ALK-Abello A/S

CSE:ALK B

Earnings Call Transcript 2020-Q1

[Per Plotnikof]

Hello, everyone, and welcome to this presentation of ALK's Q1 results and outlook for 2020.Please turn to Slide 2 for today's presenters and our agenda. My name is Per Plotnikof, I'm Head of Investor Relations. And with me today are CEO, Carsten Hellmann; and CFO, Søren Jelert.Today's presentation is divided into 3 sections. One, on Q1 performance and an update on the impact of COVID-19, a status report on our four strategic priorities and the full year outlook. And we will end today's call with the customary Q&A session as usual.And with these opening remarks, I'll hand you over to CEO, Carsten Hellmann and Slide #3. Please go ahead, Carsten.

[Carsten Hellmann, President, CEO & Member of Management Board]

Thanks, Per, and thank you all for joining this call. First, let me give you the highlights. In this very difficult corona environment, I'm glad to report that ALK's performance in Q1 was better than expected as we continue to see the rewards of the strategic investments we've been making since December 2017. Moreover, despite the challenges and uncertainties, we are able to maintain our full year outlook. Q1 was strong and outperformed expectations with revenue growth of 10%, fueled by sales in Europe and international markets. We continued to see solid performances from ACARIZAX and ITULAZAX, and global tablet revenue was up 38%. Tablets are now the single largest product group for ALK as we have been working on so long.Earnings were also better than anticipated. EBITDA was up 49% to DKK 198 million on higher sales and operational leverage in commercial operations. Some activities were constrained by COVID-19, which I'll talk about later, meaning that capacity costs were lower than expected. We are maintaining our full year outlook, partly because of the strong Q1, but also on the assumption that certain things will change in the second half of the year. The key growth driver is still the tablet portfolio, and our outlook for the year here is unchanged with tablet sales growth exceeding 30%.Before I go on, let me take a moment to explain how we currently see next half, H2, panning out. We anticipate that allergy patients will once again become able to visit health care professionals without significant limitations and that our sales force are able to further support health care professionals directly more than they do today with digital. It does not mean that the whole society will have to be returned to the way things were before the pandemic. So what does that look like in reality? It means that patients who normally receive their treatment in a clinical setting, such as those receiving allergy shots, can return to treatment. It means that patients who do not have access to online prescription renewals can visit their doctors to get a new prescription. It means that ALK can begin converting patient engagement into patient mobilization in time for the H2 high season, when the majority of new patients typically begin treatment. And it also means that our reps can further build the understanding and adoption of our products in a more normal way.Before we go into more details on Q1, let me just take a moment to explain how COVID-19 is affecting us right now and what we think it will mean for Q2. Please return to Slide 4. As the [ subhead assess, ] the actual COVID-19 impact was limited in Q1, but we're now seeing an effect which we expect will result in subdued growth in the Q2 low season. As you would expect, the lockdowns we have seen around the world, together with the pressure on health care systems, mean that patients visits to doctors have been significantly reduced. This is having the greatest effect on things that typically take place at the doctor's clinic, such as new patient initiations and skid treatment. And in markets, the physician administrated treatments are most popular, such as in the U.S. But we expect the home-based treatment, such that the tablets and drops would be resilient to the situation, there might also be an effect on a few markets where patients cannot renew their prescriptions online or need to visit a doctor in person, hence potentially affecting adherence. We do expect that we'll be able to recover most lost sales momentum later in the year, assuming that the patients once again become able to visit the doctors and in reality by the end of Q3. And I'll just say again, it doesn't mean that the whole society needs to return to normal, just in the way that our particular markets operate, and we believe this is to be realistic. It's also worth adding that allergy doctors is -- will likely be keen to get back to helping patients keeping their allergy and asthma under control as soon as possible to, especially those in markets where the practices are essentially private businesses such as in the U.S. Throughout this situation at ALK, our primary focus has been on maintaining supply of medicines for doctors and their patients, which also safeguard -- while also safeguarding our employees.To the right of this slide, you will see a map showing the location of our manufacturing operations and note that we have facilities in 3 of the countries that have been hard hit by COVID-19, France, Spain and the U.S. However, thanks to the contingency measures we have put in place, our collaboration with authorities and the great efforts of our employees, I can report that there have been no major interruptions to our production. All factories are up and running, supply has not been materially affected and our inventories remain robust.In R&D, we are facing likely delays to our clinical development program. Although those already involved in trials are continuing to receive treatments wherever possible, the recruitment of new patients have been paused. At the moment, we think it will be possible to make up most lost time later, but the longer the coronavirus continues, the less likely this becomes.With that, let's move to -- move on to look at the Q1 sales breakdown across our regions on Slide 5. For that, I'll hand over to Søren.

