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

Hello, and welcome to Ipsen's conference call and webcast on Full Year Results 2023. I'll now hand you over to David Loew, Ipsen's CEO.

Good afternoon or good morning, everyone. I'm delighted to welcome you to our full year results call. As you just heard, I'm David Loew, Chief Executive Officer of Ipsen, and it's a pleasure to be here today to run through our performance last year as well as an exciting year ahead. Please note that our presentation is available on ipsen.com. Please turn to Slide 2. Before we begin, here is our safe harbor statement, which outlines the routine risks and uncertainties contained within this presentation. Also, any commentary on growth you 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 Christelle Huguet, Head of Research and Development. Christelle will be with us for the question-and-answer session later. Before I go into the details of our progress last year, I want to walk you through the progress we are making on our exciting growth journey. Please turn to Slide 4. The last 3 years have really set the foundations for the next phase of dynamic growth. Through our new strategy and alongside the divestment of our Consumer HealthCare business, we have significantly grown our brands, while at the same time, managed the gradual decline of Somatuline. We have also expanded the pipeline through external innovation, delivered significant efficiencies, and refocused our culture on patients and society. We have a strong platform going into an exciting second stage of our growth journey, illustrated by our sharp focus on 4 anticipated launches this year. Our external innovation strategy and firepower also provide us with more opportunities to expand the pipeline in 2024. Over the longer term, we'll build on these opportunities and deliver a more balanced and diversified portfolio of medicines across our 3 therapy areas. Our ambition is to deliver sustained growth through the end of the decade and beyond, supported both by our internal pipeline and by further acquisitions and in-licensing opportunities. Ipsen is a growth company for the short, medium and long term. And I'm confident that the continued successful execution of our strategy will allow us to deliver on these objectives. Let's now turn to the highlights of Ipsen's performance in 2023. Please turn to Slide 5. Today's headlines illustrate how we are continuing to produce sustainable growth. In 2023, total sales grew by 6.7%, and this included another strong performance from our growth platforms, which were up by 13%. We also delivered a core operating margin of 32%. Since our Q3 results, we made more good progress with the pipeline, including the U.S. filing acceptance of elafibranor in second-line PBC. With the designation of priority review, we look forward to the FDA's decision in June with the EMEA to follow in the second half. Lastly, in a year of 4 anticipated launches, we're guiding to total sales growth of more than 6% at constant exchange rates in 2024 with a core operating margin of around 30%. Please turn to Slide 6. Looking further at our sales performance last year, our growth platforms continued to outweigh the gradual decline of Somatuline. Over the full year, CABOMETYX and Dysport stood out, while new medicines, Bylvay, TAZVERIK and SOHONOS began to make meaningful contributions. Somatuline sales declined by 10%. I will take you through more details of our sales performance in the fourth quarter. Please turn to Slide 7. Beginning with our growth platforms, Dysport saw strong growth over the year in the treatment and aesthetic indications, even after a decline in sales in Q4 of 7%, reflecting a one-off effect from the phasing of sales to our aesthetics partner. Market conditions remained unchanged, and the underlying aesthetic and therapeutic performance was strong. CABOMETYX sales were up by 19% in the quarter with strong volume growth from first-line renal cell carcinoma combination, where the uptake has been especially encouraging in Germany, France and Italy. CABOMETYX in the second-line renal cell carcinoma cancer also continues to see good volume growth. The capacity grew by 7% in the quarter, reflecting a good performance in China and robust sales in Europe. Finally, ONIVYDE is growing nicely. In North America, Q4 sales increased by 15% as we saw further growth in the current setting. In December, the ONIVYDE regimen was awarded category 1 recommendation status by the NCCN. We are making final