UCB SA (UCB) Earnings Call Transcript & Summary

Hello. Welcome to the UCB Half Year 2023 Capital Market Call. My name is Antje here, and I'm the Head of Investor Relations at UCB. Before I introduce you to the agenda and hand over to the speakers today, I'd like to make some remarks. This video conference is being recorded. This presentation and the following Q&A session are covered by the disclaimer and safe harbor statement as stated on Slide 2 of the slide deck. Please kindly read this carefully. You can find the presentation in our Download Center if you dial-in by phone. The presentation and the following Q&A session are intended for institutional capital market participants. If you're not, please disconnect now. Following your feedback, we implemented some changes. We have shortened the presentation, introduced a number of speakers to have more time for Q&A., and you have been invited to ask your questions live. With this, I'd like to introduce to you our speakers for today: Jean-Christophe Tellier, our CFO -- our CEO; and Sandrine Dufour, our CFO. In the Q&A session, not only Jean-Christophe and Sandrine, but also our Chief Medical Officer, Iris Low-Friedrich; Emmanuel Caeymaex, Head of Immunology and U.S. are here to answer your questions. And as Charl van Zyl, our former Head of Neurology has recently left the company to join Lundbeck as a CEO, we have asked 2 members of his leadership team to join the Q&A panel. So it's my pleasure to introduce to you Kim Moran, Head of U.S. Rare Diseases; and Mike Davis, Head of Global Epilepsy. Kim is launching with the team, [ as a speaker ], as we speak; and Mike is managing our evolving epilepsy portfolio. With this, Jean-Christophe, over to you.