[Søren Jelert]

Thanks, Carsten. Let me share a few headlines from first quarter. As you can see, European revenue was up 11%, and this was clearly better than expected. Growth was fueled by ACARIZAX and encouraging launch of ITULAZAX and market share gains with Jext. Growth was recorded in most European markets, especially in the ones where we have launched ITULAZAX. Germany, where we made significant market share gains and the Nordics clearly stood out. In France, sales were unchanged, reflecting the transition of sales from legacy products to tablets. There was anecdotal evidence of a limited amount of product stockpiling by wholesalers, pharmacies and patients in the final weeks of the quarter, likely due to concerns over the COVID-19 situation. We also saw that some practices are switching patients from legacy products to tablets. Since the tablets can be self-administered at home and do not require repeat visits to allergy clinics.In North America, sales were down 4% organically. Sales were lower-than-expected as we are still seeing fluctuating purchasing patterns for non energy-related life science products. And we had a temporary pause in the release of [ Pre-Pen ] due to supplier issues. International markets, however, saw a 43% growth in first quarter with continued strong sales of tablets in Torii in Japan. In China, revenue was down a few million DKK due to the earlier -- much earlier impact of COVID-19 in that market. All in all, there was good progress across our European and international markets.Now let's take a closer look at the 3 product categories on Slide 6. We have already highlighted the excellent sales growth from tablets, 38% in first quarter. That's fully in line with our full year growth outlook of 30% or more. Combined, SCIT and SLIT drops' sales were down 2% on the accelerated phase out of legacy products. Continuing SCIT sales grew in Europe with good performance from venom products and a positive effect from products upgrades. SCIT growth was also recorded in the U.S., while SLIT-drops sales were down as expected due to the portfolio pruning and new patient initiations favoring tablets over drops. Sales of other products were down 2% in the quarter. Europe saw a 77% surge in sales of Jext, but this was offset by the negative trend of sales on other products in North America.Now let's turn to the full year financial on Slide 7. ALK's financial robustness improved further in first quarter. Gross profit was DKK 585 million and yielded a gross margin of 61%, which was unchanged from last year. This reflected higher sales, but also changes in the mix and significant investments in supply chain robustness as well as the implementation of our product and site strategy. Capacity costs decreased in local currencies to DKK 448 million. R&D expenses were up 14%, reflecting a step-up in clinical development activities. However, this was lower-than-planned due to the COVID-19 restricting patient recruitment and delayed clinical fees. Sales and marketing expenses decreased by 6%, reflecting both operational leverage and COVID-19 impact on activity levels. EBITDA was up by 49% to DKK 198 million and significantly exceeded expectations, reflecting both higher sales and lower capacity costs as mentioned. We estimate a net positive effect on EBITDA of DKK 25 million due to the [indiscernible] from delayed activities and costs.Finally, free cash flow of plus DKK 21 million was better than expected, mainly influenced by the higher earnings. This leaves us with a cash reserve of more than DKK 900 million, almost unchanged from when we closed 2019.With this, I'll hand you over to Carsten for an update on our strategic priorities.

