Almirall SA

MAD:ALM

Earnings Call Analysis

Strong Growth in European Dermatology Portfolio

Almirall's Q1 2024 showed a robust 7% net sales growth, driven mainly by the European Dermatology business, which saw an 18% increase. Products like Ilumetri, Klisyri, and Wynzora significantly contributed to this momentum. Notably, Ilumetri, a biologic for psoriasis, grew by 30% to EUR 49 million. The company also launched Ebglyss in Germany, achieving EUR 3.6 million in sales and high initial market acceptance. Despite a slight decline in U.S. sales due to a cyberattack, the company expects to accelerate growth with upcoming launches. R&D investments grew by 10%, focusing on pipeline assets for long-term growth. The company reaffirmed its full-year guidance, expecting gross margins to remain close to the 2023 level.

Strong Start in 2024

Almirall began 2024 with promising financial results, reporting a net sales growth of 7% compared to the same quarter last year. The company attributes this growth mainly to its European Dermatology portfolio, bolstered by a significant increase in sales of its psoriasis treatment, Ilumetri, which saw a remarkable 30% growth to reach EUR 49 million in Q1. This trend positions Almirall favorably within the medical dermatology market, key to achieving its long-term ambition of becoming a leader in the field.

Ebglyss Launch and Expectations

The company launched Ebglyss, its biologic for atopic dermatitis, in Germany in December 2023, capturing a double-digit share of new patients within just ten weeks. Initial feedback indicates that both dermatologists and patients react positively to its efficacy and ease of use, supporting the company's expectations for substantial growth in sales. Almirall anticipates further launches in the U.K., Austria, Denmark, and Spain later this year, extending its market reach significantly.

Gross Margin and Future Expectations

Almirall's gross margin decreased to 63.5% in Q1 due to one-off costs such as inventory write-offs and elevated royalty expenses tied to strong sales of Ilumetri. While the company expects gross margins to normalize towards the end of the year, they also project that margins may remain under pressure due to higher royalties associated with new products. Nonetheless, long-term prospects point toward margin expansion driven by rapid sales growth outpacing expense increases, particularly once the necessary launch infrastructure is in place.

Investment in Research and Development

R&D spending climbed by 10% to reach 10.7% of net sales, signifying Almirall's commitment to advancing its pipeline dedicated to medical dermatology. The company expects R&D expenses to stabilize around 12% for the full year. In parallel, SG&A investments increased in the mid-single digits, with further acceleration anticipated as the Ebglyss rollout continues through 2024.

Robust Financial Position

Almirall maintains a favorable net debt-to-EBITDA ratio of 0.6x, reflecting a strong balance sheet despite significant cash outflows associated with product launches and milestones. The company recorded an operating cash flow of EUR 23.4 million in Q1 2024, enhancing its capacity to support ongoing and future operations. Leadership confirmed full-year guidance remains intact, emphasizing confidence in sustained growth trajectories across its product offerings.

Market Dynamics and Future Guidance

The atopic dermatitis market presents significant growth opportunities for Almirall, indicated by the current low penetration of biologics—in particular, only about 10% of eligible patients are currently receiving advanced systemic therapies. The company's leadership estimates that as the market expands, they expect annual peak sales for Ebglyss to eventually reach EUR 250 million. Anticipated royalty rates for Ilumetri are increasing to the low 20% range as sales grow, while Ebglyss will start in the low teens.

Challenges Ahead

Despite the positive outlook, Almirall faces challenges with its legacy U.S. business, impacted by ongoing generic competition. Moreover, a recent cyber attack affecting a U.S. insurance verification system has led to a temporary decline in sales for Klisyri, although the company expects to rebound and capture growth momentum in the second half of 2024. Maintaining growth in Europe while managing these external pressures will be critical for the company's overall success.

Earnings Call Transcript 2024-Q1

[Operator]

Good day, and thank you for standing by. Welcome to the Q1 2024 financial results and business update webcast and conference call. [Operator Instructions] Please be advised that today's conference is being recorded.

I'd now like to hand the conference over to your first speaker today, Pablo Divasson, Investor Relations Director. Please go ahead.

[Pablo Divasson Fraile, executive]

Thank you very much, Sharon. Good morning to everyone on the call. Thank you for joining us to review Almirall's Q1 2024 Financial Results and Business Update. As per usual, you can find the slides to this call on the Investors section of our website at almirall.com. Please move to Slide #2.

