Laboratorios Farmaceuticos Rovi, S.A. (ROVI) Earnings Call Transcript & Summary

Good morning, and welcome, everybody, to this first half 2021 results [indiscernible] meeting, which will start in a moment. This is Javier Lopez-Belmonte, ROVI's Vice President and Chief Financial Officer. Please let me introduce ROVI's attendees today, Juan Lopez-Belmonte, Chairman and CEO; Marta Campos, Head of Investor Relations; and myself. [Operator Instructions] Thank you for your presence here today. And let's now start with the presentation. I give Mr. Juan Lopez-Belmonte the floor.

Thank you, Javier. And welcome to everybody. I'm happy to present our first half 2021 results. It has been almost 1.5 years since the WHO declared the COVID-19 pandemic in March 2020. Since then, all of our efforts have been aimed at ensuring the health of our employees, continuing to supply our medicines to patients worldwide and supporting our society with resources and our expertise. Across the value chain, the COVID pandemic had no critical impact in our daily business as we were able to continue the production of our medicines at all our facilities, to supply our medicines to all the patients in need, mainly our Low Molecular Weight Heparins, which were recommended by the WHO as essential medicines for people hospitalized in intensive care units due to COVID-19, and to continue with all our research and development projects with no delays. All in all, the resources ROVI booked to confront the COVID-19 pandemic and protect its employees during this semester were up to EUR 1 million. In these exceptional times, ROVI's performance during the semester has been above our expectations. Our 52% operating revenue growth was driven by the strength of the total manufacturing business, which grew by 172% and by the specialty pharmaceutical business, which grew by 25%. Data provided by IQVIA indicate that the innovative product market in Spain increased by 1.9% in the first half of this year compared to the same period of the previous year. Nevertheless, ROVI prescription-based pharmaceutical product sales increased 25% in the first half of 2021, outperforming the market by more than 23 percentage points. The company forecasts that it will continue to grow at a much higher rate than the Spanish pharmaceutical market expenditure in the first 6 months of 2021, which according to the Ministry of Health, Consumption and Social Welfare show a growth rate of 3.6%. Regarding the classification of laboratories, using data from IQVIA, ROVI was positioned 15th in terms of value and was the fastest-growing Spanish innovative company among the top 15 top ranked companies in the first half of 2021. In the first half of 2021, ROVI climbed 2 positions in the classification compared to 2020. As you know, ROVI reported on April 29 that is reinforcing its collaboration in the fill and finishing of Moderna's COVID-19 vaccine by increasing its current filling and finishing capacity. To this end, a new industrial investment will be carried out in the facilities that the ROVI Group has in Madrid in Spain. These investments consist of the installation of 2 new production lines and equipment for compounding, filling, automatic digital inspection, labeling and packaging that will provide additional fill-finish capacity for the COVID-19 vaccine. Moderna intend to supply markets outside the United States. These lines located at ROVI's facility in San Sebastián de los Reyes, Madrid, more than doubled the number of vials for which there is fill and finish capacity at this facility. In addition, ROVI will also manufacture the active ingredient in Moderna's vaccine against COVID-19. To this end, a new industrial investment will be carried out in the facilities that the ROVI Group has in Granada. This investment consists of the installation of a new line supporting production phases of the active systems of the mRNA vaccine, which are prior and additional to the compounding and fill and finish of the vaccine. This line is expected to begin to supply markets outside the United States in 2021. If we move now into the operating results. Operating revenues increased by 52% to an amount of EUR 290.1 million in the first half of 2021. And the main contributor to this growth were Enoxaparin biosimilar, which grew 27% to EUR 62.7 million; Bemiparin, where sales rose 26% to EUR 65.1 million; Neparvis, sales of which grew by 30%; and finally, the toll manufacturing business, where sales increased by 172%. The extraordinary increase in sales pushed profitability up by 3.3 percentage points to 25.5% in the first half of 2021. EBITDA increased by 75% to an amount of EUR 74 million. Likewise, net profit increased by 72% from EUR 29.6 million in the first half of 2020 to EUR 51 million in the first half of 2021. Prescription-based