[Carsten Hellmann, President, CEO & Member of Management Board]

Thank you, Søren. Just a reminder here that we are now in the third year of the 3-year strategic transformation of ALK. Progress continues to be better than expected, and now we are a more resilient, disciplined and future-oriented company. It's beyond any doubt that the improvement to our business platform have enabled us to better withstand the current situation, while the investment in our digital platforms have established a structural advantage, both now and in the future. A quick update on the progress on each 1 of the 4 strategic focus areas is starting on Slide 9, so please return to that. Just focus on the left side on the slide, which outlines the first strategic focus area, succeed in North America. You can see that the full -- the original full year growth target of approximately 10% is now challenged by COVID-19. Q1 tablet sales in North America grew by 22%, while the bulk allergen sales were up 7%. However, overall sales in the region were held back by the issues with the other products and [ PRE-PEN ] as Søren just mentioned earlier. For the tablets, we continue to work on building general acceptance by growing both the prescriber base and the prescription depth of ODACTRA. Progress is gradual, but the numbers of prescribers and prescriptions remain on an upward trajectory with U.S. tablet sales volumes up 68% for the quarter and ODACTRA sales up 92%. Although it's worth noting that momentum has been slowed slightly by COVID-19, and that revenue growth is still constrained by market building tactics, such as discounts and coupons. Sales in Canada are building up well. Our strategy in the region will take another step forward in Q2 with the launch of our digital patient platform, CLA, in the U.S.A., but I'll talk more about that on the next slide.Let's now look at the second strategic focus on the right slide, which is complete and commercialize the tablet portfolio for all relevant agencies. As mentioned, global tablet sales were up 38% with ACARIZAX and ITULAZAX as the main contributors. Our analysis shows that growth is particularly strong in markets where ITULAZAX is now available, adding evidence to a long-standing belief that offering a complete tablet portfolio can have a benefit for previously launched tablet products. Further, ITULAZAX launches are planned for second half of the year, and these launches are all remaining on track, including for Canada, where the product received a regulatory approval early Q2 and will be branded ITULATEK, which is different from ITULAZAX. In addition, there's just a reminder here that COVID-19 situation is currently affecting our ability to recruit patients for clinical trials.Let's now turn to the other two areas of strategic focus on Slide 10. The third priority on the left here is patient engagement and adjacent businesses. Drawing on our experience from the two pilot markets, Germany and the U.K., our goal this year is to launch our digital platform in several new markets. Q1 saw a launch in Denmark, and final preparations were also made for the Q2 launches in U.S.A. and Slovakia, which both took place in April. Metrics in this area are running according to plan. For 2020, we'll see a full year target of establishing new two-way consumer relationships and mobilizing 100,000 people to take action on their allergy. For Q1 alone, we registered 25,000 actions taken. This is not the same as downloads. This is consumer relationships that resulted in an action taken by an allergy person. For example, searching or visiting an allergy doctor. In light of the current situation, we'll prioritize interactions with the most suitable candidates for AIT treatment and reengage with them ahead of the peak season for the treatmentizations, which is later this year.On the right of the slide is the fourth and final strategic focus area, which is to optimize and reallocate. Under this umbrella, we continue to phase out older, less competitive legacy products in favor of documented registered products such as the tablet with a consequent benefit to manufacturing efficiency and robustness. In addition, we continue to make the necessary investments in core legacy products and manufacturing and product supply. One example of how improved efficiency and robustness has translated into sales is Jext, which continues to benefit from competitor supply challenges in the adrenaline auto-injector market. While it never -- it's never easy to scale up production of pharmaceutical products quickly, we have increased capacity as much as possible, and we continue to work hard to meet market demand. As a result, Jext sales grew 77% in Q1 in Europe.Okay. Let's now move on to the 2020 outlook with Søren on Slide 11.

