Sandoz Group AG (SDZ) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Sandoz call today. I will now pass on to Laurent de Weck, Global Head of Investor Relations, for his opening remarks.

Thank you, and welcome to the Sandoz Third Quarter and 9 Months Sales Call of 2024. Earlier today, we issued a Media Release summarizing our sales performance in the third quarter and first 9 months of this year. In addition, we published a supplemental slide presentation on our website, which we will follow on today's call. You can find these documents in the Investor Relations section of our website at investors.sandoz.com. Joining me on today's call are Richard Saynor, our Chief Executive Officer; and Remco Steenbergen, our Chief Financial Officer. Our media release, presentation and discussion include forward-looking statements. You should not place undue reliance on these statements. Such forward-looking statements are based on our current beliefs and expectations regarding future events and are subject to significant known and unknown risks and uncertainties. Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary materially from those set forth in the forward-looking statements. In this presentation, we refer to certain non-IFRS measures. These non-IFRS measures may not be comparable to other similarly titled measures of other companies and have limitation as analytical tools. They should not be considered in isolation or as a substitute for the analysis of our operating results as reported under IFRS. Non-IFRS measures are not measurements of our performance or liquidity under IFRS. They should not be considered as alternative to profit of the year or to any other performance measures derived in accordance with IFRS. For discussion purposes only, in today's presentation, sales in this document refer systematically to net sales to third parties and our comments on growth are expressed in constant currencies. As a reminder, in the first 9 months of 2023, third-party sales excluded sales to our former parent as this was shown in a separate line item. Post separation, sales to our former parent are reported as third-party sales. With that, I will now turn the call over to our CEO, Richard Saynor.