preparations for a potential immediate launch of the ONIVYDE regimen in first-line pancreatic cancer. As a reminder, we anticipate the decision by the FDA soon. Please turn to Slide 8. Looking now at our new medicines, they made significant contribution to our top line in 2023. Since completion of the Albireo acquisition, Bylvay has delivered EUR 74 million in sales, and we are pleased to launch in the United States a few months ago in a second indication, Alagille syndrome. Sales in the initial indication, PFIC, were encouraging as we increase the number of treated patients in both North America and Europe. The latest country to see reimbursement was Poland last month, taking the total to 12 markets so far. In the EU, we have refiled odevixibat in Alagille syndrome under a second brand and anticipate an EMEA decision in the second half of the year. TAZVERIK's relaunch continues to progress with a new field force in place. We have completed our strategic rebuild of our operational capabilities. Our current phase of the relaunch sees a focus on the community setting and expanding use in wild-type patients. Finally, SOHONOS sales amounted to EUR 7 million following its recent U.S. launch. There were also some special license sales in some ex-U.S. markets. Please turn to Slide 9. Turning to Somatuline, sales fell by 5% in the quarter and by 10% over the full year. In North America, sales declined by 5% in Q4. Volumes remained stable in the U.S. with the market in mid-single-digit growth. Underlying pricing challenges for Somatuline remain, however, with the improved Q4 performance driven by a favorable one-off catch-up pricing adjustments. In Europe, the sales decline of 2% in Q4 was less than in recent quarters, given the reduced baseline effect. We also benefited from a number of competitor stock-outs. Finally, in the rest of the world, sales declined by 18%, partially driven by the impact of the launch of a lanreotide generic in Australia as well as phasing and tendering in some markets. We continue to assume the possibility of a number of further lanreotide generic entrants in several markets from 2024 and, therefore, further erosion of total Somatuline sales over the medium term. Please turn to Slide 10. Our pipeline remains in good shape, thanks to our external innovation strategy. The second half of the year will see the completion of the CONTACT-02 Phase III trial of CABOMETYX and atezolizumab in prostate cancer. While in 2025, we expect Phase II longer-acting neurotoxin data as well as pivotal Phase II data for fidrisertib, the ALK2 inhibitor in FOP. 2026 is also a potentially significant year for Ipsen's pipeline with Phase III readouts expected for TAZVERIK plus R2 in second-line follicular lymphoma, Bylvay in biliary atresia, and Dysport in both chronic and episodic migraine. Please turn to Slide 11. 2024 could be an important year for Ipsen as we anticipate launching 4 new medicines or new indications. Firstly, we await the imminent FDA decision on the ONIVYDE regimen in first-line pancreatic ductal adenocarcinoma. We also anticipate a regulatory decision in the European Union under a different brand name for odevixibat in Alagille syndrome later this year. As I mentioned earlier, with the designation of priority review, we look forward to the FDA's decision on elafibranor in June with the EMEA to follow in the second half. Finally, SOHONOS has just been launched in the United States. We expect to roll out this important medicine in selected other markets over time. Please turn to Slide 12. Turning to Generation Ipsen, our sustainability program. I'm very proud of the progress we have made last year. Under environment, we achieved significant reductions in scope 1, 2 and 3 emissions, while we plan to be carbon neutral by the end of next year and reach net 0 emissions by 2045. With a key focus on patients and as a new objective, we are determined to reduce the length of time between clinical trial readouts and filings outside of the United States and Europe. Within people, we have already achieved 53% representation by women in our global leadership team, while 43% of colleagues were encouraged in health care or environmental projects -- were engaged, sorry, in health care or environmental projects in 2023 against a 2024 target of 35%. Finally, within governance, ISO 37001 certification for anticorruption management was renewed in the year. That concludes the first part of our presentation. I'll now hand over to Aymeric. Please turn to Slide 13.