[Søren Jelert]

Thanks, Carsten. It's important to be clear that COVID-19 will have an impact on ALK's performance in the second quarter and that we are now expecting to see subdued growth in second quarter, especially for SCIT. However, at the moment, we are still expecting double-digit sales growth from tablets in the quarter, although we expect this to be at a lower level than in the other 3 quarters. Revenue growth is consequently expected to be strongest in the second half of the year, reflecting the anticipated timing I mentioned earlier and when we expect to ship tablets to Torii in Japan. This means that for the full year, we still expect revenue to grow organically by 8% to 12%, net of product discontinuations, which have reduced this range by approximately 4 percentage points. Meanwhile, full year tablet sales are still expected to exceed 30%. All of this equates to a full year revenue of between DKK 1.5 billion and -- sorry, DKK 3.5 billion and DKK 3.65 billion, which includes both opportunities and a number of uncertainties. We find it prudent to maintain the relatively broad range of 8% to 12% growth to reflect the uncertainties introduced by COVID-19. First, the scale of the impact on sales and activities in quarter 2; second, the timing and the extent of patients' ability to visit their doctors again in the second half and by this, we mean recovery by the end of Q3 and new patient initiations can begin on schedule and SCIT patients can resume treatments at the doctor's office. And third, our ability to recover lost sales momentum and to capitalize on the strong underlying demand for the tablet portfolio in particular. For all other revenue assumptions, please refer back to the annual report. EBITDA is still projected to be between DKK 200 million and DKK 300 million. We continue to see the gross margin roughly on par with last year, and we continue to see higher R&D expenses to fund the clinical trials. But the increase in R&D costs will be lower than originally anticipated due to the delays caused by COVID-19. However, we may reallocate postponed R&D cost to other initiatives to mitigate the impact of COVID-19. Therefore, we are maintaining the EBITDA outlook of DKK 200 million to DKK 300 million.Free cash flow is still expected at around minus DKK 300 million, reflecting subdued earnings due to the investments in the transformation of CapEx of DKK 250 million to DKK 300 million. Free cash flow is also affected by the changes in working capital, including continued buildup of inventories and one-off repayments of rebates. In December of '17, we said that a 3-year transformation of ALK would see negative cash flow of approximately DKK 1 billion. The guidance for 2020 stated and still states that this will be significantly better and be down now to approximately DKK 600 million.With this, I'll hand you back to Per and the Q&A session on Slide 12.

[Per Plotnikof]

Thank you, Søren, and thank you, Carsten. And this concludes the main part of our presentation, and we will now open up for the question-and-answer session. Operator, please go ahead.

[Operator]

[Operator Instructions] And our first question comes from the line of Michael Novod from Nordea Markets.

[Michael Novod]

It's Michael Novod from Nordea Markets. So a couple of questions. First, to the Torii royalty because we're seeing these extreme growth rates at Torii in Japan. Just to get a feeling for when they actually book the sales? And then if there's a possible delay to the sales for you guys? Of course, it does matter over the long run, but of course, it could indicate in the shorter term, there's going to be even more traction in your Japanese royalties you're getting from Torii? And then secondly, on tablet growth. I acknowledge you're saying that it's going to be lower, of course, probably in the second quarter in general, but it seems though that you have sort of a different step change. You've guided around 30% when you look back at your strategic aspirations. Could we assume that it's probably closer to 35% or 40% in the next couple of years, more sort of a conceptual thinking around tablets? And then the last thing around the cost levels for 2020. You're saying that R&D cost -- it seems like you're pretty certain, it's going to be lower. And you're saying it could be sort of allocated to other activities. What kind of other activities? It seems like it's just a very conservative guidance.

[Carsten Hellmann, President, CEO & Member of Management Board]