Thank you very much, Antje. Good morning, and good afternoon, good evening, everyone. It's a pleasure to welcome you to our half year results. Maybe I can go directly to the slide after the agenda, please. And so get the next one, please. So as you see in this slide, we are at an inflation point now. And I think at the end of the first half of '23 mark this moment, which is an important one for UCB, which is a moment where we can leave behind the absorptions that the necessary decline of our product after the loss of exclusivity and start to build a new phase of growth for the company, build on current growth drivers as well as new assets. And actually, we are today in this new period -- starting this new period of growth, thanks to few elements. The first one is the good resistance performance and resilience of our current growth drivers. And I would like to mention CIMZIA, but also, of course, Briviact and EVENITY. The second element is the fact that we incorporate -- we are incorporating in our portfolio, new assets, thanks to the success that we have had in our development portfolio. And here, of course, I have in mind BIMZELX, FINTEPLA and RYSTIGGO. Last also, but not least, we're able to enter into this new phase because we aren't doing a rigorous and disciplined allocations of our resource, so that we can make sure that we provide sufficient investments behind the preparation and the executions of the launches as well as managing the tail of our product. Next slide, please. And so because of all of that, I think we will qualify in the first half of 2023 as a solid performance for UCB. And you can look at this pie from different lenses. That is one lenses, which is the classical one, which is revenue or the net sales. And here, you are still observing a decline of our revenue of ourselves. But as I said, it's because of the last period where we have the loss of exclusivity, and we need to absorb. But because we are starting a new phase, we can have starting this new growth. Actually, if I put on the side the loss of exclusivity of the impact, we are currently growing already by 8%. The second lenses that you can look at the first half is what has been achieved during the first half in terms of new patient population. Because by adding new patients' populations, be ever to provide access to these new patient populations, it is, of course, new source of growth for the company. And during the first half of 2023, we achieved approval of FINTEPLA for Lennox-Gastaut syndrome in Europe. We had also in Europe achieved the ability to launch BIMZELX in PsA, psoriatic arthritis; and, AS axial for arthritis. And we are actually, as we speak, launching RYSTIGGO in the U.S. So new tools, new assets, new patient population that will fuel growth for the company for the future. And then the third lenses that you can have to look at our first half performance is our confidence we are for the full year guidance. And here, you can see that we are confirming our guidance for 2023. Next slide, and this is not the end of the journey. We are expecting in the second half of '23, 7 approvals for ongoing regulatory reviews in various geographies. So first, as you know, we are waiting the actions of the FDA for bimekizumab in psoriasis in the U.S. for the third quarter of this year. But we are also on top of that, waiting for axSpA and PsA approval in Japan from bimekizumab. We are waiting for the rozanolixizumab approbation for generalized myasthenia gravis in Japan. And we are also expecting for zilucoplan, our next new asset approval for generalized myasthenia gravis in the U.S. and in EU, as well as additional filing that we get approval later on. So you see the journey of bringing new assets, new territories, new patient populations into the UCB portfolio view is just starting now. Next slide, please. So, I would like to now quickly zoom in on 3 of our key growth drivers: epilepsy, generalized myasthenia gravis and immunology. Epilepsy reached the inflection point because if we are today in this junction before the loss of exclusivity and the new growth, epilepsy portfolio is for us the profit illustrations of that because of the loss of E KEPPRA in Japan and VIMPAT in Europe and in the U.S. But as you can see, we can build growth, thanks to the very good growth and accelerations of growth actually of Briviact globally; as well as FINTEPLA we have reached already more