I'd like to remind you that information presented in this call contains forward-looking statements, which involve known and unknown risks, uncertainties and other factors that may cause actual results to materially differ. With that, please advance to Slide #3.

Presenting today we've Carlos Gallardo, Chairman and Chief Executive Officer; Mike McClellan, Chief Financial Officer; and Karl Ziegelbauer, Chief Scientific Officer. Carlos will start with the Q1 2024 highlights, as well as an update on our biologic growth drivers as part of our path to leadership in medical dermatology. Karl will provide you with details on the progress of the pipeline before passing to Mike to review the financials in detail. Carlos will then conclude before opening up for a Q&A session.

I'd like now to pass it over to Carlos Gallardo, our Chairman and CEO, to commence with the quarterly highlights. Please move to Slide #5.

[Carlos Gallardo Piqué, executive]

Thank you, Pablo, and good morning to everyone in the call. Most of you will be familiar with our ambition to become a leader in medical dermatology. We've made significant progress in delivering innovative products to patients with skin conditions to truly impact their lives. And we remain fully dedicated to continue to create impact with our products and support patients and the medical community.

2024 is an important year for us in our progress to achieve our mission, and I'm pleased to report that Q1 was a promising start of this pivotal year for Almirall. We continue to deliver the business momentum based on our key growth drivers, and we're pleased with the trajectory of the growth of our broad product portfolio as a foundation to achieve our ambition and business goals. Our key focus this year is on diligently executing the rollout of Ebglyss and to continue to progress our pipeline that is solely dedicated to medical dermatology.

In light of our overall good business performance, we're confirming our full year guidance for 2024. In Q1, the performance of our business continued to be driven by our European Dermatology business, underpinned by our recently launched products. We'll, of course, dive into the performance of our portfolio in greater detail during the presentation.

But let me touch upon a few highlights already to set us in. Our biologic for psoriasis, Ilumetri, continues to deliver impressive results across various geographies and has become a highly successful product within the medical dermatology market. Since the launch of Wynzora and Klisyri in Europe, we've steadily expanded presence in our market share in medical dermatology in key countries with notable growth in Spain and Germany, and we've delivered solid rollouts across other European countries where over the years, we've successfully expanded our footprint.

We're also encouraged by the initial metrics of Ebglyss, our biologic for atopic dermatitis launched in Germany. In Q1, we also made significant advancements in our pipeline, especially in the area of early-stage assets, which will fuel our future growth. Most recently, we announced a license agreement with Eloxx Pharmaceuticals for a Readthrough inducer. In February 2024, we successfully licensed the anti-IL-21 monoclonal antibody from Novo Nordisk, and both our anti-IL-1RAP monocular antibody and IL-2 mutant fusion compounds are now in Phase I. Please move on to Slide 7 for an update on biologics growth drivers.

Let's take a closer look at the strong momentum of Ilumetri, our anti-IL-23 psoriasis biologic in Europe. On the chart, we can see that Ilumetri continues to display strong performance with 30% growth in Q1 to EUR 49 million. The class, anti-IL-23 also continues to gain market share and maintains its leadership position of new patients among biologics in psoriasis, which helps Ilumetri growth, together with a balanced geographical performance.

Germany remains a key market, and we continue to see healthy growth in the rest of European markets. New geographic launches are progressing nicely, driving growth further. We also successfully introduced a 200-milligram option with autoinjector accompanied by comprehensive new clinical data in 2023, thereby providing additional value. All these factors reinforce our confidence that we're on track to achieve EUR 250 million peak sales.

Let me now move to Ebglyss. As we've mentioned in the past, we're convinced that Ebglyss has significant market potential as the best-in-class treatment for atopic dermatitis. It's unique mechanism of action and overall strong product profile set it apart from other treatment options that are currently available. The initial feedback we're getting from dermatologists and patients is aligned with the results of the clinical trials. The control of disease symptoms, the effectiveness as both a stand-alone treatment and when combined with topical glucocorticoids and a safety profile suitable for long-term management. All that means that Ebglyss can offer sustained efficacy and has the potential to significantly enhance the quality of life of treated patients.