Thank you so much, Laurent, and good morning. It's a pleasure to welcome you to our third quarter and 9-month sales 2024 call. We had an exciting and promising year so far, and I'm looking forward to discussing our sales results with you today. The momentum in our business continues as we execute on our strategy. We are making considerable progress in our biosimilar launches and at the same time, are achieving some of the key biosimilar products in our pipeline. I will talk more about our achievements in a moment. Our sales grew 9% in constant currencies in the first 9 months of the year, driven predominantly by the very strong performance of our biosimilar business, up 32% in constant currencies to-date. In addition, growth in our generics business accelerated to reach 4% in the third quarter or 2 percentage points over the first 9 months of the year, driven by Europe. I am delighted to see growth across all our regions and would like to take this opportunity to thank all of my colleagues at Sandoz for this great achievement. This robust top line performance gives us the confidence to raise our full year net sales guidance to high-single-digit in constant currencies and to confirm our EBITDA margin guidance of around 20% also for the full year. We keep on delivering on our top line, reporting our 12th straight quarter of growth. Topline growth accelerated in the last quarter, reaching a record 12% in constant currencies. This growth was primarily driven by biosimilars and once again, all regions contributed a testament to the strong execution across our organization, the ability to use our scale to deploy our portfolio and our ability to keep on launching successfully new medicines. In quarter 3, price erosion was minus 1%, below the historical level. This is consistent with the decreasing price erosion we've observed in the last quarters, and we've assumed a similar low level for the rest of this year. Now let's turn to the business. Our Biosimilar business grew at a fantastic 32% in constant currencies in the first 9 months of the year. We are pleased with this very strong growth as it reflects both the success of our new launches and strong demand for our base biosimilar business. Omnitrope is still experiencing strong customer demand in a constrained market supply environment. The uptake of Hyrimoz continued in the U.S. and the product retains the leading market share amongst biosimilars. Tyruko or biosimilar natalizumab is consistently taking share in Europe since its launch in late 2023, driving growth across the region. In July, we launched Pyzchiva or biosimilar ustekinumab in Europe, and that's taking up nicely. In the same month, we also launched Wyost/Jubbonti or biosimilar denosumab onto the Canadian market. We are progressing well on key biosimilar assets in our pipeline and are well-positioned for the upcoming launches in 2025. Pyzchiva received FDA approval and will be launched in quarter 1 2025 as per our settlement agreement. Enzeevu, our biosimilar aflibercept was also granted FDA approval, further enhancing our leading U.S. ophthalmology portfolio. Launch timing will be dependent on several factors, including the progress and outcomes of pending potential litigation or any other settlements. Let me provide a little bit more color on some of our products, starting with Omnitrope. We launched the first biosimilar Omnitrope in 2006, 18 years ago, and we are still seeing strong double-digit growth. This ultimately speaks to the sustainability of biosimilars. Omnitrope is the market leader with 36% market share according to the latest IQVIA data at the end of June 2024. This market is still supply constrained, and we're prioritizing this critical medicine to ensure patients are receiving the treatment they need. Now let's turn to Hyrimoz. The progress in the U.S. has been strong. In addition to our private label agreement with Cordavis through which Hyrimoz has the preferred access to 65% of CVS Caremark's commercial templated lives, we continue to win share with our own branded Hyrimoz and unbranded adalimumab-adaz. The most recent IQVIA data shows that the biosimilars have captured 19% of the U.S. market. If we then drill down on the adalimumab biosimilar prescriptions, we have 77% share, which includes our private label arrangement with Cordavis and more importantly, the number 1 position with our own branded Hyrimoz and unbranded adalimumab-adaz. This puts us into a leading position in terms of market access and payer coverage amongst adalimumab biosimilars. We're on formulary with all 3 of the major PBMs, pharmacy benefit managers. With this regards to script data, please note that IQVIA stopped reporting Cordavis Hyrimoz and Cordavis Humira scripts. IQVIA is currently replacing the data with estimates, but we'll stop reporting them completely as of January 1, 2025. Therefore, we can expect movements in the IQVIA data that will not reflect the reality of the market. We are currently exploring options to continue to provide reliable market share estimates through 2025. Now I would like to update you on Tyruko. We started rolling out Tyruko to markets across Europe at the end of 2023. Since then, we have been steadily growing market share, and we expect this to continue in the coming quarters. Both tender authorities and healthcare professionals appreciate a more affordable option in the multiple sclerosis space. To-date, we received positive feedback on the product, both from physicians and from payers. In the U.S., we are working with our partner and the FDA on the approval of our JCV assay and still expect to launch Tyruko there in 2025. Moving to Pyzchiva, where we've made strong progress in the third quarter; in Europe, we were amongst the first companies to launch the product with all key reference strengths in July. At the end of the third quarter, the product was launched into 15 markets. The uptake so far has been very strong, and we continue to roll out in additional markets. The physician's reception is positive, reinforced by the availability of an initiation dose, which is key to enabling patient switches. In the U.S., we received FDA approval in July. This extends our immunology portfolio and further strengthens our biosimilar position. We expect to be among the first wave of ustekinumab biosimilars to launch in the U.S. quarter 1 2025. With that, I will now hand over to Remco, who will discuss our financial performance and guidance.