pharmaceutical specialties, which grew by 20% -- 25% in the semester, our high strategic value products, and contribute to give ROVI a wider scope for the coming years. ROVI considers its heparin franchise as one of its driving forces. Sales have risen by 26% to EUR 131.4 million in the first half of the year. Heparin sales represented 45% of operating revenues in the first half of 2021 compared to 54% in the first half of 2020. We still aim to become one of the leaders in the Low Molecular Weight Heparin field worldwide with our 2 molecules, Bemiparin and Enoxaparin biosimilar. Bemiparin total sales increased by 26% to EUR 65.1 million and Enoxaparin biosimilar sales increased by 27% to EUR 62.7 million in the first half of 2021. ROVI continues with its internationalization plan. Sales outside Spain increased by 94% to EUR 167.6 million in the first half of 2021, EUR 42 million or 19% of which related to the international subsidiaries, mainly due to an increase in Bemiparin international sales, an increase in the toll manufacturing business. And sales outside the Spain represented in the first half of the year 58% of the operating revenue compared to 45% in the first half of 2020. International sales of Bemiparin increased by 58% to EUR 29 million. This increase was mainly linked to the increase in sale prices to some partners and wholesalers due to the rise in Low Molecular Weight Heparin raw material prices; and secondly, a high concentration of purchase orders from the Russian and Chinese markets. This significant increase was specifically linked to the first half of the year. And ROVI expects a double-digit growth increase for international Bemiparin sales in 2021. Sales of Bemiparin in Spain, even increased 8% to EUR 36.1 million in the first half of 2021, mainly due to a higher penetration of the product in the treatment segment. Regarding the Enoxaparin biosimilar pickup, we launched the product in Germany in 2017 in U.K., Italy, Spain, France, Austria, Latvia and Estonia. In 2018, in Portugal, Poland, Costa Rica, Finland and Sweden. In 2019, South Africa, Israel, Peru, Holland, Panama and Dominican Republic, last year, and in Canada, Malaysia, Albania and North Macedonia in the first half of 2021. We have signed 2 important licensing agreements to distribute our market our Enoxaparin biosimilar, the first with Hikma Pharmaceuticals, who has the exclusive rights for 17 Middle East and North Africa countries; and the second with Sandoz for 14 countries, regions. We started the commercialization in Q4 2017 with sales amounted to EUR 1.3 million. And sales increased quarter-by-quarter to reach a 27% rise in the first half of 2021. So let me just summarize the opportunity here. This is a EUR 2 billion market, EUR 1.3 billion in Europe and EUR 0.7 billion in emerging countries with high entry barriers, where biosimilars are likely to reach between 50% to 70% of the market share and with only 3 other players in the market. The latest launches were again a strong driver of growth in the first half of 2021. Sales of Neparvis, a specialty product from Novartis, launched in December 2016, indicated for the treatment of all those patients with symptomatic chronic heart failure and reduced ejection fraction, increased 30% to EUR 17.9 million in the first half of the year compared to EUR 13.8 million in the first half of 2020. Sales of Volutsa from Astellas Pharma increased by 11% to EUR 7.8 million in the first half of 2021. Sales of Vytorin, Orvatez and Absorcol, a specialty product from Merck Sharp & Dohme, indicated as adjunctive therapy diet in patients with hypercholesterolemia, decreased by 16% to EUR 13.3 million in the first half of 2021. In the first half of 2020, Orvatez price was reduced by 40% due to the entrance of hybrids products formulated with ezetimibe and atorvastatin. Sales of Hirobriz Breezhaler, Ulunar Breezhaler, both inhaled bronchodilators from Novartis for patients with respiratory difficulties due to a pulmonary disease known as chronic obstruction pulmonary disease, launched in Spain in the fourth quarter of 2014, decreased 19% to EUR 4.8 million in the first half of 2021 compared to EUR 5.9 million in the same period of the previous year, mainly, as you may remember, Ulunar Breezhaler price reduction of 18% in the first half of 2020. Finally, sales of contrast imaging agents increased by 21% to EUR 17.4 million in the first half of 2021. This increase shows the strong recovery of the Spanish and Portuguese hospital activity during this period, and ROVI continues to be the market leader in this segment. ROVI has reinforced its collaboration with Moderna in the fill and finish of the COVID-19 vaccine Moderna by increase its fill-and-finish capacity and for the manufacturing of the active substance of this