ALK-Abello A/S

CSE:ALK B

Earnings Call Transcript 2021-Q2

[Operator]

Hello, everyone, and welcome to today's presentation of ALK's Q2 results, together with the updated outlook for the full year. And could you please turn to Slide #2, where I will introduce you today's presenters and our agenda. My name is Per Plotnikof. I'm head of Investor Relations. And with me today are ALK's CEO, Carsten Hellmann; and our CFO, Søren Jelert. And today, we will look at our Q2 performance, sales trends across our regions and portfolio and 6 months financials. Then I will give you an update on our 4 trategic priorities, including the newly established partnership for Jext in China before talking you through our improved full year outlook. Finally, we will end today's call with the usual Q&A session. So if you would please turn to Slide #3, I'll hand over to Carsten, and we'll get started. Thank you.

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

Thanks, Per, and thank you, everyone, for joining us today. First, let me give you some highlights. During the second quarter, we delivered revenue growth of 13%, resulting in 11% growth for first half, combined with a better sales outlook means that we now are at the high end of our guidance range and foresee double-digit growth for the full year. Taken together with an improved earnings outlook, our performance and forecasted to upgrade our full year outlook earlier this week. Q2 growth was driven by an increase in tablet sales of 23% and along with the recovery in sales of legacy products up 4% as markets saw a further easing of COVID measures, increasing their ability and willingness of patients to visit allergy health care professionals. Sales of other products also increased by 13%. Overall operating profit EBITDA was better than expected at DKK 48 million influenced by savings and improved gross margin, but also a planned increase of DKK 69 million in R&D spend. We also continued to execute strongly on our long-term strategy and took significant steps through our new Jext partnership with China, which provides an opportunity to launch the first adrenaline pen in the country, with the leading adrenaline supplier, Grandpharma. We also saw a number of new approvals for the tablets mainly in Eastern Europe and in U.K., and we continue to progress the further on clinical development of the tablets and a few other things, all of which we'll come to later. With that quick look at the highlights, I'll hand over to Søren, our CFO, who will take a look at the Q2 financials in more detail. So please turn now to Slide #4.

[Søren Jelert]

Thanks, Carsten. As said, quarter 2 was yet another good quarter for ALK, delivering double-digit growth in Europe and North America, while international markets were impacted by phasing of product shipments to Japan and China. Even so, the in-market sales growth in these markets are really good. Sales were up 14% in Europe and were particularly strong in the Nordics and Central Europe, driven by tablets, which were up 27%. Once again, we saw ITULAZAX performed well, but we also continue to see a clear uplift in GRAZAX sales in markets where ITULAZAX been launched. Sales of legacy products, particularly SCIT showed a positive momentum, and they have started to recover some of the lost ground from previous years due to the discontinuations and accrual. As in previous quarters, Germany delivered double-digit growth, and we saw a shift towards registered evidence-based AIT treatment continue. National reimbursement guidelines