A particular benefit of Ebglyss is the 4-weekly dosing regime in the maintenance period, which sets it apart in the atopic dermatitis market. Also, the autoinjector enables patients to self-administer the treatment to enhance flexibility for patients and health care professionals.

Let's please move to Slide 9 to review the market data. Let me talk some more about the launch of Ebglyss in Germany and explain to you why we're excited about the progress we're making. Importantly, we're receiving very positive comments from both dermatologists and their patients, which are in line with the insights and data we've obtained in these few months after launch. There is already significant product awareness amongst the health care profession, thanks to the work that our commercial teams have carried out to prepare and execute the launch in the market. This has led to Ebglyss already capturing double-digit share of dynamic patients as captured by IQVIA. As most of you know, this captures patients new to brand, both first-time users and switches. This is just after 10 weeks on the market, and it has surpassed all other advanced systemics, except now for Dupixent, at the same point in the launch cycle. We're very pleased with this, and I know this data is only up to February.

Ebglyss is also placed second in terms of intention to prescribe amongst first-line advanced therapies for patients with moderate to severe atopic dermatitis. Again, this is based on the convincing positive results of the Phase III clinical studies and the excellent prelaunch activity. Amongst the initial feedback we see from health care professional and patients in Germany, I'd like to highlight 3 aspects. First, a substantial improvement in patients' quality of life, as itch and inflammation level decrease after the treatment with Ebglyss; second, the positive safety profile in line with what was shown in Phase III clinical trials. Finally, the convenience of the less frequent 4-weekly maintenance dosing appears to be playing a crucial role in patients' adherence today. All in all, this positive feedback reinforces our conviction in the potential of Ebglyss.

Next, please change to Slide 10 to revisit our rollout plan. We're pleased that we've recently launched in Norway ahead of schedule, and we're on track for a launch in U.K., Austria, Denmark and Spain later the year. The rollout in remaining countries is expected during 2025. As we gain better visibility, we'll keep you updated and refining these statements. We're also very excited that Lilly has refiled their application for lebrikizumab's market authorization to the FDA in the U.S.

Next, please move to Slide 12, where I invite Karl to give an update on our R&D work and the pipeline advances we've made in Q1, as well as giving some details on the exciting agreement we signed with Eloxx Pharmaceuticals.

[Karl Ziegelbauer, executive]

Thank you, Carlos, and good morning to everyone on the call. This slide shows you the progress of our pipeline. We continue to advance both our early and late-stage pipeline. For Klisyri, we submitted a supplementary NDA in August 2023 addressing the expansion to large field in the U.S. We expect launch in the second half of 2024. In addition, we started a study aimed to enable the label expansion to large field in Europe, with an expected launch in 2026.

For Seysara in China, regulatory review is ongoing, and approval is expected in 2024. Regarding the launch process, we recently signed a licensing agreement with a local [ partner ]. For efinaconazole, we're under regulatory review. We expect approval in the second half of 2024. The Phase I studies for both our anti-IL-1RAP monoclonal antibody and our IL-2 mutant FC fusion protein are ongoing.

In February this year, we in-licensed the monoclonal antibody targeting IL-21 from Novo Nordisk. IL-21 is a cytokine hypothesized to be involved in several immune-mediated diseases. We're currently starting to manufacture clinical supply to explore the utility of this mechanism in autoimmune skin disease. Finally, in March, we in-licensed an oral Readthrough inducer for the treatment of rare skin diseases from Eloxx Pharmaceutical. We plan to start Phase I in the coming months. As you can see, we're making very good progress with both early and late-stage pipeline and are on track to strengthen our leadership position in medical dermatology. Now let's move to Slide 14.

Let me share a few more details on the collaboration with Eloxx. ZKN-013 is a Phase I ready oral Readthrough inducer designed to overcome nonsense mutation that cause a premature stop codon resulting in nonfunctional protein production, for example, in recessive dystrophic epidermolysis bullosa, junctional epidermolysis bullosa and familial adenomatous polyposis. ZKN-013 prevents the disruption of the protein production naturally seen in people with those premature termination codon. Premature termination codon mutations are mutations that been inserted into a team of interest for the termination of mRNA translation into protein by the ribosome. Thus, the protein synthesized is both truncated and nonfunctional, which causes the disease.