Thank you, David, and hello to everybody. I will now take you through more detail of our financial performance last year as well as our guidance for 2024. Please turn to Slide 14. Looking at the detail of the core P&L, the growth in total sales of 6.7% at constant exchange rate translated into 3.4% at current rates, given the adverse currency movement of around 3 percentage points. Other revenue increased by 36%, partly reflecting payments in respect of the license rights for ONIVYDE from our partner. This outweighed the increase in the cost of goods sold that was driven by an unfavorable mix of sales and royalty paid. The overall net effect was an improvement of the gross margin by around 0.5 point of percentage points to 87.5%. Now, looking at SG&A, they increased by 16%, reflecting commercial investment to support the growth, including Bylvay and TAZVERIK as well as preparing for 4 potential launch this year in 2024. R&D costs increased also by 39%, mainly coming from the recent acquisition of Albireo and Epizyme, to reach a ratio close to 20% of total sales. As a consequence, core operating income declined by almost 10% with the core operating margin standing at 32%. Please turn to Slide 15. Looking more closely at the dynamic of the core operating margin, you can see its evolution versus last year. Our base business margin was broadly stable given the strong momentum of the growth platform and despite the erosion of Somatuline. The acquisition of Epizyme and Albireo led to a dilutive impact of 5.7 percentage points, fully in line with our expectations. There was also an accretive 1.5 percentage point impact from milestone payment for license rights from our ex-U.S. ONIVYDE partner, and currency movement had also a favorable impact on the margin given our hedging strategy. Please turn to Slide 16. Turning to core operating income to consolidated net profit, I wanted to highlight a few movements. First, there was a doubling of the amortization of intangible assets to over EUR 200 million, mainly related to the new intangible assets recognized for Bylvay and TAZVERIK. Restructuring and other operating expenses amount to more than EUR 230 million, mainly impacted by the integration and transaction costs related to the Albireo and Epizyme acquisition as well as additional Ipsen transformation program. Finally, it's worth noting that we booked an impairment reversal of EUR 253 million, mainly related to SOHONOS following the approval by the FDA in August 2023. As a conclusion, IFRS consolidated net profit was unchanged at EUR 647 million. Please turn to Slide 17. In 2023, we continue to deliver strong cash flow generation, and we have today a healthy balance sheet even after the acquisition of Albireo. Free cash flow declined by 13% to EUR 711 million, given the lower level of core operating income and the higher level of tax paid. This was offset by a very good management of working capital and capital expenditures. Net cash at the end of December amounted to EUR 65 million after the payment of dividends for EUR 100 million and the acquisition of Albireo for around EUR 1 billion, which drove the main increase of the net investment. As a consequence, firepower for external innovation, which remain our capital allocation priority, stood at EUR 1.9 billion at the end of 2023. This is based on net debt at 2x EBITDA, and that does include contingent liability. Please turn to Slide 18. Now, I would like to turn into the detail of our guidance and underlying assumptions for 2024. As you can see, we expect growth in total sales of more than 6% at constant exchange rates. Our growth platform is set to continue performing well, including the potential upcoming launch of ONIVYDE in the U.S. Our growth platform will more than outweigh the higher decline of Somatuline for which we assume in 2024 the potential entry of additional generics in the U.S. and in Europe. In 2024, we also see the first full year impact of Bylvay and SOHONOS as well as the potential contribution from new launches, including elafibranor. It is worth noting also that we have a 1% headwind coming from currency. This is based on the average level of exchange rate this last month of January. Now turning to the core operating margin. We anticipate a level around 30% of total sales. This level will include additional R&D expenses from potential early and mid-stage external innovation opportunities. This is fully in line with our midterm 2027 outlook that we provided last December. This guidance reflects for 2024 the solid base business performance but also the improved profitability of Albireo and Epizyme but also the commercial investment to support our 4 potential launches. As you remember, in 2023, as I just presented, the margin was positively impacted by the one-off receipt from our ex-U.S. partner and also the positive gain from the currency hedging. With all of that, I will now hand over back to David. Please turn to Slide 19.

