do know is it's hard to produce drug. It's not easy. There's autogel to produce it. And the device that they are having is clearly different to ours. It needs more steps. You have to also put or screw the syringe onto the device that they are having. In our case, that you have less steps to prepare the device. So we consider this as an advantage. And we also consider our device as being more stable because it's larger and it's better fitting into the hand. The Advanz device looks a bit like our former device with some small differences, but it's more like the very thin device. On palovarotene Canada, so we have communicated that we intend to resubmit in the first half. Are we still anticipating an advisory board in the second half? Yes. The answer is yes. Has it given us more confidence? I think it's fair to say that the big regulatory authorities, FDA and the EMA, they make their own decisions, right? So we have seen situations where for example, on some other drugs EMA has decided differently than FDA, et cetera. So it's a bit hard to guess. But what I can say is that the analytics that we have conducted in addition have been very satisfactory. We are preparing everything now as fast as we can to resubmit the additional data and then we're going to inform the market as soon as we have submitted, and we get the acceptance of the filing from FDA. Regarding your last question on the external innovation, I confirm that this is, of course, one of our big priorities. What we are seeing is that the market is starting to change, where last year, we felt it was extremely overheated. We have seen recently the biotech stocks starting to come down faster than Dow Jones or NASDAQ. We have also seeing that some of the IPOs did not go that well. We are hearing that some of the biotechs are starting to have the first difficulties to refinance. So in that environment, if that is going to get tougher, and for example, if interest rates would increase in the U.S. and eventually one day in Europe, it would probably be helpful for us because, in fact, we have a big firepower. And if the valuations come down a bit, that provides opportunities for us. So we have seen good discussions with the biotechs. JPMorgan just happened. So we are always in discussions with several companies. Of course, we can't say where we are in any given deal. But things are ongoing, and it will be a big opportunity and a big priority for us.

Your next question is from the line of Richard Vosser of JPMorgan.

Two please. First one on Decapeptyl. Just some idea behind the continued strength on the product and whether you see that continuing? And also as we see the markets may be improving as Omicron come through, maybe China has a difficult transition to go to. So -- to go through. So how do you see that impacting Decapeptyl this year in '22? And then second question, just on Galderma and the arbitration and the agreements there. Could you maybe give us a little bit more color what's lying behind that arbitration and how we should think about Dysport going forward?

Great. Thank you, Richard. On Decapeptyl, so we are continuously gaining market share in Europe, Asia and in China, you also have a very, very strong development of the market itself. There is still a lot of many untreated prostate cancers, for example. So the market has a very, very strong growth dynamic, and we are benefiting from that as well. but the growth is, by far, not only coming from China. As I said, there is a lot of growth also coming from Asia and from Europe. Now your crystal ball question on, okay, how is China actually going to get out of the situation of having basically shut down their borders, it's hard to say what they are going to plan. I mean if I think a bit back to my vaccines time, I think if I will be the Chinese government, I would start to open up after the Olympic games in spring because, in fact, if they are going to get a wave. First of all, the wave is going to be less severe than if everybody is inside. So in spring, people go outside. And the second reason why I wouldn't do that is that actually with Omicron, it's almost like a good situation for China now because -- we have seen that their vaccines were not as potent as from what we have observed with BioNTech or Moderna. And in that sense, they probably could decide to say, okay, even if we don't have people particularly well protected, having Omicron coming into the country is probably not a disaster. I mean we have seen in the Western markets that with the Omicron, the infection has really skyrocketed it, but actually, the hospitalizations and the death rates are not dramatic. So it's going into an endemic phase, and therefore, I don't think this is going to really affect very significantly the Decapeptyl sales in China. So long answer to come to a conclusion what happens on Decapeptyl in China. On the Galderma, I mean -- as we have said, this is, of course, an arbitration and in any arbitration situations, you can't give a lot of details. So, it's just a difference in view of the strategy of the filing on QM. And then on the territories, it's really about some of the smaller territories. So it doesn't affect the very large territories. And so I think that answers your question, right? You had a question on Dysport, the potential in general you mean?

Yes, just in general. Yes.

Yes, I think there is a good potential on Dysport, both in aesthetics because the market, as we said, is growing extremely well, but also in the therapeutics because the therapeutics market will continue to grow as people are growing older. And there are a lot of untreated patients still that I think we need to get better as a health care system and the industry to really work on that. And having more people being treated in the treatment space. So I'm positive on Dysport.

Your next question is from the line of Thibault Boutherin of Morgan Stanley.

The first one is on your guidance for 2022. Just if we look at the bottom end of the guidance at plus 2%, I know you're not going to give a product-by-product guidance, but what does it imply for Somatuline? Can we safely assume that this bottom end of the range assuming some sort of a decline for Somatuline in the U.S. and in Europe. That's my first question. Second question on the consumer deal. Just if you could clarify exactly because you enter negotiation, what are the chances of this deal not actually getting through. And if you could actually also give us some idea of the condition for the earnout? And then my last question on the longer acting neurotoxins in your pipeline. Do you have any agreement on Galderma for this on the aesthetic indication? Or do you fully retain the rights on these and could you potentially partner later on?