vaccine. To this end, further industrial investments, as I mentioned before, will be made in the ROVI's Group facilities in Madrid and Granada. Regarding toll manufacturing, sales increased by 172% to an amount of EUR 94.5 million in the first half of 2021 as a result of the booking of the income related to the production of the COVID-19 vaccine; the booking of the income related to the activities to prepare the plant for the COVID-19 vaccine production under agreement with Moderna; and the redirection of our toll manufacturing activities strategy towards high-added-value products. Likewise, in the year 2021, ROVI expects the toll manufacturing business to increase by between 2 and 2.5x, including the production of the COVID-19 vaccine. If we move to research and development. Doria is the first ROVI product based in its leading-edge drug delivery technology. It is a novel investigational antipsychotic for the treatment of schizophrenia with once monthly injection, which has been developed and patented by Laboratorios Farmaceuticos Rovi, and which, as of the first injection provides immediate and sustained plasmatic drug levels and does not require loading doses or supplementation with oral risperidone. In January 2020, ROVI announced the start of the centralized registration procedure for Risperidone ISM with the European Medicines Agency. Likewise, on its Capital Market Day held on November 24, ROVI announced the presentation of an NDA, that is a registration file to obtain marketing authorization in the United States to the FDA. In March 2021, reported the request for a stop of the clock in the authorization process of Risperidone ISM. The purpose of said clock stop is to have sufficient time to repeat the viability study comparing multiple doses of Doria with oral Risperidone in response to the major observation of the committee for Medicinal Products for Human Use, which states that the study must be performed using the European reference product. The current dossier of Doria already includes a clinical trial of viability using the oral Risperidone medicine marketed in the United States. ROVI expected that while using the U.S.A. reference product to be valid for Europe because the 2 products, the oral risperidone medicine marketed in the European Union and the one marketed in the U.S.A. can be considered the equivalence on the basis of the in vitro and in vivo studies that ROVI had conducted and submitted to the EMA. Indeed, the therapeutic indication in schizophrenia for oral risperidone was supported by the same efficacy clinical trials in both territories, which we consider the additional clinical information requested can be still be provided in November this year. Lastly, ROVI's research team has recently started development of a new formulation of Risperidone ISM for a 3 monthly injection, which would complement the current formulation of Doria for the maintenance treatment of patients with clinically stable schizophrenia. This development is still in an initial phase. And finally, let me end this part updating the guidance for 2021. ROVI expects the operating revenue to increase between 35% and 40%, including the production of the Moderna's COVID-19 vaccine. We have stayed on the path of sustained growth in the first half of 2021. We increased sales by 52%, outperforming the market. We have expanded our heparin franchise to the launch of our Enoxaparin biosimilar in 10 new countries in the last 12 months and the increase of our presence in countries where we had already launched the product. We consolidated our pharmaceutical specialties area, thanks to the strength of our leading products, such as Neparvis and Volutsa. And we achieved growth of 172% in our toll manufacturing business. Many thanks to the agreement with Moderna. Likewise, we are making a heavy investment effort in research and development, focused on our ISM technology, which we see as a new avenue for ROVI's future growth. To conclude, we believe that we are at a growth inflection point with a strong growth opportunity driven by Risperidone and Letrozole, both candidates validating our leading-edge drug delivery technology, ISM. Our Enoxaparin biosimilar, which will allow us to transform our European footprint and the agreement with Moderna, which is helping to strengthen our manufacturing area and it's providing us with a significant growth opportunity in this area. These growth levers are firmly underpinned by a very solid ongoing business that has delivered year-after-year based on our leading specialty pharma franchise and our high value-added toll manufacturing services. And now I hand you over to Javier, who will run you through the financials in more detail. Thank you very much for your attention and for taking the time to participate in this virtual meeting.

