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

Hello, everyone. This is Marta Campos, Head of Finance for ROVI. Welcome to our company's review of business results for the first half of 2026. Before we begin, let me remind you that today's presentation and associated documentation are available on the Investor Relations section of ROVI's website. Please note that the information presented in this call contains forward-looking statements based on our current beliefs and expectations. Actual results could materially differ due to known and unknown risks, uncertainties and other factors, and we undertake no obligation to update or revise any of the statements. Moving to today's agenda, Juan Lopez-Belmonte, ROVI's Chairman and CEO, will discuss our business performance for the quarter; and Javier Lopez-Belmonte, ROVI's Deputy Chairman and Chief Financial Officer, will then review financial results. The presentation will be followed by a Q&A session. Therefore, if you want to ask any questions during the presentation, please don't hesitate to send them through the question button on the platform. With that, I thank you for your presence here today, and I will now turn the call over to Juan.

Thank you, Marta, and thanks to everyone for joining us today. I will provide the strategic context, and Javier will then take you through the detailed financials. Let me start with the key highlights of the first half of 2026 and our outlook for the year. Total revenue increased by 13% to EUR 357 million in the first half of the year. Operating revenue reached EUR 344.2 million, representing a 9% increase compared to the first half of 2025, mainly driven by the strong performance of our CDMO business, which grew 38% during the period. Gross profit increased by 21% to EUR 237.1 million, reflecting a gross margin improvement of 6.5 percentage points to 68.9%. Before moving on, I would also like to highlight that on April 1, we successfully completed the acquisition of the injectable manufacturing facility in Phoenix, Arizona, strengthening our industrial footprint in the United States and reinforcing our position as a global CDMO player. The acquisition generated a bargain purchase gain or badwill of EUR 62.4 million. EBITDA increased by 85% to EUR 121.2 million. And excluding the impact of the badwill, EBITDA decreased by 10% to EUR 58.8 million. Based on the current evolution of the business and the latest information available, we maintain our 2026 guidance and continue to expect operating revenue to increase by a low to mid-single-digit percentage compared to 2025. Moving to our Specialty Pharmaceutical business. Sales in this division increased by 0.2% to EUR 237.8 million, driven by strong growth in Okedi, hospital products and Neparvis. I would now like to focus on the performance of the heparin business. A key area accounted for approximately 38% of the group's operating revenues in the first half of this year. Heparin franchise generated sales of EUR 130.1 million, down 4% year-on-year, while low molecular weight heparins sales declined 5% to EUR 125.3 million, mainly due to lower bemiparin sales driven by high inventory levels for international partners. Within the low molecular weight heparins franchise, sales of enoxaparin biosimilar reached EUR 78.6 million in the first half of 2026, representing a 2% year-on-year decline while bemiparin sales amounted to EUR 46.7 million, down 9% year-on-year. However, it's important to highlight that although international bemiparin sales were weak in the first quarter, they show a strong recovery in the second quarter, increasing by 52% versus Q2 2025 and more than tripling compared with Q1 2026. As a result of the recovery in international bemiparin sales during the second quarter, we now expect bemiparin sales to grow by a low single-digit percentage in 2026 compared with 2025. In addition, we have seen an improvement in our expectations for the enoxaparin biosimilar, supported by stronger-than-expected performance in several markets. Consequently, we have improved our outlook for the low molecular weight heparins franchise and now expect sales to decline by a mid-single-digit percentage this year compared with our previous guidance of high single-digit decline. That said, we continue to expect a year-on-year decline, primarily reflecting lower order volumes expected from partners since they hold high levels of stocks from the previous year as well as ongoing pricing pressure across the sector. Preserving and improving the profitability of the heparin franchise remains a key priority for ROVI. To mitigate pricing pressure, we continue to implement efficiency initiatives across the value chain. In parallel, we are advancing our vertical integration strategy through the Glicopepton project, which is expected to improve cost competitiveness, increase self-sufficiency and support the long-term sustainability of the business. Looking ahead, we remain fully committed to the heparin franchise, which continues to be one of the historical pillars of ROVI. Through operational efficiency initiatives, vertical integration and a broad international footprint, we believe we are well prepared to position to strengthen our competitive position and support the long-term profitability of the business. Turning now to OKedi. The product remains a key growth driver with sales of EUR 34 million, up 27% year-on-year. Its differentiated clinical profile continues to support a strong uptake, and we remain excited to reach potential sales of between EUR 100 million to EUR 200 million in coming years. Moving on to our CDMO business. The contract manufacturing business performed strongly with revenue increasing by 38% to EUR 106.3 million in the first half of 2026. This growth was driven by the growth in business with existing customers following the restoration of full operational capacity at the Madrid facility after its temporary closure during the first half of 2025 to upgrade some Annex 1 GMP aspects for aseptic manufacturing. And second, the contribution of revenue generated under the supply agreement with Bristol Myers Squibb entered into in connection with the acquisition of the Phoenix facility, completed on April 1, 2026. Revenue from this customer accounted for approximately 13% of the total CDMO business revenue in the first half of 2026. We remain committed to our investment plan to strengthen our sterile fill and finish capabilities with ongoing capacity expansions and the recent integration of the Phoenix facility into our industrial network, ROVI is well positioned to capture long-term opportunities in high-value injectable manufacturing. Finally, our ISM platform continues to progress well. Letrozole SIE has received FDA clearance to proceed with clinical investigations under its investigational new drug application, enabling the initiation of clinical development in the U.S. with Phase III recruitment expected to start in the third quarter of 2026. Risperidone QUAR has also delivered strong Phase I results and is now progressing towards Phase II development with patient enrollment expected to begin in the fourth quarter of 2026. Together, Letrozole SIE and Risperidone QUAR further strengthen our confidence in the potential of the ISM platform and its ability to generate meaningful long-term growth opportunities for ROVI. With that, I would like to thank you for your attention and hand over to Javier, who will take you through the financial performance for the period in more detail. Javier, over to you.