Thank you very much, Richard. I'm also pleased to be here with you today to discuss our third quarter and 9-month sales. As Richard mentioned, we reported very strong performance in our biosimilar business and continue to experience solid demand in our generics business. Sales growth continued to accelerate in the third quarter with 12% compared to 9% for the first 9 months. Price erosion remained below historical levels with minus 1% in the third quarter and minus 2% for the first 9 months. Foreign exchange had a negative 1 percentage point impact, both in the third quarter and the first 9 months. This was mainly the consequence of depreciation against U.S. dollar of several currencies in our international region, partly offset by the appreciation of the euro and the Swiss franc. Let's now move to sales by business. Generic sales increased by 4% in the third quarter and 2% for the first 9 months. The acceleration in the third quarter was driven by recent launches across various markets in Europe. The momentum continued in the national region, aided by favorable price dynamics and demand for the antifungal agent, Mycamine, which we bought in 2023. This was partly offset by the divestment of the Chinese business. North America declined as expected due to timing of new launches in the U.S., which is skewed to the fourth quarter this year. The launch of paclitaxel in October will help support growth in the U.S. generics business in the fourth quarter. Biosimilars delivered very strong growth of 37% in the third quarter and 32% for the first 9 months. We are incredibly pleased with this performance and with the strong progress that we are making with our biosimilars overall. The growth was driven by continued strong demand for our first ever biosimilar Omnitrope, the ongoing launch of Hyrimoz in the United States, the acquisition of Cimerli and contribution from the recent launch of Tyruko and Pyzchiva in Europe. We expect this good momentum across both generics and biosimilars to continue in the last quarter of the year. Now let's have a look at the performance of our 3 regions. All 3 regions delivered strong performance in the third quarter and the first 9 months of 2024. Europe grew an outstanding 12% in the third quarter and 6% for the first 9 months. Strong growth in biosimilars continues, led by demand for Omnitrope and the contribution from the recent launches of Tyruko and Pyzchiva. Generics momentum accelerated in the third quarter, driven by recent launches. Acceleration was also helped by the absence of the strong prior year comparison of apixaban and the exceptional cough and cold season that affected growth in the first half. North America grew 18% in the quarter and 15% for the first 9 months and benefited from the strong biosimilar performance, driven primarily by the ongoing uptake of Hyrimoz and acquisition of Cimerli, share gain of Omnitrope and the launch of Wyost/Jubbonti in Canada. The strong growth was partly offset by a decline of the U.S. generics business due to the timing of launches, which is skewed to the fourth quarter. Internationally grew 8% in the quarter and 9% for the first 9 months due to the strong volume growth across biosimilars and generics, rich contribution of Mycamine, favorable pricing and recent launches. This was partly offset by the divestments of the Chinese business in the second quarter. Our hard work and focus on delivering on our biosimilars pipeline continued to pay off. With another quarter of very strong double-digit biosimilars growth, biosimilars increased as a proportion of total net sales to 27% in the first 9 months compared to 22% in the prior year. Biosimilars even reached close to a 29% share of total net sales in the third quarter. Our regional sales mix remains consistent with over half of our business in Europe, where we hold strong leading position and the remaining more or less equally divided between the North America region and the International region. Now let's have a look at our financing structure. In September, we issued a EUR 600 million Eurobond maturing in 2029. The bond has an annual 3.25% fixed coupon. The proceeds are earmarked mainly for the refinancing of more expensive local debt. Looking at our financial structure, our maturity profile continues to be well balanced with an average maturity of noncurrent financial debt of approximately 5 years and a fixed floating rate of total financial debt of 76% and 24%, respectively. We target a floating debt rate in line of floating debt in line with our average cash position. We have 2 solid investment-grade ratings underpinning our company's strong financial position to support our future ambitions. We target a net-debt-to-core-EBITDA ratio below 2x in the midterm. Now moving to our full year 2024 guidance; I'm very pleased to inform you that we're increasing our top line guidance for the full year. We now expect net sales to third parties to grow to high-single digits in constant currencies compared to mid- to high-single digits, which we guided so far. We're also confirming our 2024 guidance of core EBITDA margin as a percentage of net sales, which is expected to be around 20%. As core EBITDA margin expansion in the second half of 2024 has been a focus of recent discussion, I would like to reiterate the key drivers that make us confident that we will reach our full year 2024 guidance of around 20%. Firstly, strong biosimilars growth drives continuous improvement of our business mix and therefore, our margin. Secondly, we expect both price erosion and input cost inflation to be limited in the second half of 2024. Thirdly, we expect further manufacturing efficiencies in the second half of the year. Fourthly, as we grow sales, we will further leverage our cost base. This is best highlighted by our recent launch of Pyzchiva in Europe. Here, we are already a leader in immunology and can leverage our existing sales force without adding incremental expense. Lastly, our transformation program, which started in the first half of the year is expected to generate around $50 million of savings in the second half of 2024. Thank you for your attention. And with this, I hand it back to Richard. Richard, I'm sorry to intervene, but we cannot hear you.

My microphone is working. I can hear you fine.

Okay. We can hear you again.