Readthrough for us enables skipping such premature termination codon mutation by allowing the cell to ignore the mutation and make the full-length protein as it should be. Almirall obtained exclusive global rights to develop and commercialize ZKN-013 for the treatment of rare dermatological and other diseases associated with nonsense mutation. We're very excited about having these molecules now being part of our portfolio.

With that, I'll hand over to Mike for the financial review.

[Michael McClellan, executive]

Thank you, Karl, for the exciting overview of our R&D progress and pipeline. As Carlos mentioned, we had a solid performance in Q1 2024, with net sales growth near 7%. We're pleased to show strong growth with our European Dermatology portfolio, which is part of our ambition to become a leader in medical dermatology. This helped drive the overall net sales increase. We delivered a total EBITDA of EUR 52.5 million in Q1 2024, up 1.4% from Q1 2023, benefiting from higher sales, offset in part by a slightly lower gross margin percentage and higher investments in SG&A and R&D. Our gross margin came in at 63.5%, impacted by one-off write-off costs, sales mix and increased royalties related to reaching higher sales levels with Ilumetri.

SG&A in Q1 2024 is up 5%, driven by recent and upcoming Ebglyss launch investments, partially offset by savings in the U.S. after our resizing in mid-2023. Our R&D investment growth was 10% versus Q1 2023 and reached nearly 11% of net sales, with an acceleration expected during the year. We ended Q1 2024 at a net debt-to-EBITDA ratio of 0.6x. The increase from December was driven by EUR 75 million of payments mainly related to milestones for the Ebglyss launch and Ilumetri sales success.

Let's move on to the detail of our sales on Slide 16. This slide shows our vibrant net sales dynamic. The European Dermatology business had another very strong performance, with an 18% increase year-on-year. Our General Medicine & OTC business in Europe displayed stable performance, with growth across the portfolio more than offsetting the continued decline in Efficib/Tesavel sales following the patent expiration in late 2022. Our U.S. business recorded a decrease in Q1 2024, which I'll detail on the next slide. Rest of the World Dermatology sales showed a decline due to the nonrepeating of Q1 2023 items such as the Finjuve out-licensing in Korea and the Cordran Tape supply to Japan. Rest of the World General Medicine is growing, mainly driven by a rebound in Imunorix sales in Latin America. Overall, it's important to reiterate that our portfolio has limited patent expiry risk going forward now that we've cleared the main impact from Efficib/Tesavel patent expiry in late 2022.

Let's take a closer look at our dermatology business on the next slide. Our European Dermatology segment delivered a very strong performance, primarily bolstered by the growth of Ilumetri, with Klisyri and Wynzora also adding solid growth, including recent launches in new European markets. Ciclopoli had lower sales in Q1, mainly due to seasonal ordering patterns that we expect to normalize in Q2. For the first time, we're reporting the sales of Ebglyss with EUR 3.6 million, which is a great start to the year, with substantial growth still expected in the coming quarters.

Focusing on the U.S. business, Seysara maintained a steady performance in Q1 2024, while Klisyri sales experienced a slight decline partially impacted by a cyber attack on a key U.S. insurance verification system in late February. We still expect to accelerate the growth of Klisyri with the anticipated large field launch in the second half. The U.S. legacy business remains under pressure from ongoing and generic erosion related to [ Axon ] and Tesseract.

Now let's move on to the complete financial statement. Let's focus on the remainder of the P&L, starting with revisiting some of the items in a little more detail, which were previously mentioned in the financial review highlights. The gross margin declined to 63.5% this quarter as we had some costs associated with inventory write-offs. We also are facing margin pressure in Q1 due to sales mix as well as reaching higher tiers of royalties for Ilumetri due to strong sales growth. We still expect the full year gross margin percentage to be close to the 2023 level, as we mentioned in our full year guidance during the February call.

R&D expenses were up 10% from Q1 2023, landing at 10.7% of net sales, driven by investment in the pipeline assets. We anticipate this figure to normalize throughout the year, reaching approximately 12% of net sales for the full year. SG&A investments grew in the mid-single digits compared to Q1 2023 and are expected to accelerate throughout the year as we continue the rollout of Ebglyss in other countries, while the savings from the U.S. resizing in 2023 will annualize in the second half.

Financial expenses have been impacted by the interest income from the short-term deposits, with a EUR 1.3 million impact versus Q1 2023 and lower overall financial expenses. I'd like to remind you that our effective tax rate is affected by the inability to deduct U.S. tax losses against the profitable European business. We expect this to continue for the full year similar to the 2023 results.