Thank you, Juan, and good morning, everyone. Before reviewing the financial statements in detail, I would like to briefly highlight 2 nonrecurring items that affected our reported results during the first half of 2026. First, we completed the acquisition of the Phoenix manufacturing facility on April 1. As a result of the preliminary purchase price allocation exercise, we recognized a EUR 62.4 million bargain purchase gain or badwill, which was recorded as a nonrecurring income in the income statement. Second, during the period, we concluded the tax inspection covering fiscal years between years '20 to 2022. The inspections cover all the major taxes, that means corporate income tax, VAT and certain withholding tax matters and has now been fully completed. Importantly, the process was concluded without any penalty proceedings. The main impacts relate to agreed adjustments concerning the tax treatment of certain investments made to adapt manufacturing facilities, together with certain limited nonrecurring expenses recognized as a result of the inspections. The outcome also led to the recognition of deferred tax assets that are expected to be recovered in future years. More broadly, the conclusion of this process provides greater visibility and certainty regarding the group's tax positions going forward. Let me now take you through our financial performance for the first half of the year, highlighting the key drivers behind our results and the progress we've made across the business. Total revenue increased by 13% to EUR 357 million. Operating revenue increased by 9% to EUR 344.2 million in the first half of '26, mainly supported by the strong performance of the CDMO business. I will now walk you through the remainder of our P&L. Gross profit increased by 21% to EUR 237.1 million in the first half of the year, with gross margin improving by 6.5 percentage points to 68.9%, partly reflecting the recognition of R&D grant income related to the LAISOLID project. Excluding other income, gross margin increased by 3 percentage points to 65.2%, mainly driven by the growth of the contract manufacturing business, higher contribution from Okedi and lower heparin raw material costs. Well, now moving on the SG&A expenses. SG&A increased 28% to EUR 145 million in the first half of the year. So let me start now with the personnel cost. Employee benefit expenses, excluding R&D here, increased by 23% year-on-year. This increase was mainly driven by, first, the incorporation of ROIS Phoenix into the group; second, the 3% salary increase under the new chemical industry collective agreement; and third, the hiring of additional personnel to support the continued growth of the CDMO business. Within this increase, let me highlight to you that we also recorded approximately EUR 1.6 million of nonrecurring personnel-related expenses, the majority of which were associated with the tax inspection process that was concluded during the period. Therefore, excluding these nonrecurring expenses, employee benefit expenses increased by 20% year-on-year. Now if we turn to the other operating expenses, excluding R&D, this increased by 34% year-on-year. The main drivers here were the inclusion again of ROIS Phoenix, a lower comparison base in the first half of 2025 due to the temporary shutdown of the Madrid facility that was done to complete Annex 1 upgrades and certain nonrecurring costs related to asset write-offs and strategic projects. Excluding these nonrecurring expenses, other operating expenses increased by 28%. So overall, excluding nonrecurring items, SG&A expenses increased by 24% to EUR 140.5 million in the first half of this year. It's worth noting that ROIS Phoenix represented approximately 9% of SG&A expenses during the period. On a like-for-like basis, analysis, excluding both ROIS Phoenix and nonrecurring expenses, SG&A expenses increased by approximately 12% year-on-year versus the first half of 2025. This increase reflects both the expansion of our industrial and organizational