Okay. I apologize. I'll go back to outlook. I do apologize. So again, if you're not -- if I'm repeating myself, I apologize. We're excited by our next key biosimilar launches planned in 2025, as mentioned earlier. We launched Pyzchiva in the U.S. during the first quarter, and we will launch Wyost/Jubbonti in the U.S. in the second quarter as per our agreement with Amgen. We expect to launch Tyruko in the U.S. during 2025 and pending FDA approval of our JCV assay. Our next financial update will be published our Integrated Annual Report and host our fourth quarter and full year results in 2024 on March 5, 2025. Earlier this month, we celebrated our first year of independence through a spin from our former parent, who we became the world's leading pure-play generics and biosimilar company. I'm very proud of the significant milestones we've achieved in the past 12 months, including successful biosimilar launches, key advances in our pipeline and initiatives to supply our business. This is fully in line with our commitments we made ahead of our spin-off, which has put us in the best position to deliver our midterm guidance. All of this with the objective to deliver superior value and creation for society, our shareholders by pioneering access for patients. With this, thank you very much, and I ask the operator to open the line for Q&A.

[Operator Instructions] Our first question comes from Harry Sephton at UBS.

So my first question is on the aflibercept U.S. launch and whether there's any implications for you potentially launching your product after Amgen launched at risk? And if not, can you maybe walk us through what the milestones are on the litigation front to get line of sight on the U.S. launch and then also your appetite for a potential at-risk launch? And then my second question is on the margin. And just to play devil's advocate, you've raised your sales guidance from mid-single digit to high single digit through the year, mainly driven by the stronger biosimilar performance. Now we would expect biosimilars to be higher margin, and we'd also expect you to get some operating leverage on the stronger performance. So my question is why have you not seen as much benefit on the margin front from the stronger performance at the sales line?

Thank you very much Harry. I'll take the first part of the question and then Remco I'll let you take the second. Aflibercept, I think, as I said in my presentation, clearly, we will now, A, the Amgen launch doesn't change our thinking in terms of product. Each product has its own formulation. Our formulation is different to Amgen's. We will consider our own position in terms of litigation, launching at risk or potential settlement independent of that. And so really beyond that, I can't say a great deal more. Remco, do you want to pick up on margin?

Yes, Harry, Remco here. Yes, we have indeed increased our top line from mid-single digits to high-single digits, and we left 20% unchanged. The main reason for this is that the transformation savings, which we had planned for this year actually started a bit later in this year. I already referred to that as well when we had our half year results in August. So underlying in the margin improvement we're seeing and also the functional cost development itself, we are on target, but the transformation savings simply came a bit later in, and that's why we're still holding with the 20%. Of course, the good news of that is that from the transformation savings, we will get a little bit more next year.

Our next question comes from Thibault Boutherin at Morgan Stanley.

First question is on the sustainability of U.S. biosimilar Humira revenues, in particular next year. Looking at IQVIA data, and understand these are not necessarily fully reflecting the reality, but the script seems to be broadly stable. Vast majority is still generated through Cordavis. So how -- could you help us think about the sustainability next year -- is pricing a topic or is it secured and same thing on volume commitment from Cordavis? So that's the first question. And the second one is just on your strategy for biosimilars in immuno-oncology. You are developing biosimilars for Keytruda and Opdivo. There are other products like Tecentriq, Imfinzi, which are also multi-blockbusters and could present a meaningful opportunity with likely less biosimilar competition than Keytruda. So if you could just talk a little bit about the strategy here? And is it because you're thinking that in the long-term, immuno-oncology volumes are going to be mostly Opdivo or is there something else in your choice of biosimilar?