Thanks, Juan. We are very happy with our performance of the first half of 2021. As Juan already said, our operating revenue increased by 52% this year. This growth is driven by the good performance of our toll manufacturing business, our heparin franchise, Bemiparin and Enoxaparin biosimilar mainly, and our leading products, such as Neparvis and Volutsa, which we intend to achieve advantageous position in the current competitive environment. Sales of prescription-based products increased by 25%, outperforming the innovative product market by 23 percentage points this semester. Regarding our Low Molecular Weight Heparin franchise, we achieved a 27% growth. Sales of Bemiparin, our flagship product developed in-house, grew by 26%. And Enoxaparin biosimilar sales increased by 27% to EUR 62.7 million in the first half of 2021. Gross profit increased by 37% to EUR 154.3 million in the first half of 2021. The gross margin showing a decrease of 5.6 percentage points from 58.8% in the first half of 2020 to 53.2% in the first half of 2021, mainly due to the 55% increase in the Low Molecular Weight Heparin raw material cost of goods sold in the first half of the year compared to the same period last year. In the first half of this year, the heparin raw material prices rose around 55% compared to the last year same period, and as I said, was the same cause of the increase of the gross margin. ROVI expects heparin raw material prices to continue to decline in 2021. And nevertheless, despite the potential decrease in the heparin raw material prices, the impact on the gross margin will continue to be negative because of the long heparin or Low Molecular Weight Heparin manufacturing process in which the raw material currently used is stocked for several months, was purchased at higher prices. ROVI continues to be committed to innovation. R&D expenses amounted to EUR 11.9 million in the first half of 2021, and this figure is mainly the result of a focused investment in the ISM projects. Selling, general and administrative expenses, SG&A, 16% to EUR 68.5 million in the first half of the year, mainly due to an increase in expenses related to the manufacture of the Moderna vaccine and an increase in expenses due to the preparation of the Doria launch in Europe. In the first half of 2021, ROVI also booked EUR 1 million in personnel and other expenses related to the COVID-19 measures implemented. Excluding expenses related to COVID-19, SG&A would have increased by 19% to EUR 67.5 million in the first half of 2021 compared to EUR 56.6 million in the first half of 2020. EBITDA increased to EUR 74 million in the first half of 2021, a rise of 75% compared to the same period of the previous year, reflecting a 3.3 percentage points increase in the EBITDA margin, which was up to 25.5% in the first half of 2021 from 2022 -- sorry, from 22.2% in the first half of last year. EBIT increased by 93% to EUR 63.4 million in the first half of 2021, reflecting a 4.7 percentage point rise in the EBIT margin, which again was up to 21.8% in the first half of this year from 17.2% in the first half of 2020. Net finance results amounted to EUR 0.5 million in the first half of 2021 compared to minus EUR 0.03 million in the first half of 2020, mainly due to the higher income related to the exchange rate derivative financial instrument. The effective tax rate was 20.2% in the first half of 2021 compared to [ 19.9% ] in the first half of 2020, mainly due to increase of the profit before income tax. As of 30th June 2021, negative tax bases of the group amounted to EUR 25.5 million, of which EUR 9 million will be used in the full year 2020 income tax and EUR 12.8 million will be used in the first half of 2021. Let me say that all these negative tax bases were already recognized as assets as of 37 -- 31st, sorry, December 2019. Net profit increased by 72% from EUR 29.6 million in the first half of 2020 to EUR 51 million in the first half of 2021. EBITDA pre-R&D, calculated excluding R&D expenses as in the first half of 2021 and in the first half of last year, increased by 62% from EUR 53.2 million in the first half of 2020 to EUR 85.9 million in the first half of 2021, reflecting a 1.8 percentage point rise in the EBITDA margin to 29.6% in the first half of 2021. EBIT pre-R&D increased by 72% from EUR 43.6 million in the first half of last year to EUR 75.3 million in the first half of this year, reflecting a 3.1 percentage point rise in the EBIT margin to 25.9% in the first half of 2021. Net profit pre-R&D increased by 54% from EUR 39.3 million in the first half 2020 to EUR 60.5 million in the first half of 2021. ROVI invested EUR 11.4 million in the first half of this year compared to EUR 7.3 million in the first half of 2020. Of this amount, EUR 7 million relates to investment CapEx regarding our facilities, including important projects such as the ISM industrialization, the building of a second Low Molecular Weight Heparin API facility in Escúzar, Granada and the new lines for the Moderna vaccine. The rest EUR 4.5 million relates to maintenance and other CapEx. Free cash flow increased to EUR 76.0 million in the first half of 2021 compared to minus EUR 22.3 million in the first half of 2020, mainly due to the increase of EUR 31.1 million in the profit before income tax, the increase EUR 24.4 million in the inventory line item in the first half of 2021 compared to a decrease of EUR 77.3 million in the first half of 2020. And the booking of EUR 12.5 million in the proceeds from toll manufacturing services line mainly due to the payments received that are pending to be allocated to the income statement. Regarding our debt at 30th June 2021, ROVI total debt decreased to EUR 72.8 million. EUR 45 million is debt with banks, representing 62% of total debt. While EUR 10.8 million correspond to debt with public administration related to the development of R&D projects, which is 0% interest rate debt, representing, therefore, approximately 15% of total debt of the company. And finally, EUR 17.1 million correspond to financial liabilities for leases as a result of the IFRS 16 application, representing 23% of total debt. Since the beginning of the COVID-19 crisis, ROVI has signed credit policies for an amount of EUR 45 million in order to ensure the company's liquidity. As of 30th June 2021, ROVI did not renew these credit policies upon maturity as we did not need them. As of 30th June 2021, ROVI had a gross cash position of EUR 129 million compared to EUR 54.6 million as at the end of last year and net cash of EUR 56.1 million compared to net debt of EUR 19.8 million as end of last year. Regarding the dividend, ROVI General Shareholders' Meeting on 17th June this year approved the payment of a gross dividend of EUR 0.3812 per share on 2020 earnings. It means an increase of 118% compared to the dividend on 2019 and represents, therefore, a 35% payout. This dividend has already been paid on the 7th of July this year. Regarding news flows for 2021, we will closely monitor evolution of the manufacturing of the Moderna vaccine. We don't expect to announce any additional product launch this year as a result of the COVID-19 crisis. But however, we expect to inform on new national marketing approvals for the Enoxaparin biosimilar outside Europe. With regards to R&D, we expect to obtain the marketing authorization in Europe and also United States for Doria at the end of this year or at the beginning of 2022. Also, we expect to gather more clinical data from Letrozole Phase I trial during the following months to better characterize the pharmacological profile of Letrozole ISM. In the second half of the year, we expect to discuss these results with regulatory authorities, together with the next steps for continuing the clinical development. And that's all regarding our financial results for the first half of the year. We can now start the Q&A session. [Operator Instructions]