This is Carsten. Thank you, Michael. The Torii royalty stream, I'll to give that to Søren in a second. For the tablet growth, I mean, we are always working to see if we can do even better on a daily basis. For 2020, we maintained the 30%. I think we have exceeded that the last couple of years, and you've also mentioned that Torii doing very well. There's a lot of potential in the tablets globally. And there's a lot of potential also in the U.S. So of course, we are working very hard to see if we can exceed the 30%, but I'm not promising that yet. If you look at the cost, it is about DKK 25 million of the profit we took in -- extra in Q1 that related to a postponement of R&D costs. And it's not really to other activities. It's pretty much to -- can we, for example, do [indiscernible] double down on the trial in flying Chinese people to Austria because that opens up to catch up some time and do some things in recruitment and so forth that we reserve that for. Or it could be that we do see actually that the digital platforms, and the way we're operating right now with the tablets and look at our smaller local competitors that there might be some chances to really double down in some activities in different markets to gain market shares later this year. So we're not only looking at ourselves as a victim to COVID because Q2 is certainly going to give challenges in the second quarter, but totality of the year, we actually believe that we will come through it if we keep our arms down and now focus on doing the right thing. So no, it's not like we're just going to spend the money crazy. We would definitely try to see if we catch up as much as possible on the R&D. And we are also reserving some money to double down on sales and marketing if we see some opportunistic opportunities out there. And then if you want to comment on the Torii royalty streams, Søren?

[Søren Jelert]

Yes. Thank you for the question, Michael. It's something that, of course, we have discussed also in prior conferences. And it is, of course, correct that it is part of the reason why something -- sometimes our tablet growth rates fluctuates. This is about that it's split between an in-market sales compensation and then a shipment of products, royalties to Torii. So you can say -- and the biggest part of -- proportion of that is actually the shipment. And the shipment doesn't necessarily just come regular month-on-month, but could come in a quarter or a bit later a quarter sometimes. And then -- and that would actually fluctuate our tablet sales and not whereas the in-market sales is a little bit easier to predict because it comes on a continuous basis, as you will also be able to follow Torii's sales performance, which, by the way, was very good in first quarter. So yes, we are depending on Torii's good performance. And yes, we will and are also expecting to see fluctuations. And we have said earlier that we expect the highest number of shipments to come in the second part of the year and as such, you could also read here that, that could partly impact the growth of tablets in the second quarter. I hope that's sufficient information.

[Operator]

Our next question comes from the line of Peter Sehested from Handelsbanken.

[Peter Sehested, Research Analyst]

It's Peter from Handelsbanken. I have a couple. In terms of the guidance and cost flexibility that you just talked to Michael about, is it a fair assumption to say that, let's say, the certainty is higher on your EBITDA guidance than revenue guidance as you do have some flexibility to potentially compensate for lower sales as we just talked about Q1 in relation to COVID-19? And also in relation to COVID-19, sort of find these comments regarding the commercial -- sorry, the competitive situation, you might take advantage of that? Are we sort of seeing some competitors being particularly squeezed by the current situation? And secondly, you also mentioned some physicians are using tablets instead of legacy products. Should we also expect, let's say, a stronger trend towards tablet migration, potentially also in the U.S.? And then, yes, in terms of ITULAZAX and sort of the sales development that we saw in tablets in Q1, is it fair to say that the underlying trends were stable with GRAZAX and ACARIZAX, but it's sort of ITULAZAX that is spicing up the curve there?

[Carsten Hellmann, President, CEO & Member of Management Board]

This is Carsten. If you take the certainty about EBITDA versus sales, I'll give that to Søren in a second. Personally, I don't trade-off sales and so forth. We want to hit all targets, and I'm sure we will do that. If you look at the competitive landscape, it's a little bit early days, but we do actually hear a lot from our local markets about a trend towards the tablets, which were the only one we do have. We also see a lot of discussions about how can we avoid in a situation where I really have to close everything down in my clinic, where tablets also will play a great role. And -- but you then talk about the tablets per se, no, I don't think -- would say that the level out of GRAZAX and ACARIZAX per se is the situation. It's true that ITULAZAX is really a rocket that are going right now and is really successful, both in the Nordics and in Germany, but we do actually see, as we said in the script here that we see a positive effect on all the other tablets as well when we see a momentum driver as the tree tablet. Apparently, the patient feedback is very good on the tree tablet, and we expect a lot of momentum from that. That's what we hear out there. So what I'm saying about the competitive landscape is that we are monitoring it very, very carefully because I cannot see that there wouldn't be a lot of companies who have been closed down and do not have the variety of businesses we have to compensate for where you are down and up, that they'll not be struggling. And it's not because we want to buy them, we pretty much just want to outcompete them, and we will focus very much on that one. So a lot of the initiatives we have been doing in the last 1.5 years on this effort is continuing, even though there's a COVID, and we are very much helped by this situation in terms of the tablet. There's one small point we haven't mentioned yet when you now stay with the tablet, that is, remember, what we're doing now is respiratory medicine, targeting people with respiratory allergies and some sort of asthma as well. Those are actually the people that are significantly affected if they get a COVID -- coronavirus. So that's also one of the reasons why we're able to get the authorities to let us keep our factories opening also in France and Madrid and so forth, who are pretty much epicenters of the virus. So there's also this awareness that are increasing about respiratory medicine to maintaining allergies and asthma symptoms and so forth that are really much enforced via the coronavirus right now, which we also to see a trend towards. So all in all, I think we are on a pretty good trajectory. I mean, we should -- we keep our arms down and our heads down, and we stay focused on delivering. But -- and of course, it's going to be very turbulent and it’s not going to be very linear, what we're going to do in 2020. But I think we're pretty much on the good side of things right now and keep you informed if that changes, but I don't think so. So with that about the mix between sales and profit, Søren, can you -- will you allude on that one?