capabilities, again, to support future growth and a less favorable comparison base. Again, as I mentioned before, our Madrid facility was temporarily shut down during part of the first half of '25 to implement Annex 1 GMP upgrades, resulting, therefore, in lower operating expenses in that period. Following the return to normal operations, these costs were fully reflected again in the first half of this year. Looking ahead for '26, we continue to expect SG&A expenses, excluding ROIS Phoenix, to increase by a mid- to high single-digit percentage growth compared with 2025. Regarding R&D expenses, they increased, sorry, by 98% to EUR 33.3 million and were largely related to preparations for the Phase III development program of Letrozole SIE. EBITDA totaled EUR 121.2 million in the first half of the year with a margin of 35.2%. Excluding badwill, EBITDA decreased by 10% to EUR 58.8 million. EBIT amounted to EUR 103.2 million in the first half of this year with a margin of 30%. EBIT excluding badwill decreased by 20% to EUR 40.9 million. Net financial cost reached EUR 1.7 million in the first half of '26 compared with net financial cost of EUR 1.3 million in the first half of '25. Let me point out that the conclusion of the tax inspection covering, again, fiscal year '20 to '22 also had an impact on the financial result. This increase was mainly driven by higher finance costs as a result of a late payment interest associated with the tax inspection. Turning to taxes. The effective tax rate stood at 16.9% in the first half of '26 compared with 20% in the same period of last year. The reduction in the effective tax rate was primarily driven by the nontaxable nature of badwill recognized in connection with the Phoenix acquisition. As a result, the net profit reached EUR 84.4 million in the same period, an increase of 113% versus the first half of '25. Well, let's now move to CapEx and cash generation. In the first half of '26, ROVI invested EUR 30.4 million allocated as follows: EUR 21.9 million dedicated to investments and EUR 8.5 million allocated to maintenance CapEx and other items. At the same time, cash generation was particularly strong this period. Cash flow from operating activities increased to EUR 94.3 million compared with EUR 28 million in the first half of '25. As a result, free cash flow increased significantly to EUR 64.7 million compared to EUR 7.5 million in the same period last year, highlighting both the strength of our underlying business and our ability to convert earnings into cash while continuing to invest in future growth opportunities. Turning now to our debt position. As of June 30, '26, ROVI's total debt amounted to EUR 107.7 million, while gross cash increased to EUR 130.2 million. As a result, ROVI ended the first half with a net cash positive position of EUR 22.5 million compared with a net debt of EUR 21.9 million at year-end '25. This improvement reflects the strong cash generation of the business during the period. Our balance sheet remains solid, providing us with financial flexibility to continue investing in growth initiatives while maintaining a disciplined capital structure. Furthermore, on July 15, we paid a dividend of EUR 0.9594 per share, representing approximately a 35% payout ratio policy. So to conclude, we maintain our outlook for '26 and continue to expect operating revenue growth in the low to mid-single-digit percentage compared to '25. Our priorities remain unchanged, continued growth of the CDMO business, successful integration and value creation from Phoenix, further progress in heparin vertical integration and sustained growth of the specialty pharmaceutical franchise led by Okedi. At the same time, we remain firmly committed to innovation with 2 Phase III clinical programs underway and a clear focus on creating long-term value for shareholders. This approach reinforces our road map and our positioning over the medium to long term. Well, thank you very much for your attention, and we are now happy to take your questions.