recommending that AIT patients should be initiated until registered products have been implemented in the majority of local regions, and we continue to see this translating into more patients being initiated on to registered products. In North America, revenue was up 33% as we saw our sales continued to recover from the impact of COVID especially in the U.S. where sales of legacy products increased sharply as doctors focused on bringing patients back into their clinics and hospitals. Tablet sales increased 59%, although this is from a low base. In general, tablets continue to be challenged by the higher financial incentives for prescribing legacy products in the U.S. Even so, sales levels are now above pre-COVID levels and things are progressing in the right direction. We continue to see increasing acceptance of tablets in Canada on the back of the Torii launch in late 2020. Sales in international markets were affected by quarterly fluctuations in phasing of product shipments, which means that sales were down 15%. What is much more significant is the in-market sales development. In Japan, the in-market tablet sales grew by 49% in the second quarter, and we continue to see Torii doing a fantastic job, especially with MITICURE which grew an impressive 71%. Meanwhile, in China, we also see good in-market sales trends with growth exceeding 30%. All in all, we expect international markets to grow full year at more than 10%, which is higher than we originally anticipated at the beginning of the year due to the development in China and Japan. Now let's take a closer look at the product categories on Slide 5. As I mentioned earlier, the tablet portfolio continues to be the growth engine of ALK. Combined SCIT/SLIP-drops sales saw a recovery and were up 4%, reflecting increased SCIT sales. As planned, we only -- now only -- we only see a minor immaterial effect from past product discontinuations in Europe. During COVID, SCIT treatments were disproportionately impacted by the pandemic since some patients were either unable or unwilling to visit clinics. Sales of other products recovered further in second quarter and were up 13% as COVID eased its grip on sales and diagnostics and other life science products and prepay. This brings us to Slide 6 and the P&L. Profitability was better than expected. Half year revenue was up 11% in local currencies. The lower U.S. dollar, in particular, had a negative currency impact so that the reported growth was 9%. The gross margin improved by 1 percentage points to 60%, reflecting an increased sales of tablets in Europe somewhat reduced by shipments to Torii in Japan with lower gross margins. EBITDA was almost unchanged at DKK 274 million despite a planned, but sharp increase in R&D spend of DKK 89 million. Disregarding R&D, EBITDA saw an underlying improvement. Capacity costs increased 15% in local currencies, which was mainly caused by an increase in R&D in support of increasing activities related to clinical trials. Sales and marketing also increased on more normalized activity levels. However, we also continue to see operational leverage on ALK's commercial activities. Free cash flow improved by DKK 128 million, mainly driven by the phasing of investments and changes to working capital. Finally, it's worth mentioning that we have refinanced our loan facilities, expanding and extending the line so that we now have DKK 1.2 billion in unused credit facilities running on till '24. Now let's move to a brief strategy status on Slide 7 and over to Carsten again.