[Søren Jelert]

Yes, sure can. It's clear that where COVID -- to some extent, of course, for many companies cast more -- lower insight into the top line, the revenue, it's clear that it has some holdback measures on the cost burn. And we saw that also in quarter 1 as we also talked to just a while ago. And we are also expecting that we will see a lower cost burn here in quarter 2 due to COVID. When it comes to the capacity cost burn we will have in quarter 1, can you then just multiply that by 4? No, you cannot. I think when we say that we are seeing reductions in R&D costs, it also means that we will see -- still see a gradual step up over the quarter to come although they are delated compared to the original timing of the clinical trials. So yes, we will see a higher cost burn than what we see in quarter 1 in the subsequent quarters. But to your straight question, do we have a better foundation on the EBITDA due to the cost burn? The answer would be, yes. And yes, we are more in control of the EBITDA than the top line. So in that sense, yes, your -- it's a fair assumption.

[Peter Sehested, Research Analyst]

Okay. Just wanted to -- if I can just get in a follow-up. Are we actually seeing some, let's say, underlying efficiency improvements in the sales and distribution line? So I mean, on all like-for-like basis, although I mean it might be a bit difficult in these times, but are you seeing an underlying improvement in efficiency in your [ SMP ] line expected to sale?

[Carsten Hellmann, President, CEO & Member of Management Board]

Peter, it's Søren, answering that question. As you will remember, it's part of our prerequisites for hitting the long-term aspiration of the 25% EBIT longer-term that we have said that this is part of the puzzle we have to solve. And I think no doubt that this quarter 1 is the first sort of thing to take home is also that we are starting to see this improved operational efficiency, not only in production, but actually also in sales and marketing line. And we expect that to continue, and it is actually part of the already communicated strategy. That is exactly what we expect to see and that we are relying on. So for us, of course, it's nice to see that it's not only COVID that hits this improvement game, but actually also our normal underlying spend in sales and marketing that paves very well for delivering on the longer-term aspiration on sales and marketing efficiencies.

[Operator]

[Operator Instructions] And your next question comes from the line of Benjamin Silverstone from ABG.

[Benjamin Silverstone, Research Analyst]

And firstly, congratulations on the strong results. My first question is related to the top line growth. As ALK began to see a sign of the coronavirus restricting the allergy patient's ability to get to the clinics at the end of the Q1 and expect an impact in Q2 as well, is there something here that we can sort of quantify a bit or elaborate on? For example, the sales growth split for January, February and March or an update on the April progress? My second question is related to the fact that SCIT treatments are likely to be more impacted by COVID-19 restrictions, especially in the U.S., as you mentioned. I'm sorry, you also stated in the report here that this represent a possible alternative with the tablets. Could you elaborate on how this transaction would actually work in practice, and how, if so, your planned portfolio pruning is potentially impacted by this as well? My third question is related to the financial -- net financials and on whether you see Q1 as a good indicator for the coming quarters.