Okay. So perhaps on the guidance and on CHC, do you want to take them, Aymeric?

Yes. So regarding the guidance, yes, you're right to say that we are not providing guidance by product, but this 2% at least growth for 2020 assume as you've seen on our underlying assumption that there will be further competition for Somatuline of generic or branded generics on both Europe and the U.S. So this will imply that there will be some decline of Somatuline in 2022. Regarding CHC, yes, as you know, I mean, entering into negotiation is mainly the way you structure a deal from a French social or representative point of view. So clearly, legally, there is no deal, but there is a limited number of conditions. And I will say the certainty of being able to complete that deal is very high. And even I mean, we said we're going to complete it by the end of Q3, and we are expecting to be able to close it potentially before. Regarding the earnout, we're not going to provide the detail of the earnout, but this is basically based on the performance for the next few years of the existing CHC Ipsen business.

On the neurotoxins, as you know from our documents in 2014, the agreement was done with Galderma where we have an alliance with them, which is focusing on all the neurotoxins that we have together. And we have the IP and marketing authorization on QM and Galderma is, in that sense, our distributor has developed the product. Galderma is really focusing on aesthetics. There are some very small territories where Ipsen still has some aesthetic business, and you have seen that the arbitration. 1 of the 2 arbitrations is focusing on this. And then on the treatment space, that's really the space that Ipsen is focusing on. So in that sense, Ipsen englobing alliance, if you want. And so I think the alliance has actually delivered very well. I mean you see the growth of Dysport. Dysport is having very, very strong growth in aesthetics and in therapeutics in fact.

Your next question is from the line of Sachin Jain of Bank of America.

Three topics, if I may. So firstly, just back on Somatuline. Could you comment whether you are aware of any similar products within the wholesalers? And therefore, what portion of '22 you're assuming is Somatuline competition for? And then just are following up for your comments of some decline for Somatuline in '22. Just wondering whether the erosion you received for '22 is better or worse erosion you see out to '24. What I'm trying to get a sense of is you're clearly seeing limited competition to date in Europe, and you see most in the U.S. So just wondering what upside that represents to your 24% CAGR. Second question, just back on palovarotene in Canada versus U.S. EMA. I understand it's a different regulator, but the data you've assimilated for the U.S. that the Canadian authorities ask for or did you submit any of that data to just give some confidence in that process? And then finally, just big picture, David, you've mentioned a number of Cabo and Onivyde. Just wonder if you could just pick out the 1 or 2 that you're most confident in and that you think are most important.

Okay. So on Somatuline, I have to say, I didn't quite catch your first question. You said something about wholesalers. Is it like where the sales go through?

So I'm just wondering whether you're aware of any Cipla product having been shipped to wholesalers as yet? And therefore, what portion of '22 we could see competition? I'm just trying to get an idea of competition phasing through '22 from a competitor?

So far, we have only heard about one institution where they ship. That's the latest news from yesterday night. So there is no widespread shipping going on so far from our information. So in a sense, that's good news for us. Then your question on the decline on Somatuline in 2022. So that's pretty arithmetical question because you linked it back to our guidance that we gave in 2020 and what it was our erosion curve for '24 and '22. And so if that was a better lift. Yes, there is a slightly better performance than what we have assumed, which is while we have also seen a better performance in '21 that explains it why we have upped the guidance. And so now for the outlook for '22, '23, '24, it's hard to compare now back to that forecast that I would have to go back and we would have to recalculate that whole thing. But I would say that with the appearance now and the confirmation that there is a generic in the U.S., of course, we always want to be careful in how we guide because our competitive intelligence can't be a fly on the wall in FDA office to know when are other competition coming. And so it's hard to predict, and it's also hard to say exactly how much more volume will Pharmathen be able to deliver one day. So I don't really -- can't really answer that point. But obviously, that is a 505(b)(2) is something which is definitely giving us more comfort than if it would have been a full-fledged generic. On the palo Canada. So the situation was that we absolutely kept informed the Canadian authorities on what the questions were on the U.S. Canada was satisfied with the data that they have and based on the data they felt they could make a decision. So that's when they came now to the conclusion and they approved the drug for Canadian FOP patients. On your question on Cabo or Onivyde, perhaps since we have Howard on the line, I can also pass this question to Howard. I mean, Howard, of course, we all don't know how data is going to look and we all learned in our careers that until you hit the enter and you have the unblinding, you really don't know. But I mean, perhaps, Howard, you can give a little bit of flavor to this.

David, I'm sorry, I was concentrating on the palovarotene question. Can you repeat the question about Cabo and Onivyde, please?

Question on Cabo and Onivyde, Sachin, if I got it right, was like, okay, how confident are we for the 2 upcoming blindings in lung cancer, right? I mean Onivyde is small cell lung cancer and Cabo is on small cell lung cancer. I mean I hand it over to you on it.