Thank you, Aymeric. Please turn to Slide 20. To conclude, there are 3 key messages to take away from today's results. Firstly, the next phase of transformation is built on strong foundations. We continue to deliver good financial results that in 2023 reflected a combination of solid total sales growth and core operating margin. Secondly, we are making good progress on the pipeline with a particular focus in 2024 on regulatory decisions for ONIVYDE and elafibranor. Finally, we have a strong platform going into an exciting period for Ipsen, illustrated by our sharp focus on the 4 expected launches, and our external innovation strategy will give us more opportunities to expand the pipeline this year. Please turn to Slide 21. Thank you for listening to our presentation. Aymeric, Christelle and I now have time for your questions. Operator, over to you.

[Operator Instructions] First question is from the line of Brian Balchin from Jefferies.

Maybe there's quite a few in here, but it's just -- if you can help us understand how we should be thinking about the launch products. So specifically, TAZVERIK. I'm just wondering when you think we'll see an inflection for that. And then just on elafibranor and ONIVYDE, following the first-line approval, I think, on the 13th, how should we be thinking about the speed of those launches? And then thirdly, if you could just help us with any one-offs this year as well, please.

Okay, Brian. I will start with your first question on the launch products on TAZVERIK. On TAZVERIK, the real inflection is going to come from the second-line indication, which we're going to unblind in 2026. Until then, we will see a gradual slow ramp-up because third-line follicular lymphoma is not a very large indication. And physicians, especially the office space that we are targeting, they see about 2 to 3 patients per year. So you need to be really be there in the moment, detect when they have a patient that they can switch, and that's when they can put them on TAZVERIK. And we have embarked on to, as I said, hiring a new field force, training them. We have deployed them now. So we will see more growth on TAZVERIK, but it's going to be a relatively slow growth. On elafibranor and ONIVYDE speed of uptake, so I'll start with elafibranor. With elafibranor, you can probably model an uptake, which is kind of a classical uptake for a new drug and a new indication in the United States, meaning that you will have to get the listings, et cetera. So we have modeled kind of in line with other launches in the industry. On ONIVYDE, the speed of uptake should be a bit faster because the physicians actually already know that product. And we have a target group of about 3,300 physicians. We are already having 3,000 that we have targeted for second line, so we're adding 300 physicians, which we have not visited yet. So there should be a faster uptake than what you normally see with the launch. You can, of course, take analogs of launches where you have had a third line or second line indication, and then you move into a first line. It's going to be pretty similar. And then on your question on one-offs, I will ask Aymeric to answer that.

Yes. So to answer your question, as you see in 2023, we had a positive one-off coming from both the ONIVYDE milestone and upfront and also the FX on the hedging side. In 2024, we do not expect any material one-off assumed in our guidance.

We'll now take our next question, and this is from the line of Delphine Le Louet from Societe Generale.

A quick more broader question regarding the strategy and especially on top of what's going on in the U.S. and overhaul into the biotech sector. We have more and more deals and valuation back to a very high level to my point of view. So I was wondering, and we all know about your firepower, but how these past 2 years and the stage where we are now when you see the project being very highly valued, how your view has changed regarding any potential acquisitions? So could you give us any tips on what sort of stage would you be more keen in looking at or even, I don't know, any agency to the current existing, let's say, portfolio?

Yes. Thank you, Delphine. Regarding deals, so it's true that some of the large multinationals have done pretty sizable deals. But I would say they are in a very different environment than where we are present. We are present in -- most of our competitors are midsized companies. We have not seen those kind of multiples being paid on midsized company deals. And you remember on our strategy, we have carved out very specific segments where we want to go and do either acquisitions or licensing. So we see that there are still reasonable multiples and market caps or licensing terms that we can absolutely stem with our firepower that we have.

Just a quick follow-up. Do you think that the organization now is in the capability of making both the launching and assuming the launching and all of those, put all the resources needed into the marketing and selling as well as integrate future deal? Or is it something that will be pushed back by the end of the year?

Yes, it's a great question. Of course, we have to be very thoughtful about this precise question. I mean, what I can say is that the organization has become much better at integrating companies. When you look at Epizyme and Albireo, we have done it in a very, actually, swift and, I would say, proficient way. So we have really gained more experience. And when you look at the integrations often, it affects a lot of back-office functions like HR, you have finance, you have legal, et cetera. So that in itself does not divert you away from the launches. Now it could impact, of course, on the launches, if you would do a deal that would come into the same field force that you're launching at this moment. So for example, in oncology in the U.S., obviously, the field force is pretty busy now launching ONIVYDE and relaunching TAZVERIK in oncology. And on rare diseases, we have basically 3 drugs that we are launching. So we will have to be very mindful of not overloading the drug there, but that does not preclude us from potentially making deals, which actually satisfy those criteria. So more to come, I would say. To your question on which stage, it can be, as we always said, across all stages, preclinical, early-stage clinical, late-stage Phase III development, or on-market drugs, so it can be all of the above.