[Carsten Hellmann, President, CEO & Member of Management Board]

Okay. Thank you, Benjamin. Just to put things in perspective. If you think about Q2 for ALK, it's a small quarter normally. And if you look at in absolute terms, if you -- we were supposed to have 10% growth in Q2, it will be like EUR 10 million or DKK 75 million. So what we're looking at here is the SCIT business in the U.S. where people are not getting the injections right now from the allergists and some adherence in the countries where you cannot renew the scripts online, a little bit of adherence initiations on a particular ACARIZAX here. So that's the magnitude we're talking about. Will that happen in Q2? We say, yes, we expect to that it would be a fact that there will be patients that are not visiting the clinics to get that follow-up short, and that will affect our SCIT business in the U.S. That talks to the tablets, both in the U.S. and other places, where doctors try to be creative, there's one thing. So how can we execute the patients in and give them other medications that doesn't require a waiting and supply chain in my clinic to actually make money. So that's one thing. The second thing is that it also opens up advocacy for the tablets in many places because people are thinking about how can we be avoiding being so dependent on one area and not another area going forward. Then you talked about pruning and SCIT U.S. Remember, that we're already now pruning in 2020, what is equivalent to 4 percentage point growth. So just be mindful of that. So like-for-like, we are actually growing 14% organically in Q1. So I don't think that there's any short-term effects on that one that you should expect. But I think, though, that there's so much growth potential in many areas on top of the SCIT, that we are just pursuing that anyway. And it doesn't is have to be one-to-one pruning on the SCIT products as well. So we think we can add it on. Then you had a question about, yes I think actually that covered it.

[Søren Jelert]

I think you had a question on net finances, right?

[Carsten Hellmann, President, CEO & Member of Management Board]

That's right, yes.

[Søren Jelert]

And I think here, the first quarter is somewhat abnormal with the exchange rate impacts. I think we are mostly here sort of Swedish and Norwegian krone has seen sort of the impact. But we do not anticipate that this continues. So it is -- I wouldn't call it one-off because I can never predict where currencies go. But it's not what we planned with at least.

[Operator]

Our next question comes from the line of Thomas Bowers from Danske Bank.

[Thomas Schultz Bowers, Analyst]

It's Thomas from Danske. Just a couple of questions remaining here. So just if we -- just look at the clinical -- on the clinical trials should be ongoing, of course. Do you have any concerns of patient dropouts? Or do you feel quite comfortable with the current compliance level? And then secondly, do you have any idea on when you actually can restart the China study in Austria? And just on the R&D cost level, I know it's maybe a little bit premature, but the cost savings you have here in '20 and assuming you could restart the trials in second half. Should we expect some sort of spillover into '21 and also '22 or will the -- this most likely be only a '21 impact. And then just on -- well, sort of a follow-up here. But on the tablet growth, you see in Q1, would you say you had an impact on sort of COVID-19 holding? So is there any of this that also could negatively impact the Q2 numbers? Or is this primarily still to be related? And then just last question, just on Jext. Should we expect some sort of capacity increase from you in the second half of '20? Or is this going to be sort of a stable situation, still selling everything you're also able to produce [ sewing up ] things here?

[Carsten Hellmann, President, CEO & Member of Management Board]