I think the Cabo CONTACT-01 study was launched because of compelling ORR data in the COSMIC-021 study in that population. So that population was expanded to conduct a Phase III study versus docetaxel in patients who have progressed on IO and platinum-based therapy. The study is enrolled. And we are reasonably confident of the readout, which should be later this year. The timing depending on the OS events that come in. In terms of Onivyde in small cell lung cancer, the DMC met and reviewed the futility data and told us that the study can progress. And so the study, again, is fully enrolled, and we should have data from that study later this year.

Your next question is from the line of Keyur Parekh from Goldman Sachs.

Two broad areas, please, if I may. The first one is kind of coming back to business development, M&A. David, you clearly have a lot of firepower as you are alluding to, and you have done a lot of transactions recently. But just as you sit here right now, kind of, can you help us frame the -- what do you see as the highest priority from your perspective, either from a therapeutic area perspective or from a stage of the asset perspective, do you think kind of given what you have from a firepower angle, is there a sweet spot for Ipsen that you can kind of potentially try and benefit from here? So that's kind of the first one. And then the second one, just coming back to Richard's question on the arbitration. It's quite unusual for 2 partners who work for kind of 15 years to enter into arbitration around a filing strategy kind of before the drug gets filed. So I'm just wondering kind of if we can get some sense of your perspective on where you think -- kind of how you would like to have done the filing? What do you think Galderma was planning to do differently? And where do you see kind of a potential kind of outcome there?

Yes. Thank you, Keyur. So on BD in terms of the highest priority, I mean, given that we have a Somatuline 505(b)(2) in the U.S. Clearly, we will try to focus a lot on something in oncology or hematology in Stage II or on-market compound. But that does not preclude at all, of course, doing other deals. I mean, you have seen us just do before the holidays, the GENFIT deal in Rare Disease, which was a Phase III deal and which is going to unblind next year. So we will absolutely also look at other therapeutic areas and other stages of the disease. We have to refill the pipeline across all stages. And you know that, of course, it's also not just a quality question, but it's also a number game that you have to have more in preclinical that you actually get them over the finishing line eventually later. So it's going to be a mix. But clearly, we are going to really try to find something also for our oncology or hematology, including the U.S. In terms of arbitration, I can't really elaborate more around this I mean, you know how this is when you are in an arbitration process, people don't make comment. So that's where we are.

And your next question is from the line of Richard Parkes of BNP Paribas.

Just got two left. Firstly, just conceptually, just interested to know how you factored in Somatuline pressure this year into the guidance? Because obviously, guidance isn't a range. It's essentially a floor. So should we view guidance as factoring in a worst-case scenario where competitors on capacity constraints and what you think the outlook for Somatuline will be in that scenario? Or are there still upside and downside practice to that. So that's the first question. Then second question on palovarotene. In Canada, the label is quite favorable in terms of age limitation. And clearly, the Canadian authorities feel comfortable, but the growth plate closure risk can be managed through monitoring. I'm just interested because it's a little bit in contrast to some of the expert feedback we had with concerns over some rare but serious consequences of early growth plate closure, including impacting this organ growth. So I'm just wondering what -- why that is maybe a misconception amongst some of the expert community and how you help Canada to be comfortable that monitoring was sufficient to manage that risk?

Richard. So on Somatuline, I think, Aymeric, you can answer that. And then we go to Howard on palovarotene. Notably, I want to correct this organ growth problem misperception, that is wrong, but Howard can elaborate on that?

So regarding your question -- I think your question, you talked about guidance, what you see in the outlook. And I think that the range we are providing the 4% to 6% mainly account for the risk-adjusted value of the life cycle management of our products. And we are assuming in our scenario, what we've said in our guidance for 2022, which means that there will be increased competition, but at the same time, they're going to be a progressive erosion for Somatuline by 2024. Howard?

Howard, on the label and this kind of misperception on the organ growth.

Well, I think there really isn't an impact on organ growth, just to be clear, the impact is on premature physio closure in growing children. And the label in Canada has approval for pediatric patients greater than or equal to 8 years of age in females and greater than or equal to 10 years of age in males. And I think that -- and obviously, with the proper monitoring, there's a box warning for monitoring every 3 months. So that was one reason in which they got comfortable. And I think the other issue is that these pediatric patients are on average about 80% selectively mature. So if you look at the data, the incidence of PPC in those patients is lower than the risk of PPC in younger patients. So for all of those reasons, I think they believe and we believe that the benefit risk supports consideration for use of palovarotene in that age group with the appropriate monitoring.

Just to add is like it means that these kids are already taller than the other kids. And so if they now need to think about what -- between choosing , okay, you might have a premature closure with like 23% chance or you might see your disease progress with a 63% chance all the families and the patients that I talked to, they actually said, look, I mean as long as the doctor keeps me informed, I can make an informed choice and I think that is very close to our hearts that there is going to be an informed choice. I think that's very important. But all actually families and patients that I talked to said like, look, I mean, it's clear that, this disease is so crippling that I would prefer that my child is taking it at the age that is in the Canadian label in fact. So that's the feedback we have from patient associations and -- but also a lot of the KOLs. So with this that will be our last question, unfortunately, we need to wrap up the call. I would like to thank you, everybody and wishing you a nice weekend. Bye-bye.

That concludes the presentation today. Thank you for participating. You may now disconnect.