than EUR 100 million during the first half of the year; and NAYZILAM. Next slide, please. The new and second pillar of growth that I would like to illustrate is UCB starting the journey in generalized myasthenia gravis. And here, our objective is, of course, to elevate the standard of care and to maximize patient outcomes because it is our purpose in all different areas we are evolving. Now with RYSTIGGO, you see on the left-hand side, the patient's population that we think could be addressed and could be treated with our portfolio. With RYSTIGGO our anti-FcRn antibody, we are the first and only targeted therapy, which is able to treat patients who are either acetylcholine receptor positive or MuSK positive in general myasthenia gravis. And later zilucoplan, our complement C5 inhibitor, we will have [indiscernible] hence the first self-administration targeted therapy that inhibit the complement cascade. So altogether, we will have a portfolio to treat broadly all patient population from different angle, and we will be able to satisfied patients who want to be treated at home, who want to be treated in a hospital, want to continue to go with an infusions and also the diversity from a physician standpoint. Next slide, please. Last but not least, our third pillar of growth with also 3 growth drivers today is immunology. I mentioned the resilience and the performance of CIMZIA. 15 years after the launch, we were the fifth anti-TNF in the marketplace, and we continue to gain market share, thanks to the diversification and the differentiation that we have been able to build and to provide for patient. You see here 2% of growth, but in fact, if the underlying volume growth of the product was 8%. The difference is mainly due to difference in inventory. The second growth driver is BIMZELX that we are starting to launch in a lot of different geographies. We have already been approved in 10 different -- by 10 different regulatory agencies, and we have been approved in 36 new different countries there. I will comment BIMZELX on a specific slide. EVENITY, please, I also would like you to remember that the contribution of EVENITY to our growth come from 2 sides. One, we are booking the revenue directly in Europe, and that's the numbers that you see here, and we are already enjoying a very successful launch in the bold builder markets in a lot of different geographies; but two, we are also gaining a net contribution from Amgen, which is a significant growth of plus 44% for the first half of the year. Next slide, please. And so when you look at the performance of EVENITY globally, you can see on the right-hand side, the impressive growth that success of the product has, which is translated here, in the next contribution from Amgen to UCB P&L. And you see on the left-hand side that we are already reaching [ 485,000 ] patients across the globe and with 30% of market share in the building -- in the bold builder market we are gaining the leadership that we wanted to achieve. And last but, of course, not least, I would like to close before handing over to Sandrine with BIMZELX. So on the last slide, you will see the BIMZELX leadership builder that we are strengthening months after months. On the left-hand side, we are currently pleased with the fact that more than 10,000 of patients are currently benefiting from BIMZELX across the different geographies. And on the right-hand side, you can see here that on these 3 main regions that today, we have launched the product in Japan, Europe and Canada, we have reached already more than 35% of dynamic market share, meaning the ability of the new patients to be treated by BIMZELX today is more than 1 out of 3. So quickly after the launch of the product, which is a remarkable performance. So as you can see, a great first half of the year. Solid, an ability to build -- continue to build on the growth of our growth drivers, which demonstrate resilience during the first half of the year; two, a portfolio that continues to evolve with new assets, new territories, new patient populations coming in, success of the launches where we have been already able to implement them. And I'm sure that RYSTIGGO in the U.S. will be also a confirmation of this ability to execute; and three, a solid discipline and rigorous allocation of resource and cost management that allow us to deliver the result that Sandrine will now further comment. Thank you.