Thank you for your questions. I guess let's talk about -- clearly, on the U.S. performance of adalimumab, I'm delighted with what the team have achieved. I think clearly, there's two parts. There's the own label with Cordavis, which broadly, I think in volume terms, I would expect to be flattish during -- as we go into next year. I think we already saw the incremental volume change that we saw. And pricing, really, again, that's really between ourselves and our partner, but we're comfortable with the position that we have going into next year. I think the opportunity, though, still that nearly over 80% of the market is still with the originator. And that part, I see as more of an -- stepped progression of volume increase. And again, there, I think we are the leading player in our own brand product, which gives me a lot of confidence, plus also bearing the fact in mind that we are also on formulary with all 3 of the PBMs with a good presentation, a strong sales force and introductory pack. So I'm confident that we would look to seek incremental volume increase on the core business as we go into next year. The pipeline question is a good one. I mean we're generally therapy agnostic. So we don't normally look at a pipeline and think about we want to index in immunology or oncology. Now most biologics tend to be in those spaces anyway. We don't disclose the pipeline until we get to Phase III assets. Clearly, I don't want to make my life any harder with our originators or our competition or our other players in the marketplace. But clearly, we look at a mixture of where there are larger opportunities where we think we can leverage our scale and our technical capabilities mixed with where we see market expansion opportunities. The other point worth taking is generally, we try and focus on where we see strength in Europe. And then we can see the U.S. as becoming an incremental opportunity. I think many times, the trouble with the U.S. market is if you focus purely on the U.S., the timing launch is very variable and you've got to go through a patent dance. So we try and make sure that we file launch and can leverage Europe and then the U.S. can become an incremental opportunity. So I hope that gives you a little bit more color around our thinking.

Our next question comes from James Gordon at JPMorgan.

This is James Gordon from JPMorgan. Two, please. First question was on North American generics. So I can see very nice performance for biosimilars in Europe today. But if I had to find a weak point, it looks like it would be the North American generics performance. And if we try and back it out, it looks like that business year-on-year is down mid or maybe even high-single digit. Is that right? And is what you're saying that's going to go from mid- or even high single-digit year-on-year decline to growing in Q4? And is that acceleration just from Abraxane or are there other meaningful launches in Q4 and into 2025? How are you thinking about that business? Is it declining that much and it's going to flip to such strong growth? And why would that be? And the second question is on reinvestment. So it sounds like you're well on track for the EBITDA margin to step up a lot in H2 this year. But then when we look to next year, do we extrapolate off H2, which is where you are now or only off the full year '24 margin? And are you thinking about a lot more R&D investment for pipeline, maybe for generics pipeline next year? So could R&D be like double-digit growth next year? How are you thinking about that, please?

I'll perhaps again take the first question, Remco, if you take the second. Look, I think your question is a good one on North American generics. Clearly, our strategy in the U.S., if you take a step back, our ambition is to become the leading biologics player in the U.S. and clearly, we're well on track to deliver that. The generics business, I don't have the same aspiration. It's really much more, I guess, a tactical business. We want to think about where we can launch products and broadly keep that business stable. You're right, first part of this year, we saw declines. And clearly, we've seen -- obviously, we launched paclitaxel. We see a number of other smaller launches. I think this year, we will see the generics business probably still with a slight decline overall. But then when you again step back, what's really encouraging is the overall growth of the U.S. business in this far more attractive biologics space, so growing 15%. So I think that's really the key message is see the U.S. as a whole, strong growth in the U.S. The generics business has always been for me more of a tactical business and really then making sure we launch products that support the margin expansion rather than trying to go for a mass coverage. And this year, we'll close probably just slightly negative. But you're right, clearly a number of launches that we expect to see, but most of them fairly small in the final quarter.

Hey James, Remco here with regard to your second question, in terms of the extrapolation into '25, we will give some guidance, of course, in March next year. It's a bit too early right now. But if you already work on it, you have to take the full year margin as the starting point. The phasing over the year is a very difficult one to take because there are different pluses and minuses in there. So that will take into account. Of course, with the opportunities and the way we're currently performing in biosimilars and what I think every one of you know over the coming 10 or 15 years, there's so many biosimilar opportunities over the years to come. But of course, we want to capture them. And with that, yes, of course, we intend next year to bring our investments in our pipeline up. And with that, you would also see that our D&R expenses next year would go up. Whether it will be really double digit or below double digit, it's too early to say. But of course, we want to invest and we want to do the right thing here. With that said just to reemphasize, correct, on all the other costs, correct, and delivering on also restructuring program that is still out there, and that also you have to take as a baseline for next year. I hope that answers your question, James.

Our next question comes from Simon Baker at Redburn Atlantic.