Juan, the first question comes from Isabel Carballo from ODDO. Could you please elaborate a little bit more of the agreement with Moderna? Have you already started the manufacturing works for the active acceptance of the COVID-19 vaccine? Are you considering the fill and finish for all the products of the company beyond the mRNA vaccine? Juan, I think you're muted.

I was on mute. Yes, sorry, I was on mute. Well, thank you, Marta. Basically, the agreement that we have with Moderna is reflected on the different press releases that we have made public with all the major milestones that we have signed with Moderna. So far, I mean, the business is going as expected. We are just starting our relationship with Moderna. I think Moderna has got a tremendous interesting and exciting pipeline. We are -- we don't discard the possibility of probably expanding our relationship with Moderna. But to date, we don't have anything signed and we haven't started conversations. I think both parties, Moderna and ourselves, we're now focused on making sure that we increase the pace of fill and finish of the COVID vaccine. And making sure that we're able to supply and to fulfill the demand that Moderna has acquired with the respective countries.

Okay, Juan. Isabel also asks, can you please comment on your plans for the next launch in the U.S?

For our launch in the U.S.?

Yes, of Doria.

Doria, I mean, again, that's something that -- I mean this is the major topic within the company because we are spending most of our time to really come out with the right solution that can bring ROVI a financial quick return and as well gain the insight of the dynamics of the U.S. market. We are waiting to get the feedback from the FDA regarding the registration, submission that we did some months ago. We are discussing with different partners on different bases as we have shared with investors before. We are not disregarding any possibility today. We are considering the scenario offsetting ourselves. We're also considering the scenario of making a JV, different models without the JV. And what we are trying -- whatever is going to be the final decision, which we will announce accordingly when it comes to time. What ROVI wants to preserve is the rights of the product and to try to find a financial solution with a partner, if we decide to follow that pathway. That commercial paths to gain the insights of the U.S. dynamics that will help us as well for potential additional products like the quarterly Risperidone ISM or as Letrozole that, hopefully, we also expect to succeed in getting the product approved in the U.S.

Okay. Thanks, Juan. Javier, Isabel has two questions for you. The first one is, future use of the cash. Are you considering further product acquisitions in Europe?

Thank you, Marta and thank you, Isabel, for your question. Again, the strategy of ROVI hasn't changed. And one of the main uses of funds for the company will be M&A in the future. We believe that, again, the most important growth of the company is going to be purely organic, as always. But we don't disregard to fuel that growth with M&A. And Europe is our main focus on this area.

Okay, Javier. And Isabel also asks, outlook for gross and EBITDA margins in the second half this year.

Well, we are extremely happy with the performance of the company in this first half. The growth of the sales has helped us to increase profitability in every line. However, the first half with regards to gross margin we have the effect -- the negative effect from the cost of the heparin raw material. We do believe and we keep telling people that we expect that the heparin cost of goods will be declining for the next coming years. However, as we have explained several times, we have long period of manufacturing process, longer stocks. And probably, this will not happen until -- for sure until next year. However, I think that the mix of the sales for the year will help the company to try to offset this negative gross margin during the first half. And we do have at least the hope that in the second half of the year, the gross margin will be improved even though that we will still have to bear the increase of the cost of the heparin raw material. And with regards with the EBITDA, it would also depend on the gross margin and possibly on the sales evolution. If the sales evolution is, well, that's good as expected. And as we have increased the guidance, we probably could be very positive also in the -- for the outlook for the second part of the year for the EBITDA.

Thank you, Javier. Juan, the next question comes from Harry Sephton from Jefferies. Can you help expand on phasing of toll manufacturing sales? Are you already at peak current capacity? When are you expecting the new injectable lines to come on stream?