We'll now move to our next question. This is from the line of Xian Deng from UBS.

I have 3, please. So the first one is on 2024 margin guidance. You mentioned this margin guidance include essentially small external R&D. So I was just wondering if you could elaborate a little bit more on what this means? And if you could give us a sense about what the margin guidance -- underlying margin would be if you exclude that, that would be great. And second one is on elafibranor. So just wondering if you could give us a sense about what your thoughts around competition, given CymaBay also requested priority review. So any thoughts on the launch versus competitor, that would be great. And then the third one is on Botox please -- sorry, Dysport. So AbbVie commented, BOTOX Cosmetic, they've seen recovery in the U.S. And I'm just wondering, what are the trends that you have seen in the U.S.? And what are your expectations in 2024 for both U.S. and ex U.S. markets?

Yes. So we will start with your first question on the margin guidance and what it means with the external R&D. So Aymeric?

Yes. So just to clarify, as you said, this year, we are guiding, I mean, consistently with the outlook that we provided at the Capital Markets Day, to include all the early mid-stage external innovation transaction that we are targeting to deliver this year. So, so far, they are potential transactions. I'm not going to comment about the quantification of that. This is going to be somewhat material, but not to a very large extent. I think as we said at the Capital Market Day, and you've seen our numbers this year in 2023, we are at 19.8% of sales invested in R&D. The objective is to get that ratio above 20%, and that will include some of these additional transactions that we want to complete in 2024. This will highly depend, by the way, on the timing and the size of the transaction. As David said, we are looking across all the states, so even in this space between preclinical, Phase I, Phase II assets. And we take also into consideration the timing of completing those transactions during the year.

On your second question regarding elafibranor and competition, it's clearly a tight race with CymaBay. We have a head start of about 2, 3 months in the United States. And it seems that we have more head start in Europe because we have not yet picked up that they have filed in Europe. So we filed in October in Europe, so we have to see what's going to happen there. Then on Dysport, I can say that the trends that we have seen in the aesthetics and in the treatment are actually very good. We have not observed the downturn that we have heard Botox talk about. We are gaining market share with Dysport in aesthetics and in the treatment space, so that bodes well for Dysport. The same is true for ex United States. So where we have indications and we are promoting them, we have some market share gains there.

We will now take our next question. This is from the line of Thibault Boutherin from Morgan Stanley.

Just 2. First one on the fidrisertib development in FOP, I know that SOHONOS is on the market and you start to get real-world experience and feedback on the drug. How does this inform your view for the clinical development of fidrisertib and your view on the potential -- the commercial potential for this asset? Are you seeing it as an independent asset? Or could you potentially develop it as a combination with SOHONOS? Second question on Bylvay. When you made the Albireo acquisition, you estimated that around half of your peak sales would be derived from biliary atresia. And now that you have some experience in the market in PFIC and you launched in the U.S. in Alagille syndrome, do you still have the same expectations in terms of the split of your peak sales target? Or did your -- have your view on the peak sales mix changed since then?

Thank you, Thibault. On fidrisertib and what have we learned from SOHONOS, so SOHONOS is going to be kind of a slow build because you need to remember that there are in the U.S., where we have the indication and the registration, there are about 4 key reference centers. And these patients who sometimes have already significant invalidities, when they need to travel to these centers to actually go and get a prescription for SOHONOS, that can be complicated. And so it's going to take time. And then once they have the prescription, they need to actually go and find a doctor who is going to deliver it locally to them because that is how the U.S. system is set up, and they need to get the reimbursement by their insurance companies. So it's going to take a little bit of time to work through all of this, but that doesn't lower our, I would say, expectations for fidrisertib. It's just the way how you model the uptake curve. On fidrisertib, the advantage will be that, first, it's a randomized placebo-controlled trial. So we think we will also be able to file it ex U.S. because on SOHONOS, it was a natural history study. And you remember that Europe turned it down based on the failed efficacy endpoint with the initial statistical method. Now the FDA recognized that when we took the right statistical methods, this drug shows activities, but the Europeans did not agree to this. So with fidrisertib, clearly, we have the learning on what is the statistical method that you need to take. And we also have a placebo-controlled arm so the chances of being registered outside of the U.S. are much higher. And then on the commercial potential, of course, FOP is not a huge indication. So it's always going to be a relatively small drug for us. So we're going to guide more once we have seen the results. But you remember the guidance on SOHONOS because, of course, you have to take into account that it's only registered in the U.S., and it will -- we will try to register it also in some markets outside U.S. Regarding combo, I'll let Christelle answer.