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

Thank you, Søren. As you all know, earlier this year, we updated our strategy to support our pursuit of a sustained high growth and to continuously improve our profitability towards 2025. Tablets will continue to be the primary drivers of growth, and we will support the success by becoming relevant to [ EVA ] and even more allergy softwares. The 4 priorities are still to succeed in North America to complete and commercialize the tablet portfolio, to improve and enhance the digital consumer engagement and new horizons and also optimize our business for excellence. By executing on these, we seek to extend our leadership in respiratory allergy, leading to a strong sustainable growth, but we also seek to accelerate our long-term growth by entering food allergy and expanding our presence in anaphylaxis and other activities that I will not talk about right now. Again, the goal is an ALK capable of delivering sustainable high revenue growth of 10% or more annually and earnings growth towards an EBIT margin of 25% in '25, or as we call it, 25 and 25. In Q2, we took further steps towards achieving all of this. So let's take a look at our progress in the first 2 progresses on Slide 8. Let's start with North America on the left of this slide. As mentioned, the easing of COVID restrictions in the U.S. has had a clear impact on the ability and willingness of patients to visit allergy specialists once more. Tablet sales have bounced back, and we're now higher than they were before the COVID, growing 59% in Q2. Legacy products are also up strongly. The higher margin serving as an incentive to prescribers by also illustrating the challenge with the tablets we still face in the U.S. Nevertheless, we continue to execute on our initiatives to bring us closer to patients. Our digital engagement platform, klarify, was launched in the U.S. last year, and this meeting is 2021 performance targets and more than that in that moment. In Q2, we also launched klarify in Canada. We have also expanded our telehealth partnership with cleared into more cities, leveraging our digital relationship to connect potential patients with an allergy health care professional will consider tablets as a treatment options, all digitally. We are also working to build a position in other specialties, and in Q2, we acquired OTIPRIO a treatment for streamers air from autonomy, enhancing our access to ENTs and pediatric specialists in the U.S. Moving to the right-hand side, now and our global process and completing and commercializing tablet portfolio, we see that ITULAZAX continues to be the flag carrier for growth and in a number of markets is having a halo effect that is also benefiting all the tablets. In Q2, we continued to work to add new registrations and expand the use of the tablets, resulting in approval for GRAZAX and ITULAZAX in the U.K. and many more approvals across our markets for ACARIZAX, GRAZAX and ITULAZAX. We also completed the U.S. adolescent trial of ODACTRA paving the way for an application to the FDA for adolescent use in the U.S. Our other clicking activities are moving forward according to plan with patient recruitment for the house dust mite and the 3 allergic needs pediatric trials progressing well. Let's move on now and to other 2 prices on Slide 9. On the left here, you can see our third focus area, consumer engagement and new horizons. On consumer engagement, we are well underway to meet our full year target of 250,000 new consumers mobilized via our digital channels, with the year-to-date figure standing at 160,000. A moment ago, I mentioned the U.S., with the number stands at 10,000 out of a full year target of 20,000. On the new horizons, we announced [ a new ] Jext partnership with China which is the biggest deal we have agreed in the past decade and is a major opportunity for ALK. I'll come back to this in a moment. We are making good progress with our own internal next-generation adrenaline pen, and there's no news on the program at Windgap. Early development of the peanut allergy product continued according to plan in Q2, with us finalizing a license with Catalent with the use of their faster solving tablet technology in the first plane product. This is the same proven technology that we use in our respiratory allergy tablets. Our fourth priority is to optimize for excellence, covering the work to rationalize our portfolio, simplify our manufacturing processes and upgrade the regulatory documentation for core legacy products. On that last point, so far this year, we have submitted more than 1,000 regulatory changes to 36 different regulatory authorities around the world, very impressive from the team. One final point before moving on, have you will all have seen the headlines about challenges in the labor markets in COVID. At ALK, we've been working hard on a number of initiatives to retain talent and to increase employees engagement, and I'm happy to report that our Q2 employment survey show that engagement levels at ALK are above the benchmark for the pharmacal industry, which is very encouraging. Let me go back to China and talk about that on Slide 10. As you know, we've been working for some time on our strategy for unlocking the significant opportunity that the Chinese allergy market represents. China has among the world's highest prevalence for house dust mite allergy and the HTM AIT market there is already the second largest in the world, but has the potential to become even larger. This is why we are working towards a market instruction of ACARIZAX. However, we are also stepping -- we are also -- we have also other stepping stones for growth in such a large allergy market. The partnership with the leading supplier of adrenaline Grandpharma, will see our adrenaline pen Jext registered and launched in China. Jext is expected to be the first auto injector in the country, potentially giving Grandpharma a major first-to-market advantage. As a first step, and prior to restoration in Mainland China, Grandpharma will start selling Jext in Southern China on a special license. ALK will receive upfront and registration milestone payments totaling approximately DKK 90 million in return for granting Grandpharma the exclusive right to Jext. ALK will also manufacture and supply Jext. And importantly, we'll receive income from the supplier products to Grandpharma. With that, I'll hand back to Søren, who will talk you through our upgraded outlook for 2021 on Slide 11.