I mean -- thank you, Marta. I mean on toll manufacturing activities, I mean, the Moderna contract has not impacted so much on our capacity on our existing toll manufacturing business. Most of the fill and finish though, for Moderna almost to the extent of today is performing multi-dose vials. And for that purpose, we are using an in-house line. And we have also stated that we have bought 3 new lines. One is already operational, and the next 2 will be operational in the next quarters. So in terms of toll manufacturing operations, our standard toll manufacturing operations based on prefilled synergies. In terms of running rate, our capacity has not been affected by the Moderna agreement. So our full capacity remains the same as we had before. Obviously, the complexity of the Moderna agreement has split out of pressure in terms of manpower and human resources. So I mean we have been impacted in terms of the burden of work, but it would have not been impacted in terms of free capacity of our toll manufacturing operations outside of the Moderna agreement. It's true that right now we are purely focused on making sure that we fulfill Moderna's expectations. And we're in a race against time to try to deliver as much product as possible because it's, at the end, it's a question of saving lives. And obviously, that has put pressure in getting new customers for our existing toll manufacturing operations. Having said that, the Moderna contract has given ROVI a tremendous visibility in the external injectable contract manufacturing landscape. And we believe this is going to have a tremendous positive effect to ROVI in the medium term. And actually, we are now engaged in several conversations for potential future collaborations on the prefilled syringe side of the contract manufacturing operations.

Thank you, Juan. Javier, the next question comes from Alejandro Conde from Santander. He asks, aside from the heparin raw material cost headwinds you indicated in your press release this morning, do you think the business mix has also contributed to such a steep -- sorry, gross margin erosion in the quarter semester, what are your current expectations for gross margin in 2021?

Alejandro, thanks for your question. As I was to explain before, I believe that the business -- the current business mix of the company will help us to offset the negative impact on the gross margin. So that's why we look -- we stay positive on the second part of the year on the gross margin line, let's say it that way. And we expect that the increase of Moderna production, as we've been discussing and we've been telling that we are expecting to keep on scaling up the production for the COVID-19 vaccine, will help us to also to increase the gross margin or at least to offset the negative impact with the heparin cost.

Okay. Thank you, Javier. The next question comes from Álvaro Lenze. Javier, are there any additional countries in which you intend to launch Becat this year?

Well, as we've been discussing and telling this, so this have been on the plans for Enoxaparin are really aggressive one. We expect to keep launching the product in many countries, not only this year, but the following year. I believe this year that we expect to launch in countries such as New Zealand, in Turkey. I believe Colombia also is there, Saudi Arabia and also the Jordanian and Lebanon and probably also in Serbia.

Okay. Thank you, Javier. Juan, the next question comes from Francisco Ruiz from Exane. Can you update the situation of Letrozole? What are your assumption for Moderna business for next year?

Francisco, on Letrozole, actually, as Javier has mentioned, we are working better -- do better capitalization of the medical for the ISM technology. So far, we have already request meetings with the regulatory agencies, which it will happen hopefully in the next quarters. And those meetings are going to be critical to define which are the next steps to take in the clinical development of the product. We have already performed successful Phase I studies, that has given us a tremendous information in terms of pharmacokinetics. We think this product is unique. It's going to be a breakthrough by itself. And we are just gathering information and preparing a good case to show to the regulatory authorities to see which should be the next steps in terms of clinical development. And that's where -- at least, we're excited that we have a strong and very good data, and we expect to have a constructive discussions with the FDA and EMA. And those -- and after those conversations, we will announce which are the next steps of the clinical development for the product. But definitely, the company is devoted to the development of the ISM technology. We have the monthly risperidone, which is already under registration. We already are developing the quarterly Risperidone ISM, which is in early stage. And Letrozole, that should be the next project moving into late clinical trials depending on what may be the requirements by the regulatory agencies but, hopefully, we will have the positive to discuss with them in the next quarter. And regarding Moderna, second question, which are our expectations. I have to be honest, that's difficult to forecast. Actually, I think the Moderna evolution is going to depend very much on the COVID-19 evolution. This is -- unfortunately, it's a scenario that changes every week. Probably we had this call a month ago, we all thought that the COVID-19 pandemic outplay was very much under control. Now we have a new strain, the delta, the delta plus. We are already hearing from the different health authorities that probably a fourth dose could be required. They still have to define whether it's going to be a third dose, whether it's going to be for all -- across all ranges of population. They have to define, whether this new third dose is going to be on the Wuhan or the Alpha or the Delta strain or is it going to be based on mix of strains or new strains. I think there are -- still a lot of uncertainties. The reality is that, we are still investing. I think we have a very good straightforward relationship with Moderna. And I think that, unfortunately, the COVID-19 is going to stay around for a while. Probably regular vaccination campaigns will be required for the next 2 years. And if that happens, obviously, the expectations for the company will be also positive because we will be one of the major companies helping Moderna to supply the market. But again, it will depend very much on the COVID-19 evolution. Unfortunately, it seems that it's going to stay around this -- for, at least, for 3 or 4 more quarters.