Two, if I may, please. Firstly, Richard, returning to adalimumab. As you said, the real opportunity is the 80% that AbbVie still controls. I just wonder at this stage, if you've got -- if you can share anything on, in terms of visibility of how that may change in 2025. AbbVie have said that they will see continued roll-off of contracts. So they're clearly expecting it to go down. I just wonder what you're seeing at this stage? And then, secondly, on Omnitrope, it has been a great performer, helped by supply constraints. I just wondered if there's any update on the evolution of the supply constraint there. Do you expect [Technical Difficulty] in that scenario, how sticky in that market?

Okay. Thank you so much, Simon. Yes, you're right. Look, 80% of the market is still available. And I think I said to you before, the fact that we're on formulary with all 3 of the PBMs puts us in a really strong position. You're right. I expect a number of those contracts to rotate during next year. And then I'm confident given our scale and our performance of our own label products or our own brand products ex the Cordavis deal in terms of that strength. And again, I think I've said before, if you take a step back, we're the global leader in this space. We have a great presentation. We have all the strengths. We have a patient support group. We have the introductory or a starter pack that is unique in the U.S. market. So I think we're extremely well positioned. Physicians and patients like our product. And so long as we're on formulary, we're in a strong position to then to capture share. I think I would expect that to be more incremental growth though next year. I don't see another big step-up in the same way that we saw earlier on with the Cordavis deal. On Omnitrope, I think it's 2 points. Yes, I still think the supply constraints are going to continue. And I think those are really more linked to other products that a number of competitors are prioritizing over the supply of human growth hormone. So I think that capacity constraint, particularly in GLP-1s is going to drive the sort of secondary impact in terms of Omnitrope. So I don't see that changing during 2025. And then how sticky? Generally, this is a presentation that kids receive really at home. Parents generally don't want to switch formulations, physicians don't want to switch formulations. So generally, we find that patients like the product, stay with the product for the treatment course until they reach adulthood. So I think it's a pretty sticky product. And clearly, we've seen it perform well over the last 18 years, which is quite remarkable. And I don't see any trend change going into next year.

Our next question comes from Eric Le Berrigaud at Stifel.

Two questions. First on Tyruko in Europe. Could you maybe contrast a little bit the performance so far with history? You've shown on the graph kind of 16% market share gain after 6, 8 months. How does that compare with traditional biosimilar launches in Europe? Can you maybe also point which countries the drug has been launched at this point? And maybe if 1 was relatively early like Germany in most of the cases, how much market share did you gain into the first market launches and which one are still to come? And then, the second question is about ABRAXANE paclitaxel opportunity in the U.S. Just -- to give a sense of how much competition you will face, is it a several players game? Or are you among a few there just to see what kind of competition you may have there?

Thank you so much, Eric. I'll pick up paclitaxel first. I mean, at the moment, relatively small number of competitors. Now clearly, this is the U.S. generic space and that situation can change. But clearly, we're pleased with the performance that we've seen to date and glad to bring this product to market and make this available to patients. Tyruko uptake, we've been very pleased. It really depends on the markets. Clearly, some of the tender markets, we've actually taken leadership share because of the positioning of the product. Other markets tend to be more physician-led and that tends to be a little bit more incremental. And I think that's probably consistent with biosimilars generally. I think certainly in Europe, there's no real resistance to the use of biosimilars. I mean, this physician group, this is relatively rare for them to see a biosimilar, so I guess connecting with them. But certainly, the product and the take-up has been strong. From memory now, we've launched in 8 markets across Europe, I could be slightly wrong, particularly the larger markets. I'm not going to break down individual market share performance as we tend not to do that, but certainly pleased in terms of how it's performed relative to our expectations and relative to previous biosimilar launches.

Our next question comes from Victor Floch at BNP.

Victor Floch from BNP Paribas. And first of all, congrats for a very strong print. So my question is on Pyzchiva and the importance of securing a preferred status with the U.S. PBM, just like what you've done with Hyrimoz over the last year -- over this year. And so, I was wondering if that's fair to say that the recent launch in Europe could actually help your discussion on the other side of the Atlantic. Any update on those discussions will also be very much appreciated.