[Søren Jelert]

Thank you, Carsten. Our full year outlook has been upgraded to reflect the first half year performance and an improved sales forecast, cost savings and minor changes to the timing of clinical development activities. The improved full year outlook is as follows: We now expect double-digit revenue growth of 10% to 12%. This is driven by an improved tablet outlook from approximately 25% last time to now 25% or above, which is further supported by an improved outlook for sales of SCIT and SLIT-drops. EBITDA has now increased to between DKK 450 million to DKK 500 million. R&D is now expected to be slightly lower than DKK 650 million. These are mainly delayed activities and the cost will likely be pushed into 2022. We will still foresee a gradual normalization of sales and marketing compared to last year, which was impacted by COVID. Free cash flow has been improved and is now expected to be around minus DKK 100 million, reflecting higher earnings. CapEx at around DKK 250 million to DKK 300 million and the upfront payment received from Grandpharma. We still assume that free cash flow will be impacted by a one-off working capital payment of DKK 175 million that were postponed from 2020 into 2021, of which relates to accrued rebates. 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. So we are now moving to the usual Q&A session, where we would be happy to take any of your questions. And operator, please go ahead.

[Operator]

[Operator Instructions] And our first question comes from Thomas has from Danske Bank.

[Thomas Schultz Bowers, Analyst]

Yes, a couple of questions from me. So just to kick off with the Jext. So I understand the Grandpharma already starting to sell in [indiscernible] next year given the Hong kong registration. So can you maybe just update us on your -- the capacity constraints. Is this -- I know it's gradually improving, but is it still an issue that sort of limits the initial opportunity in China assuming that you, of course, can keep the momentum in Europe as well? And then just on the MT11 SMA trial. So assuming the number of hospital asthma exacerbations normalized during the winter, as you're right, it will be enough to avoid any additional cohorts and then leading to a delay of the expected mid-'22 readout? And then just on the diagnostic sales uptake sort of is always sort of an indication that you do see a higher demand of allergy products. So does it even indicate sort of a pent-up demand in potentially in the U.S.? Or do you expect this return to around 10% growth to be rather stable going forward. So anything here in second half assuming that the Delta variant is not going to give any new closedowns or anything in the U.S., that would be very helpful. And then -- Maybe just a last question, just on the food allergy. So -- So the Phase I timing, so I sort of had the impression that you plan for a Phase I start here in at the later part of this fiscal year. So any color on the feasibility data given that you clearly are advancing, as hoped with the Catalent technology agreement. So any color here would be very helpful.

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

Let me start with the first 1 about Jext. No, we have been working a lot, and we've already doubled the sale in the last 3 years. We will not have any capacity constraints supporting to Grandpharma. Let me just clarify exactly how it works. We have a registration in Hong Kong, that they can sell in Southwest China, Grandpharma, and we get the registration per hospital. We have a couple of hospitals right now, and they expand that to 20, 30 hospitals in that region. It's an area of about 80 million people. And we'll be fine to support that in order to grow that significantly should that be the upside we do have. No, there will not be any capacity constraints. I think we are, and have cleaned up a lot in Jext and is running as it should. Regarding the MT11, we don't really know whether we need a cohort yet. We need to see the data that are not opened yet. So we'll see. If we do, it's only because of that, it's only because that the children have been out and has up been hospitalized with expectations, and that's just the way it is. So we don't know. Honestly, we don't know. -- diagnostic U.S., it -- that I would have to say, I don't really know either. We can see that we didn't lose the customers during the pandemic, and we thought that things are going very well in many areas just a few weeks ago and then the new delta version of the virus hit and the New York are closing down again. So it's a little bit up and down. We believe that we will have double-digit growth in the U.S. for 2021. I think we are totally out at about 17%. And we don't really see that any of the momentum we do have right now should slow down because it's a little bit all over the place and it's up and down and in and out for the U.S. this year. So it's not going to be going back to what we saw last year. For food allergy, we're working hard, as you just heard that we now got the deal completely done with catting. So you can maybe also guess that our vehicle will be a food tablets that are working exactly the same way as our current respiratory tablets. And when we're ready to go in Phase I, we'll know more toward this autumn whether it's going to be late this year, beginning of next year, we don't know that yet. So -- but it's not that we have faced any issue yet, and the team is working hard on this one and this one is going to succeed, we are very confident about that. So that was the questions you had. So next question, please.

[Operator]

The next question comes from Peter Sehested from Handelsbanken.

[Peter Sehested, Research Analyst]

I have a couple of questions, if I may. On the R&D expenses for next year, consensus could look a bit too low given that the current level of this year and also that you are facing some costs into next year as well. So some guidance or whatever -- we should probably not use the word guidance, but some whatever -- about next year's level or what we should offer there would be very welcome? Secondly, on Grandpharma. The mechanics here in terms of the P&L impact you write that you receive a -- or you deliver the product, but what kind of model is this cost plus same as the tablets for Japan, saw just to get some indication on potential margin or gross margin that we should be looking out for here. And then just, finally, the usual question, Søren, on the gross margin was, again, at the top end of what we're expecting. You usually try to talk us down a little bit here, Søren, but are we now at the stage where we can say that gross margins are really ahead of your expectations, not just for this year, but also into the future?