Thanks, Javier. [Operator Instructions] The first questions come from Patricia Cifuentes from the Bestinver, and the first one is for you. What is your assessment of the German health care reform starting in 2027? What proportion of your total revenue is exposed to increase rebate requirements?

Thank you, Patricia. I mean, like most of the pharma companies today, we are currently assessing the potential impact of our products on the new German health care reform. When it comes to Okedi, we are right now assessing all the different scenarios, the inclusion in the German reference price system. And to be honest, at present, there is not that much visibility to really quantify precisely the final impact on pricing or revenues. I mean just to give you at least some broad figures of what would be the impact for the company, please, it will be very limited. It will be only focused for sales in Germany, which when it comes to Okedi represented EUR 8.4 million during the first 6 months of 2026. We definitely -- we're going to continue to monitor developments, and we will communicate to the market any new information that could provide visibility on the impact in our financials. Regarding low molecular weight heparins, we believe that is excluded from the German health care reform. But again, this is brand new. It was approved, I believe, less than 2 weeks ago. There's been a lot of rumors, different expectations in terms of clawbacks, and we are all the companies right now just waiting to see just after summer in September, which are going to be the detailed impact by product. But again, our limitation would be, we believe, to Okedi and Okedi represents in the first half of the year, EUR 8.4 million, which accounts more or less for 36% of our Okedi sales in the first 6 months of 2026.

Thanks, Juan. The second question from Patricia is also for you. Have generic heparin raw material prices fully stabilized? Do you maintain your 2026 guidance for the low molecular weight heparins franchise?

I mean regarding the heparin raw material prices, as we have mentioned in the different last calls, we've seen a significant improvement in the market environment when it comes to prices. We still believe that there is a continuous downward trend. But the current level, I mean, again, we are always buying and we are screening the market quarters in advance before the purchasing happens. We believe that this downward trend is gradually being stabilized. We continue. We speak to our different suppliers. We are scanning the market. But we believe that we are starting or we are close to reach probably the bottom end of this continuous decrease in terms of raw material prices. Regarding the guidance, we have revised our estimates. And now we expect low molecular weight heparins sales to decline by a mid-single-digit percentage compared with our previous expectations of high single-digit declines. And we are very excited, and we have a lot of expectations when it comes to cost of goods efficiency with different initiatives that they are right now in place, ongoing and as well with the Glicopepton kickoff. This vertical integration should give us another edge in terms of competitiveness. And we are definitely, as we have mentioned in our presentation, both Javier and myself, we are fully committed to the low molecular weight heparins. It represents 38% of our sales. And we believe that we have all the features really to place ROVI and our portfolio of heparins, both with bemiparin and enoxaparin to be one of the major players worldwide in this essential work.

Thanks, Juan. Javier, the third question from Patricia is for you. What progress is being made in securing new take-or-pay contracts to boost capacity utilization across your 11 Spanish aseptic lines and the upcoming Phoenix Optima line?

Once again, thanks, Patricia, for your question. As everybody knows, our current priority is to complete the integration of the remaining manufacturing lines, and for sure, increase their utilization levels. Optimizing capacity utilization remains our key priority on the CDMO business. And we continue to see a strong commercial activity. And I mean, look, the second quarter for the CDMO business has been very, very strong, and we still see a high level of customer interest. Unfortunately, new projects typically involve lengthy evaluation and assessment and then qualification and decision-making process. So it takes time. You also know that we are not allowed to make normally press releases and announcement. But I would say that we remain as optimistic as before, and we still see a tremendous tailwind dynamics in the market, if you could say so. Regarding the future Phoenix Optima line, again, our immediate focus is on completing its installation and validation. It's been only since 1st of April that we could take over from BMS and take control of the actual facility. We expect the line to become operational between end of '27, early '28. At that moment of time, if we are successful on our manufacturing efforts, at that point, we will start manufacturing and therefore, invoicing from that line from Phoenix. And for sure, we are already working to secure customers for this future capacity. Let me say, and I think I have repeated this many times, we are reinforcing and hiring more people on our business development team. And I think this is one of the underlying factors that we -- why we are increasing our SG&A there. And we are actively pursuing new opportunities and advancing discussion with potential customers. And again, our main goal is that we have a gradual ramp-up in Phoenix and achieve utilization levels that are good from 2028 onwards.

Thanks, Javier. The next questions come from Juan Ros from ODDO. He has several questions on the contract from April 2024. So the first one is what exactly remains outstanding for PFS regulatory approval? And when is approval now expected? Does 2026 full year guidance include routine PFS manufacturing revenue? And is the original 2027 PFS revenue range still valid? Javier, they are for you.