Thank you, Jean-Christophe. And good morning, good afternoon, everyone. Let me present this robust first half results as well as the confirmation of our guidance. I will directly go to the next page to give the key highlights. And as expected, the first half results reflect the impact of the loss of exclusivity of impact. You heard Jean-Christophe explaining that excluding this impact, we have an underlying net sales growth of 8%. And if I look at the trends of the last months of the semester, I can say that the negative impact of the loss of exclusivity are now mostly behind us, and this is what gives us the comfort to talk about an inflection point as we enter the second part of the year. Now from a resource allocation point of view, we have continued to be very disciplined to make sure that we adequately fund the multiple launches in terms of products, new indications and geographies. Our focus of growth, transversal program is yielding very positive results. We will have achieved a run rate of about EUR 200 million of sustainable cost efficiency by year-end by closely managing all our cost categories, and this contributes to fund the increase of investments behind the launches as well has absorbed the inflation impact, which year-over-year is not insignificant. As committed, Zogenix is becoming earnings accretive as of 2023. And finally, the profile of margin between the first half and the second half will be different as we accelerate investments to support the launches. And I, of course, we'll come back on that. So if we move now to the next page, I will look at the full P&L, and I will start with the net sales. So the total net sales reached EUR 2.4 billion. It's a 12% decrease, 14% at constant rate. And as I said, adjusted for VIMPAT growth at constant rate was 8%, and this was supported by solid volume growth. Next to the net sales, revenues achieved EUR 2.6 billion. It's a decrease of 11%. I would like to mention that the other revenues include a onetime milestone payment of EUR 70 million linked to our partnership in Japan for VIMPAT. But as a reminder, we also had a similar amount of EUR 17 million for the sale of intellectual property rights for olokizumab last year in the first half. So year-over-year, this is neutral. Adjusted gross profit was EUR 2 billion, with a decrease in line with revenues and a stable adjusted gross margin of 77%. Total OpEx decreased by 15% to EUR 1.3 billion, reflecting lower expenses and higher other operating income. And if I start with marketing and selling expenses, they grew by 3% to EUR 753 million, driven by the launches, the prelaunch activities. We have the ongoing launch activities of FINTEPLA, BIMZELX and the global launch preparations for BIMZELX in the U.S., RYSTIGGO and zilucoplan in generalized myasthenia gravis. R&D expenses decreased by 5% to EUR 759 million. This is reflecting the investments in the late-stage pipeline as well as the earlier-stage activities. The R&D ratio increased from 27% to 29%, and this is a function of the net sales decrease. G&A decreased by 9%, and the other operating income increased significantly to EUR 350 million. So first, this is the result of the net contribution from Amgen in the commercialization of EVENITY, which grew by more than 40% from EUR 108 million to EUR 156 million. And second, as we had mentioned back in February, we sold a portfolio of established brands in Europe for EUR 145 million. And so in total, adjusted EBITDA reached EUR 801 million after EUR 814 million in the first half of last year. It's a decrease of 2% and a decrease of 9% at constant rates. This is reflecting the lower revenues, the lower operating expenses, and it corresponds to a 31% margin after the 28% margin in the first half of last year. And even if you exclude the contribution of the sales of the established brand products, this is a solid 25%. Moving to profits. Profit amounted to EUR 311 million, it's a 22% decrease versus last year. And if I look at the conversion from EBITDA to profit, we had higher amortization of intangible in the first half of '23. This is linked to the Zogenix acquisition. We had lower other expenses versus '22, as the first half last year was impacted by Zogenix acquisition. Financial expenses were higher at EUR 79 million, not just because of higher net debt linked to the Zogenix acquisition and higher interest rates, but also due to a nonrecurring positive currency impact in '22. We had EUR 25 million positive, while the nonrecurring currency impact this first half is a EUR 9 million negative. An effective tax rate ended up at 22%. That compares to 17% in H1 last year, and the increase in tax rate is explained by the expected drop in profit before tax compared to last year, where the tax charge remains stable and a one-off reversal of a deferred tax liability in 2022. And finally, the core EPS was EUR 2.63 per share. This is a decrease of 16% versus last year. So in summary, we delivered healthy financial results for the first half. We see the inflection point in the net sales performance, leaving the loss of exclusivity impact behind us. And we were able to decrease OpEx and to significantly improve other operating income, both with the increase of EVENITY contribution and the sale of products. So all of that puts us in a comfortable position to invest behind our ongoing and upcoming launches in the second half of the year. So that takes me to the next page, where we informed the '23 guidance. Revenue is expected in the range of EUR 5.15 million to EUR 5.35 billion, adjusted EBITDA margin in the range of 22.5% to 23.5% of revenue, core EPS in the range of EUR 3.40 to EUR 3.80 per share. We expect a different top line trajectory in the second half versus the first half as the loss of exclusivity impact is expected to diminish significantly in the second half, and we expect also higher contribution from the launches. On the other side, the EBITDA margin is expected at a significantly lower level in H2 versus H1. This was already the case in previous years. But beyond that, we will increase in the second half our marketing and sales investments to support the launches of BIMZELX, of RYSTIGGO of zilucoplan. And we expect as well to see higher R&D in H2 versus H1 with the progress of our clinical program. And last, the benefit of the sale of the 5 established brands product, which was, as indicated in February, reflected in the guidance will not be repeated in the second half. We confirm our peak sales guidance for Briviact and FINTEPLA, knowing that CIMZIA peak sales of more than EUR 2 billion was already achieved last year, and our guidance of 2025 is unchanged. And as you know, it's largely a function of BIMZELX as well as other growth drivers such as Briviact, FINTEPLA, EVENITY and the future launches of RYSTIGGO and zilucoplan, which will all contribute to the top line growth as well as margin expansion. So with this, let me thank you and hand over back to Jean-Christophe.