Okay. Thank you, Juan. Álvaro Lenze from Alantra Equities asked, any comments you can share on the recent news of delays in the supply chain of the Moderna vaccine outside of the U.S.?

Well, Álvaro, you may not believe it, but we have learned this news to Internet, through your statement. Again, this is -- I don't want to excuse Moderna, but the supply of the vaccine is a tremendous, complex supply chain, not only the manufacturing of API, but also the fill and finish as well the release, the testing. So I'm sorry, that I cannot provide you further information regarding this statement that Moderna has released, I believe it was last night, because we don't have that much information. The only thing I can tell you is that, I think every party in the supply chain of Moderna, we're trying to make the most to really to save 1 day or 2 days because we know that saving days and anticipating our delivery is crucial to save lives. So I would say that we are trying our most. And I don't know really where that delay that Moderna has announced comes from the supply -- which part of the supply chain it comes from.

Thank you, Juan. Javier, Francisco Ruiz from Exane asks, could you update on the cost expected for this year on European launch of Doria?

Thank you, Francisco. Thank you for your question. Well, as you know, the launch of Doria is going to be on 2022. So next year. This year, what we are doing is, doing what we call premarketing and trying to plan a successful launch next year in Europe. We are using Germany as the main country to prepare the launch as it's the main market. And we already hired some people in order to have a deep understanding of the market and a good preparation of our launch next year. I believe that in the first half, we roughly expand close to EUR 1 million to do all this work. And probably similar quantity will be spent in the second part of the year. So nothing really material.

Thank you, Javier. Juan, the next question comes from Álvaro Lenze from Alantra Equities. How is the toll manufacturing ex Moderna performing? Is the high-profile nature of the agreement with Moderna opening the door to new customers? Or are you too focused with the vaccine at the moment to explore additional opportunities?

Well, I think -- thank you, Álvaro, for the question. I think the Moderna agreement is being as great news for ROVI, not only for the business itself, but as I mentioned before, it is giving us a visibility and also has put into the newest importance of the injectable capacity overall. I mean I think this is going to be a tremendous push for the contract manufacturing operations of ROVI. We were one of the leaders. But we were in, let's say, in a sort of shadow situation in which this was a market that it was not appreciated, that it was not so much well known. I think the Moderna has created the awareness that countries and regions, they need to have a capacity to be able to supply product in case of a pandemic outbreak. So ROVI was one of the major players in the flu vaccine, as you may all remember. I think that has provided the opportunity that has allowed us to sign with Moderna. And this has provided Doria tremendous awareness worldwide. And as I mentioned before, I mean, the Moderna custom manufacturing operation is based mainly and so far only into multi-dosed vials. The main expertise of the company is prefilled syringe. So I think we're going to have a tremendous increase of business in the medium and long term. I mean it has provided a visibility to ROVI that it was impossible to imagine 6 or 1 year ago. And we are right now engaged in many different talks with different companies, having early and later stage discussions to sign new agreements with new customers. Having said that, please let me remind you, like I always do, that to capture a new client in contract manufacturing operation is not something that you do in a quarter. Usually, it takes between 2 to 3 years. First, you have to sign the agreement, and you have to make the validation batches and regulatory batches, and then you have to perform all the regulatory submission. So this is not something that we're going to see in accounts probably in the next 1.5 years. But definitely, the Moderna agreement is going to bring the contract manufacturing operations of ROVI to a new level. And that's something that we are going to see probably in the next 2 years because we are engaged today in many discussions. And we are also accelerating many of the previous discussions that we had because of the Moderna visibility. So I think overall, it's going to be a tremendous good news for ROVI on the short term because Moderna is helping us to improve our financials. But on the midterm, the Moderna agreement is providing ROVI a level of visibility and awareness that in 2 years' time, we're going to see an increase of our ex Moderna similar activities, an increase in a very important way. Asking your second question, the CMO activities, if we, ex Moderna, is also evolving really well. We are increasing every semester. So I think globally, as Javier has mentioned many times in our different presentations, CMO activity was a core part of the strategy of the company. And now it's going to become even more important, and it's going to be one of our most important financial drivers in the next years.