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

Yes. I will start with Grandpharma, and then Søren will take the R&D and the other question here -- regarding Grandpharma for competitive reasons, we have said that our sales price to Grandpharma is at European level, our sales price in Europe or more. And then we get an upfront payment. So -- If you look at it, in an overall perspective, it will both be accretive to our margins, to our sales and to our net profits because we have a gross margin plus 50%. We have EBIT on Jext more than 25%, and other we get here, we didn't encounter before in the plant. So -- and the way you should sort of face the thinking is that let's see how it goes in the first couple of years when we launched in Southern China, how well Grandpharma performs, they will be working hard on getting the registrations, so in '24, '25, that's when we had the full main China for extortion as the only pen on the Chinese market. It's a very big market today. It's a DKK 1 billion-plus market. Grandpharma has more than 50% market share, which is just prefilled wild or just wise to put into assurance. And with this income they will be launching that. And let's see how that goes, but that's post '25. And this is very much like we said before that we are building a business that should grow organically this 10% plus getting to 15% EBIT in '23 and '25 and [25%] would upside beyond '25. This is just 1 of the upsides we talked about. We just didn't mention this one. But we have this upside being the food being the anaphylaxis and being this one. These are things that are going to kick in after '25 for us sort of to sustain and accelerate the growth. And can we do something that are helping us earlier, we will do that. But right now, this is the mechanism of Grandpharma, positive to sales, profits and absolute money. With that, I think Soren can talk to the R&D and the next one.

[Søren Jelert]

Yes. Thank you for your questions, Peter. And you're absolutely right on the R&D spend. I'll take the liberty to take us a little step back in time. And that's actually all the way back to 2020 where we saw a lower-than-anticipated R&D spend. And at that point in time, we said some costs will move into '21, and others will move into 2022. And I think -- so there, we took a push into 2022. As probably actually increasing your estimates or you could have done your estimate is a little higher -- And what we see now here in 2021 with the -- you could say, before we said around 650 million, now we say, a little south of 650 million. And let's say, we moved 25 million into 2022. And then with the backing of what we had from 2020, I think it's fair to assume that we are above 650 million, whether -- where we are between 650 million and 700 million right now in that particular year, I think it's too early, but please also remember that all those small numbers, we are actually embarking on the food.Having said that, I think it's extremely important to understand we are completely committed to that the R&D cost is expected to come down within the time horizon that Carsten has said where we delivered 25 and 25. So in that sense, it is the same story. We are just hit by some cost postponed from 2020 actually in 2021 into 2022, it's still at a reasonable low amount. And I think in total, over the years, it will be the same expenditure pattern. So in that sense, cost burn for R&D is going up. Overall, our seen over the years in combination there's no change. But I think to your question, yes, your estimate is all to come up a little bit when it comes to R&D in 2022 isolated. After that, I still believe that we will come down as we have said and are definitely adhering to in the plans. So hope that answer that one. And then when it comes to gross margin, it is actually -- some of you picked it up. Also as part of why we have also raised our underlying outlook of earnings this year because we think we are in the better end of where we work with for on gross profit. And actually, you can say here for the quarter 2 alone, we are 1.8 percentage points up on gross margin, and it is -- it remains to be the story about the tablets driving our gross profit up, And as you can see, when we report out that our tablet is now at 25 or above, it actually yields or some more margin points. So yes, we are positive, I'm not promising you that we are suddenly seeing a steep increase in '22 because this is not the plan that we have set and we are still you can say, investing in quality and the efficiency on the SCIT that will still take '22 before it reads out. But if you ask me, is this a positive step? Yes, it is, and it definitely demonstrates that also in this parameter, we're moving it in the right direction in fact.

[Operator]

The next question comes from Benjamin Silverstone from ABG.

[Benjamin Silverstone, Research Analyst]

I have 3 questions to start with, if I may. The first 1 is in regards to the development of your in-house next-generation AAI. Is this in report that there is positive progress according to plan. But I was wondering if you could give us some more nuances as to when we would expect to see something more tangible in this regard? My second question is in terms of international markets, where you mentioned that China and Japan actually saw growth despite the phasing of shipments. Could you give some indication as to which market was driving the negative sales decline of 15% in this region just to get some clarification in terms of this market -- these markets, sorry? And the last question is for Soren in terms of the credit facility. Just to make it brief, this new credit facility, should we see that as a safety buffer? Or is this because you are planning on having some negative cash flows in the next couple of years? How should we view this?