Thank you, Sandrine. And I just would like to close this first part of the call before opening the Q&A with this headline that I would like you to keep in your mind that we have a strong growth ahead. Next slide, please. As we have reached an inflection point. And so we are currently, of course, managing the last part of the loss of exclusivity. We are delivering on our pipeline. We are launching a new product that can help us to bring new treatment options for new patient populations. And with this, we will continue to create value for shareholders and all stakeholders now and in the future. So this is -- with this inflection point that I would like to close the first part of the call, and now I would like to thank you for your attention and open the floor to questions. Thank you.

Thank you, Jean-Christophe. Thank you, Sandrine.

So we will now start the Q&A session. [Operator Instructions] So let's go to the questions. The first on the line is Jeroen Van den Bossche from KBC. And while we are unmuting him, the second on the line will be Stacy Ku from Cowen.

I'll just have one question so to give some time. One of the things that I'm personally struggling with is looking at RYSTIGGO and zilucoplan with terms of positioning. Will you -- when will you first of all, review the pricing on RYSTIGGO? And then could you present us with the physicians you, why they would choose either/or RYSTIGGO or zilucoplan over [ rozanolixizumab ] today?

First question on pricing. So pricing, we have published for the U.S. specifically. The current price is $6,050 per vial. What we need to really be aware of with RYSTIGGO is that it is a cyclical therapy. So dependent upon the patient's weight as well as the number of cycles the patient needs, the total cost per year is quite variable. And at that price point, from a WAC perspective, it is at parity with Vyvgart. And now in terms of copositioning, we have such an advantage in terms of bringing 2 products almost simultaneously to market. With RYSTIGGO, we're looking at patients that often what's the direct support of a health care provider, allowing for that in-office administration. Additionally, with RYSTIGGO, we have a broader population given the novel and first and only indication for MuSK-positive patients. Next, if you look at zilucoplan [ planning ] approval, it will be the first and only self-administration. This will allows a lot of flexibility for physicians. Patients want individualized choices. If you look at young women, which are predominantly a MuSK patient, they want flexibility in terms of how they're treated. If you look at older males, another part of our population, they may want to interact with their health care provider and have an infusion. Having this individualized flexibility for in-office or at-home allows us to meet the individual needs of patients with generalized myasthenia gravis.

Thank you. So the next question is coming from Stacy Ku from Cowen. And thereafter, I will read the question from Peter Verdult. Stacy, please go ahead.

Hopefully, you guys can hear me okay.

Very well.

Wonderful. So the first question is regarding BIMZELX, just wanted to know if there's any update on the FDA or interactions. Are there any remaining gating items for the Q3 FDA action date? And then the second question is a follow-up on RYSTIGGO. So just given the successful Argenx launch of Vyvgart, can you set expectations for the early launch and provide more details on the potential reimbursement dynamics? Just help us set some expectations given ongoing payer discussions and potential timing of favorable policies.

Yes. Stacy, thanks very much for the question on BIMZELX and the ongoing review by FDA. So I'm not in a position to give you an update. We have confirmed to you that the active review is ongoing. You know our policy that we are not commenting with any further detail on that. I ask for your understanding. You know that we have updated you when things changed a few weeks ago, we'll do so. But at this stage, we expect action by the FDA during the third quarter. Thank you.

And Stacy, happy to answer the second component in terms of reimbursement dynamics. So we expect majority of U.S. payers to continue to update their policies throughout now and the end of the year. We're expecting to have similar acetycholine antibody positive policies to Vyvgart, and then possibly just a rider for MuSK indications, but actively engaging with our regional level payers.

Okay. Thank you so much, Kim. So I'm now asking a question for Peter Verdult from Citi. He had to jump to another call. The first one seems to be for Sandrine. The first half EBITDA margin below 23% if we adjust for the considerable product disposal gain and VIMPAT Japan milestone. As we look ballpark into 2024, how should we think about cost trends? Will R&D and G&A continue to be directionally down with selling and marketing spend rising? He wants to get a handle on whether total OpEx will go up or stay flattish?

Shall I -- do you have other question -- answer -- So I answer, yes?

No, go ahead. Go ahead.

Okay. Well, thanks, Peter, for the questions. I mean as you know, Peter, we only give the guidance on '24 in February next year. But overall, '24 will be a year of strong investments. We will support the launches. And at the same time, we will benefit from the growth of our portfolio. So we'll come back on that more directly the trends when we are in February, but that's the overall framework.

Thank you, Sandrine. And Kim, the next question is from Peter. It's also for you. Any early feedback you can share on the RYSTIGGO launch and how you can use the fatigue data given it was not included in the label? This is what he's saying. Kim?

Excellent. So early indicators. We are actively having patients enroll in our patient services program, which is under the ONWARD branding label. In addition, fingers crossed, we will hopefully have our first patient infused today. In terms of the MGS-PRO, really amazing scale. It's a patient-reported outcome that was created with patients and for patients. If you look at the types of information that is measured in there, well, not in the USPI, it is consistent with our primary and secondary endpoints.