Thank you, Juan. Juan, the next question comes from José Maria Cánovas from [ JB ] Capital. First, could you give some color regarding timing for setting up your commercial network in Europe for Doria? Secondly, maybe it's still too soon to ask this, but what comes beyond Doria and Letrozole for your ISM technology? Are you looking into any other product in preclinical trials?

Okay. Regarding Doria, as Javier has mentioned before, we are using right now Germany as a, let's say, as a business case for premarketing activities. We have done all the research work with IQVIA another partner to have an assessment on the human resources required in terms of sales force and as well of SG&A related to the launch of Doria. We have decided to chose Germany because it's the most important markets in Europe for schizophrenia, long-acting injectables is Germany and Spain. Spain, obviously, we have a tremendous large sales force. So we don't have to bring in anybody. And Germany, we are using now that as sort of laboratory experience to see what sort of a strategy resources in addition to those that they are already onboard, that we may require to have a successful launch. We -- once we get the approval or the first letter of response from EMA after we submit the new clinical data in November, that would be really the green light to start having all the people. We have the headhunters already being appointed. We have everything in place. Just ready to give the go ahead and start recruiting all the required sales force. As Javier has mentioned, this will mostly happen in Q1 2022. As you know, before launching a product, there are different phases. First, you have to get the approval from EMA. Then this approval from the EMA has to be sent to the countries. There you discuss the labeling. And then you have to go to the reimbursement process on a country basis. But since we get the go ahead from EMA, until we can launch the product, at least you have 4 to 6 months in the quickest or the fastest countries with -- which are basically U.K. and Germany. And you have to wait between 8 to 10 months in the rest of the countries in Europe. So we have enough time and we have all the time in the calendars based on this time difference to be able to have everybody onboard and the Doria launch fully prepared. So Q1 2022, we will start booking material expenses in terms of recruiting sales force besides Spain and Germany. And regarding your second question, we're right now focused on Doria. We are focused on Letrozole. We are focused on a quarterly injection of ISM, which is in itself is a follow-up product, life-cycle management of Doria, but it's going to be a very important product if we manage to get it approved. So we have a lot of really to cope with at this moment. But as we've mentioned before, for us, the Doria approval has 2 important benefits for the company. The first benefit is to get our product approved. That is in a very important and large chronic market like schizophrenia. But the second important benefit of getting Doria approved is really the validation of ISM technology. So really, the naturalization of ISM after Doria is not only [ going to solve ] or the quarterly injection of ISM or even additional APIs and products that we are testing in our labs with ISM technologies, but we also expect to be able to convince and to entice other companies to use our ISM technology for the life-cycle management of their compounds. So yes, we do have, I believe, an important feature besides Doria and Letrozole that it will be coming from new products. And we are right now testing in our labs. But to be honest, right now we cannot go any faster because we don't have the human capabilities to cope with all these challenges at the same time. And as well, we believe that with the approval of Doria, we will get ISM technology validated. And they are out there on the market, many potential products which are marketed that it can be eligible to use the ISM technology. And definitely, that's something that we will market and we will approach these companies when the moment comes.

Okay. Juan, the last question comes from Guilherme Sampaio from CaixaBank. And I'm sorry, it's for Javier. Javier, can you provide us some color on the raw materials which is scheduled over the past year, expectations for future purchases and on the timing of the flow of these purchases into the P&L? Taking all points that you provide, how reasonable is to consider H2 performance as somewhat stronger than H1?

Thank you, Marta, and thank you, Guilherme, for your question. Well, basically, as we were trying to explain the production cycle time for heparin is quite long. And also, we need to buy the -- we would like to buy heparin well in advance to have enough safety stock to be able to cope with the market demand. So that means -- and that's why we are saying, we are talking about differences, clear differences between the current cost of the heparin in the market, which, again, this year is lower than the year before and our internal cost of goods. Our internal cost of goods is an average of all the stock we have. And then we have to take into account this cycle time of the production. So basically, we don't see an upgrade on the second part of the year, thanks to heparin. We will be much looking forward to having this upgraded in the next year for the heparin cost. So we expect to maintain a stable cost of goods for the heparin for the rest of the year. However, what we are saying is that, thanks to the rest of the business mix, we do believe that the second part of the year could be better in terms of gross margin.

Thank you very much, Javier. I give you the floor to close this video conference.

Well, thank you, Marta, and thank you to all of you. It seems there are more questions that are still attending to be answered, but unfortunately, we have to call off this call. Our Investor Relation team will answer, and will get back to you of the remaining questions. And for this reason, we can now end this first half financial results virtual meeting. We wish you all a great summer break, well deserved, and hope you have a nice afternoon. Bye-bye.