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

Thank you. For the AAI, remember, we have 2 pale projects. One is the win gap and 1 is our own development. And what we are committing to and talking about is that we, in '24, '25, will apply for FDA approval for a pen in the U.S. will be 1 of them or both of them, we'll see. So they're working according to plan. We have we haven't any stop-go things that we are envisioning right now, and we will come back to you when we have -- if we have any negative or very positive decisions to make about these AIs. But there isn't any -- there really isn't any flash on that one. International market, it was not the reason for the quarter result of minus 50% was only and only a postponement of shipments to China enter pay. That's it. In-market sales in Japan and China is 30%, 40%, 50%. That isn't an issue. You should expect maybe to see 60%, 70% growth in international markets in Q3. It's simply a shift between the quarters. There isn't any markets that are driving at all. For the credit facilities, I'll let you do that, Søren.

[Søren Jelert]

Yes. I think it's a good question. I'm always of the opinion that you probably do the best deals in -- when it's peace. And in this case, we definitely consider it just to be a safety buffer. And so that we don't -- and basically also, you could say, have the capacity if we need to use it. So there's nothing whatsoever reading into a negative aspect of that. It's basically just to create a safety buffer at very competitive terms given how we are faring the business. So that's a clear statement from my side.

[Operator]

Next question comes from Michael Novod from Nordea.

[Michael Novod]

It's Michael Novod from Nordea. So 3 questions. First, you mentioned that you still see ITULAZAX pulling up GRAZAX access as well. But mentioning ACARIZAX and given your guidance, have we seen sort of a smaller slowdown in GRAZAX. I recall you also mentioned a bit about that in Q1. And then to that as well, going into next year, do you sort of buffer into your own internal expectations that there will be competition from Stelligent in the market when they're launching their, house dust mite tablets, is that something that is not really of any concern to you guys? And then lastly, I just want to challenge a bit on the Windgap because it seems like at least communication-wise, it's sort of seems to sort of [ silent test ] since sort of it was announced. So maybe you could just talk a bit about what kind of challenges that you're seeing, given that we have not seen any stop-go decision yet on this project?

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

We are in COVID times. We do not see any fluctuation and it's slowing down of GRAZAX or ITULAZAX, taking out any new terms, except that the halo effect we talked about where you saw the 10%, 20%, 30% growth rate, certainly happening on GRAZAX. No, it go well on all tablets, and we believe that is going to continue as the market potential is still there and our penetration is low. And that also talks a little bit into the second question about competition. We just have to remind ourselves that it is less than 1% of the people respiratory allergies that actually are under treatment. And about 40% of that is tablet. So there -- we don't really see that it's definitely not going to be cannibalization for us. We don't really see that it should slow down our growth I haven't heard that from any of the business review I participated in neither Europe or any other countries. Stelligent is, of course, a good competitor and the more people who talks about tablets will there. I had hoped they have pushed much harder in the U.S. with the tablet so we can have more voice out there, but this is going to be a European player, and I think we are well positioned to take our fair share. Windgap is not planning to -- or we do not plan it to die a silent death, and we don't dare to -- you're implying that we are not sort of just letting it die and not talking about it. The thing is that, right now, we're still getting the pilot plant produced devices, and we're doing all the stability testing. And then we have to figure out and prove and secure that there isn't any leakage, that when we dissolved the powder into the fluid that there isn't any clotting and all that stuff. And that work is going on. And yes, we face some challenges from time to time, and we're still working on it. It's still our expectation that we can conclude this project, but we can't confirm that it's 100% sure. It's still work in progress. And has it taken longer than we thought? Yes. And I think one of the things that surprised us the most was actually the best variation between the device that we got from the different pilot productions that did when we got those. And these are the things we are facing right now. But we want to be with an AI pen in the U.S. and if it's not going to be onecap, it's going to be our own device. So we no matter what either we are registering 2 or be registering 1 of them, we don't know yet. And then your next question will be when do you know? I'll just say I don't know, but I think I will now more by the end of the year when we had the last stability test done.

[Operator]

[Operator Instructions] And the next question comes from Jesper Ilsoe from Carnegie.

[Jesper Ilsoe, Research Analyst]

Two questions from my side. First 1 on tablet traction in Europe. I mean, Germany and another 1 on Grandpharma and this Jext deal. So we can just take 1 at a time. So tablet traction in Europe. So perhaps you could just put some more color on sort of the slowing growth that you see here in Q2. So it has been slowing a bit more versus recent quarters. I know it's small numbers there could be call fluctuation, COVID and what have you. But anything you're seeing in the market that could explain this slowing growth? Anything we could actually read into it? Or is it basically just quarterly fluctuation? That's just the first question. And then I can follow up with the Grandpharma question.