Okay. I'll start and then I'll hand over to Søren. If you think about patients and drop out, if you think about normal treatments and people in tablets treatment, we don't really see any dropout. We haven't seen that. What I'm saying is in Q2. I don't know if in some countries we will see people not renewing their scripts, but it is limited. We have been fortunate to work with the different authorities on our clinical trials. So for example, we are able to supply the drugs that they're in -- they're using in their trials at home so they don't have to go to a clinical center to get their drugs and so forth. So we don't really see any dropout of the clinical trials we already recruited to. So I think we are in pretty good shape there. Regarding China, remember that the China setup was that we flew Chinese subjects to Austria to do a chamber study. I don't know when it's opening up. Our own expectations is that we cannot say we cannot catch up and actually be back on the time line, but are we looking into a 3, 4-month total delay, give and take, most likely what we'll talk about. When that would be restarted, when Chinese people are allowed to fly to Austria again, I think your guess is as good as mine but that's what we're waiting but what we can do, we can probably do some measures and initiatives that make sure that we can accelerate the planning we had so far to catch up a lot. We don't have -- we have not seen any inventory buildup or hoarding of the tablets relating to the COVID-19. That's not what we see. So I think that we're in pretty good state now. We just have to accept that reaching a DKK 75 million in Q2, given that situation we're in right now, where people are not in all over the world, and in particular U.S. visiting the allergy doctors. In particular, the SCIT business is going to be hurt in Q2. But to an extent that we still mean we can catch up most of it to meet the guidance. And that's pretty much what we're looking at. Jext capacity, I mean, we're increasing capacity as much as we can all the time. It's not as easy as you would think. It's not just installing a new machine because we also have sub suppliers and stuff like that. But I think we are -- I don't think we can double or triple because of that, but we can still grow.

[Søren Jelert]

And then to the R&D cost question, of course, it depends very much on how much lower it will go. But if it goes to the sort of the DKK 50 million or below, then I think likely it's going to be a '21 spending. If it goes to the DKK 100 million, it's bigger underlying delays and then it will spill more into more years, '21 and '22 I would say. Then you could argue if some of '22 is pushed into '23, I think that's about the modeling you can do currently speaking. So if it's low, I think it's probably going to be catched up and then we'll hold the timeline. It's higher savings you will see timeline delays and then it'll be over more years. I think it's -- that's my estimate of it at least.

[Operator]

And we have a follow up question from Peter Sehested from Handelsbanken.

[Peter Sehested, Research Analyst]

[Audio gap] My follow up was actually partially asked by Thomas. It relates to the Jext sales in Europe. And we've heard about -- now about this so recalls, et cetera, of the Emirate product, but we also know that, for instance, in the U.K., you have been forced in parallel import Jext from other countries, for instance, Austria to meet that demand there because your capacity is relatively constrained. So my question is this, if the effect that we are seeing here in Q1, is it simply a shifting around of inventories from countries to other countries where you can actually sell the product. So we are sort of seeing an inflated level in Q1 relative to what you're actually able to supply?

[Søren Jelert]

No, it's not. It's first and foremost, of course, we, as a company, really, really are taking care of the customers. And here, the patients at the end of the day. So we don't just shift the products around where it makes most sense, so we have a consistent supply to the countries where we have promised to supply. We actually see a high demand. And for us, fortunately, it is the customer's inability to deliver. So yes, it's underlying a higher sales of the Jext product we see. And basically, what limits the continued uptick is more the capacity. But as such, we sell what we can produce. And then we are expecting to see a higher output of Jext during the year. You would probably think that there are some stocking in quarter 1, but it's limited. But normally, what happens on life-saving products is that people tend to stock a little bit, but it's nothing that is actually screwing the numbers significantly. But overall, underlying, yes, we are selling more than we anticipate.

[Operator]

And as we do not have any more follow-up questions, I'm handing back to our speakers.

[Per Plotnikof]

Thank you very much for all the good questions. If you look towards Slide #13, we have a series of virtual roadshow meetings lined up in the coming months, and you'll be able to find the dates and venues on this slide, and then we obviously hope to see you on one of these events. And we have, furthermore, also decided to highlight an event -- a webinar that we will be hosting tomorrow, where we ask a handful of leading European experts, key questions about the continuing impact of COVID on the diagnosing and management of respiratory allergies, such as asthma and allergic rhinitis. This webinar is organized by ALK and Euphoria. And it's, of course, specifically recommended for health care professionals, but if you have a little bit of time, I will recommend that you also listen in on it. So far, we have seen more than 500 people sign up for this event tomorrow. So hope to see there. In any case, don't hesitate to call me, Søren or Carsten if you have additional questions and thank you to you all and have a great day. Good bye.