So you will remember that fidrisertib is differentiated from SOHONOS. It's in the same pathway, but it targets the ALK2 mutated receptor in FOP that is a driver. When we think of the positioning of fidrisertib versus SOHONOS, first of all, fidrisertib is directed to a younger patient population, so it would be the only option for patients less than 8, 10 years old. It could also come as an option for patients that might not derive full benefit from SOHONOS, so as a switch. And finally, we can also think of potential combination between the 2 mechanisms once we have the full data readout with fidrisertib from our pivotal trial.

And then on Bylvay, you're right. We guided that half of the sales potential should come from [ DEA ]. That has not really changed with the PFIC and Alagille experience that we are collecting now. Of course, what has changed is that Mirum failed their biliary atresia trial because -- and this is what we have always said to you is that we said, this is the wrong endpoint. They have taken a biomarker endpoint, yet we are going for an outcome study because in biliary atresia, you need to wait for a certain amount of time until the drug can play its effect. And the lowering of the bilirubin in the blood and the liver is actually going to slow down the degradation of the liver. And that's why we have a hard endpoint, which is liver transplant. And Mirum could not see that because they only had a study with 6 months duration. So that could potentially open up more potential for us in biliary atresia long term. But we need to, of course, see the results of the Bylvay trial.

We will now take our next question. This is from the line of Richard Vosser from JPMorgan.

A couple of questions, please. One, just going back to ONIVYDE. And I think the NCCN guidelines were updated late last year. So just wondering, I know that it's not approved yet, but whether you've seen any inflection in growth already around ONIVYDE in first-line PDAC? And then second question, just going to Somatuline. A couple of questions here. I mean we've seen as well some potential generics coming or getting approved for Sandostatin LAR. So how do you think that would impact the U.S. erosion of Somatuline? Is there more price pressure? How should we think of that? And then with the stock-outs in EU, do you -- how do you see ahead of the launch of further generics? Do you see any comeback from those stock-outs in terms of a resupply from the competitors?

Yes, Richard. On your first question on ONIVYDE and the impact of NCCN guidelines, they have been really published at the end of December. So it is too early to say because we don't even have the market research data to really see how and any spontaneous pickup would fall down then in the script. So it's a bit early to say. But in any case, the NCCN guidelines and the registration are actually going to be very close together. So as you know, we have the action date on the 13th, so in 5 days from now. So really, we're going to deploy full-force field force once we have the full approval. On Somatuline and the potential entry of generics, you're right, there are entrants on Sandostatin. We do not think that's going to impact on lanreotide because we have not seen any impact on Sandostatin from a lanreotide generic. So we don't think it's going to cross kind of impact. However, we do anticipate that there are going to be also more generics coming on lanreotide. So we do anticipate that this gradual erosion is going to somewhat accelerate this year and in the years to come as we have guided before. Regarding stock-out in Europe, I mean, it was interesting to see that it's kind of a bit of an on-off symptom. So Advanz and Pharmathen seems to struggle to produce enough lanreotide generic. So sometimes, they can provide for like 4 months and then they have suddenly again a 6-month stock-out, and it depends in which country, et cetera. So it's very hard to anticipate what's going on there. And if actually, there is an impact of producing also the Sandostatin generic because that's being produced in the same facility, so I don't know if they have enough experts or analytical experts and et cetera. So I can't speculate on this one, but that's what's happening right now. So it's hard to really predict what's going to happen there.

[Operator Instructions] There are no further questions coming through. So I will hand back to the speakers for any closing remarks. Thank you.

Thank you very much, operator, and thanks to all of you for joining today. Have a good day. Thank you.

Thank you. This does conclude the conference for today. Thank you for participating, and you may now disconnect.