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

There is absolutely no change in the tablet dynamics. And even though we had 30% growth in [indiscernible], tablet was still growing 25% second quarter last year. Now we grow -- again, we don't see anything. But you're absolutely right. In 1 month, it's slowing down because clinics are closing down, but then they're opening up again and then we have higher. So it's simply just fluctuations. We have no dynamics whatsoever seeing that our penetration into this market is changing, not at all.

[Jesper Ilsoe, Research Analyst]

Perfect. Then just on Grandpharma, perhaps you can just comment on how you actually see this opportunity with Jext in China versus or compared with the Torii partnership as you also mentioned that is the biggest deal in 10 years. So perhaps you put some words on the deviation between the 2 market opportunities? Could it actually end up being as big a sales driver as the Torii partnerships end up being suggest some proportions? And then secondly, also plans to put some words on the competitive landscape in China on adrenaline. So you mentioned in the announcement that in the current market is supplied with ampules. So I guess it's not with auto injector, simply injections. So -- but I'm just trying to understand why is Mylan and other generics not seeing the same market potential that ALK and Grandpharma has actually seeing in China? So I'm trying to understand why now with Jext and other competitors lining up in this market as well?

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

I think that you should assume that both Grandpharma tried to develop their own pen. You should assume that EpiPen, Mylan and all others have tried as well. What is driving this one and Jext is that we managed to get a license to sell and approval in Hong Kong. And that sort of opened the door to Grandpharma where we could be the first and only pen on the Chinese market. And that led to the discussions. And actually because of the license in Hong Kong, we can now sell in South West China and there about DKK 80 million. And we now get a hospital by hospital approval to sell there. And then we'll see how successful they do that. Then there will be some less until '24, '25, where they will file for a mainland registration of a pen in China. And we don't know what we don't know, but there isn't definitely any foreign competitors out there, and we haven't seen any traction on any local ones. And remember, Grandpharma is the adrenaline company in China. So it's not like we are having a small opportunistic player. They are sitting for more than 50% of the adrenaline market already. And they now see an opportunity for both for first mover effect. And then we'll get the registration after '25 is successful. And if nothing happens, this is China, would be very big for ALK simply because of the product, the size, our transfer pricing and the way the deal works. So if Grandpharma's plan works out, we sell a lot in Southwest China now and learned from that. We market the product. We get it registered and we launched it in all China in '24, '25. Yes, then the sales potential is very high. Just the ampule market today is more than DKK 1 billion. And already today, Grandpharma's more than 50% of that. And that's just the low end, you can say, legacy adrenaline ampule. So how does it work? How will the pricing work? How much would be out of pocket. But after '25, that's where we expect the reimbursement to kick in, and that's also why, when I say that the big potential most likely will come after '24/'25 when it's fully registered in China and fully reimbursed. So I understand your questions, but I think sometimes that's just the way it is. And we manage, together with Grandpharma, to seize this opportunity, make a deal and move on it. And there isn't anybody just behind us. So now it's just up to us and Grandpharma to leverage that first-mover effect.

[Jesper Ilsoe, Research Analyst]

Sounds good. If I can just put in another question. So just on this peanut allergy program. So you mentioned yourself that we could probably read into the fact that you have this deal with Catalent, i.e., that you will pursue the peanut allergy and food allergy space with the tablet. Perhaps you can add some color on what you've seen since, say, the full year report and Q1 report that makes you more certain that it is actually possible to treat peanut allergy and other food allergies with your tablet technology?

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

With the buffer that I don't know what I don't know happens in clinical trials for the future. But as I said just before, we just made an exclusive deal with Catalent and proof that we can actually -- and we have already the tables with peanuts insight. So technology-wise, we can develop a regimen with food allergies delivered like our tablets, dissolving quickly under the tongue with this proprietary technology, and we have now that in our bag. Now what we need to test right now in Phase I is how does that work with the dosing and how do we do that? And there's a lot of different types and formulations of adrenaline we are working on right now and testing in the tablets to find out how that works. But I think I can confirm that when we hit the market, it will be with a tablet regime most likely like the one you see today. which we believe will be a huge competitive advantage.