Thank you. So the next question is coming from Graham Parry from Bank of America, and he will be followed thereafter by Florent Cespedes from Societe Generale. Graham, over to you. Graham?

Can you hear me now?

Yes, I can hear you now.

Great. Yes. So on for Peter's question actually. Just I know you don't want to give 2024 core guidance, but you do have 2025 guidance. So I guess what we're trying to establish is that obviously if you have a heavy launch investment year in 2020 for the shape of the margin recovery of about 700 to 800 basis points between 2023 and 2025. Is that going to be more back end loaded into 2025? Or do you still expect to see some margin expansion in 2024? Does the 2025 guidance assume any milestone payments or divestment gains similar to those that you've been seeing this year? And then a question for Iris. Just the Argenx CIDP results make you reconsider investing in CIPD Phase III for Zygo given the apparent success of their studies there?

So let me start with '25. And Graham, I think we've always said that the margin expansion in '25 would be more back-end loaded. So in that sense, that's really the effect of the operating leverage benefiting from the growth of revenue and absorbing, of course, then seeing the ratio of marketing and sales and R&D decreasing as a percentage of revenue. And then to your question whether we've built in this guidance on milestones, I mean, we -- I think what I can say is that this type of milestones are typical of our industry. We have them almost every year. So I would consider this as part of our business, but we have not baked in the guidance in '25 anything related to that.

And Graham, regarding our strategy and decision-making for CIDP as an indication. As you know, we have decided in 2021 that we would not pursue CIDP with rozanolixizumab. The decision was driven by the clear understanding that CIDP has a very heterogeneous disease pathology. We know that there is cellular immunity, T cells, B cells, macrophages involved, we know that autoantibodies play a role in certain patients, but they have only been identified in about 10% of the CIDP population as the cause underlying disease biology. And with this very heterogeneous picture, we have decided to focus on autoantibody-mediated diseases, where autoantibodies are known or whether promising evidence that they are the underlying reasons. That's why we are currently focusing on diseases like MOGAD, autoimmune disease like autoimmune encephalitis and as of recently, fibromyalgia. And the [ ATTIRE ] study that you quote does not change our assessment of the CIDP disease biology because you see very clearly that you need a highly enriched, highly selective study design that focuses on responders to therapy to have a successful study outcome. So no reason to change our strategy. Thank you.

Thank you, Iris. So the next question is coming from Florent Cespedes, Societe Generale. And he will be followed by Charles Pitman from Barclays. Florent, please go ahead.

Two quick ones. First on BIMZELX following the approvals in Europe for the air indication, PsA and axSpA, should we see kind of an inflection point in the second half of the year on sales for these products, knowing that on the IL17 air indications are the main drivers? And if you could give us some comments on the recent launch? And second question on inorganic growth. Are you still looking to acquire products or companies to strengthen your portfolio? Or are you fully focused on product launches? If you could give us some color on that point, would be great, notably in terms of areas and eventually in terms of size of the potential products and companies that you could look for to strengthen the portfolio?

Yes. Florent, thank you very much for your question. So indeed, BIMZELX is now approved in the European Union for PsA and for axSpA. And as you know, countries open up for those launches one by one, right? So currently, we're launching in Germany, and we've seen a nice uptick in our sales starting second half of June when the product became commercially available. But of course, it is one country amongst the whole of Europe now where we have 85% access in psoriasis. So I would say that at the level of a region, it will support accelerated growth, but I think the full impact will really be seen in next year and maybe even in the second half of next year, when all the countries that take longer for reimbursing new indications will come online. But clearly, the results in psoriatic arthritis in axSpa are very positive. The differentiation is well understood. And the early signs of the launch in Germany are very promising and really in line with what we're expecting. And of course, you know that UCB is established in rheumatology since a long time. So we really are able to build on our existing footprint and reputation.