[Jesper Ilsoe, Research Analyst]

Okay. Makes sense. Perhaps just a last one. What risks do you see into this formulation feasibility study that I expect to read out later this year, right? So what are the risks given what you've already seen up to now?

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

The only risk I see could be timing. Will it be half year, a year later or earlier? I don't know. We don't see a technical risk, as remember, we have done a number of taps already. We have had 21,000 patients took Phase III trials on tablets. We know how to set up the trials, both Phase I, II and III. We know how to get products approved. We have strong pricing and reimbursement organization and market extortion now globally. We will get there as any projects would be that the way we wanted to do it just turn out not to be the right way. We need to adjust some things -- if you ask me if I think it's not going to happen, it's absolutely no. I don't expect ALK will be aborting mission. Maybe we can do it faster. There's also an opportunity. Maybe will take a little longer. So if you take the risk here, is just to learn in Phase I, what works and does not work? And how can you do it? What type of dosing regimens to new up and down dosing? How fast can you do it and so forth? That's the only thing we need to test to make sure we have a safe and good product. And that's what we're working on right now. So it's not the technology platform, it's not how to do it, that's -- that we're working on right now. That's just how exactly do we formulate it to make sure it's an excellent product that beats the market.

[Operator]

We have a follow-up question from Peter Sehested from Handelsbanken.

[Peter Sehested, Research Analyst]

I actually have 2. One relates to the to the legacy business. It appears that it's out of the woods with 4% CER growth this quarter. Should we -- how should we look at this going forward? Should we still be a little bit conservative? Or should we see this as a 2% to 4% growing business looking ahead? And secondly, I believe that you have your annual review with the Board before summer. Any interesting topics that you want to share with us today?

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

I can start on the legacy. I mean, remember, we have said all along that, first of all, we want to stop the leakage, we'll clean up. We'll do the part fit for growth projects. And then we wanted to have a stable returning to growth of legacy business in the low 1-digit range. And that's what we are getting at right now. Can I promise you that it will be 5% also fourth quarter and then 10%, no? But could it be? Yes. This is a little in and out, in particular, due to COVID because a lot of these SCIT products where you have to go to a clinic and it does open and closes all over the world. But I think, in essence, low range of 1-digit legacy growth is what we are planning for. We have improved a lot. We have stabilized the production I think we should be very proud of the work they've done in manufacturing in these projects. So this is not a risk any longer. It's going to be contributed to growth. Of course, you will see a mix also with the drops may be declining in France and SCIT increasing in Germany because we had this open window there. But yes, small 1 percentage just is what we expect. And will you add to that, Soren?

[Søren Jelert]

I think -- no, I think here, it's -- it definitely reads into our commitment also to bring up the margins over time on these products. We definitely see they have a role to play in and it's still sizable. It's not the growth vehicle, but it's still a good cash generator, where we can add more over time with improved efficiencies. So that's also a part of the story.

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

Yes. And it's true, we had the 2-day strategy session with the Board just before summer vacation. And we also, of course, had a lot of external people in both from the digital space and till Health care and U.S. and everywhere else to get more inspired. But what we are telling the board is that we are planning to have a company growing more than 10% per year with 23% profit for the next 10 years and -- sorry, 15% in '23 and 25% in '25 with upside. And now they just saw an upside and Grandpharma. And then we showed some of the other upsides we are working on. And as soon as we have more change things like we have with the Grandpharma, and we had last year with the food, we'll tell you about it. But please bear in mind that our ambition is not to jump from quarter-to-quarter with a happy stock market. This is a building a company that has sustainable strong growth for many years. So this is our focus. And then we just want to make sure all of you believe what we're saying by delivering what we said. And so that's where we're also connotated with the Board, and they sort of like that and applaud that.

[Operator]

It appears there are no further questions. I return the conference to our speakers for any closing remarks.

[Per Plotnikof]

Thank you, and thank you all for your good questions. We hope to begin being able to see some of you again in person during the coming quarters. You can see from the slides here that we have several activity scheduled. In any case, do not hesitate to reach out to us if you have additional follow-ups or if you'd like to meet with us and discuss the case. With that, thank you very much for today and have a great day. Goodbye.