Please move to the next slide to take a look at the balance sheet. The key point to highlight on the balance sheet is the impact of the recent investments in intangible assets, including a EUR 10 million upfront payment to Novo Nordisk and a minor upfront payment for the Eloxx Pharmaceutical in-licensing deal, all of which was offset by regular amortization. I'd like to highlight that our net debt ratio remains favorable at 0.6x after incurring high levels of cash outflow in Q1, largely associated with the product investments and milestones, which we'll see described on the next slide.

Let's now take a look at the cash flow statement. We delivered an operating cash flow of EUR 23.4 million in Q1 2024, a significant improvement versus Q1 2023. In 2023, the unusually high working capital impact was primarily attributed to increased inventory related to the growth of Ilumetri and the stocking of Klisyri as we took over production from Athenex prior to their bankruptcy. Q1 2024 saw stable inventories and the usual seasonal impact on receivables and payables. Among the investing activities, we had significant cash outflows in Q1 2024, mostly related to milestones for our biologic portfolio.

In Q1 2024, we paid a EUR 45 million first commercial sales milestone for Ebglyss in the EU. Additionally, we paid a EUR 20 million milestone related to Ilumetri sales reaching higher targets in the full year of 2023. The remaining payments include some additional in-licensing payments related to the Novo Nordisk asset license, Etherna and Eloxx agreements as well as a milestone upon the initiation of Phase I trial paid to Simcere. We expect the milestone payments to decelerate in the rest of the year as we've made the majority of what we're going to make already in Q1 2024. And barring any significant M&A activity, we'd expect to have a more normalized outflow in the investments in the last 3 quarters. The divestment line refers mainly to milestones and royalty collections from the Covis agreement.

With that, let me pass it back to Carlos to conclude the presentation.

[Carlos Gallardo Piqué, executive]

Thanks, Mike and Karl. You've seen that we've delivered a good operational performance in Q1 2024, and we remain on track to achieve our full year guidance, which is a crucial step along the way to achieve our ambition in medical dermatology. We've full confidence that Almirall's growth will continue throughout 2024 based on our focus on key growth drivers and the work we do to support our key products. Ilumetri has consistently demonstrated strong performance, and we anticipate further growth during the year, as proven by the expansion we're experiencing in the Nordics and Eastern Europe. We also expect the positive trends of Klisyri and Wynzora to continue as we roll them out across more markets in Europe.

Progressing our successful launch of Ebglyss in December 2023 in Germany and extending our patient reach further, our commercial teams are preparing launches in other important European countries. Our close partnership with the dermatological community remains vital in our approach to reach more patients and enable them to benefit from our products. And our performance and the feedback we're receiving from the medical community gives us confidence that we're on the right track. Furthermore, we've made significant steps forward progressing our R&D pipeline, with exciting new assets entering the early stage and making substantial progress with our late-stage programs.

In line with our long-term vision and business ambition, we continue to explore external opportunities for early and mid-stage assets. The collaborations and agreements we enter will always be underpinned by a scientific, strategic and financial rationale to ensure they create impact with patients and the medical community and create value for Almirall on its path to leadership in medical dermatology.

With this, we conclude the presentation. Pablo, back to you.

[Pablo Divasson Fraile, executive]

Thank you very much, Carlos. Sharon, back to you for the Q&A.

[Operator]

[Operator Instructions] And your first question comes from the line of Lucy Codrington from Jefferies.

[Lucy-Emma Codrington-Bartlett, analyst]

Just to start off, perhaps on a more broader term. There seems to be a lot of focus on some of the recent deals that you've done that -- there is a focus now on global rights and launches. I guess for rare disease in the U.S., it does seem kind of feasible that, that would be possible. But has your attitude changed towards a potential biologics launch in the U.S.? Or would -- should your pipeline be successful for some of those biologics? Would you consider a partner for U.S.? Or is that something you foresee you could be launching yourselves down the line, assuming it's successful?

And secondly, you mentioned the licensing agreement in China for Seysara. What are your thoughts here on the potential of this opportunity? And is any kind of success in China, appreciating it will only be kind of royalties, but is that already factored into the kind of reset of Seysara peak sales that you provided last quarter?

And then finally, on Klisyri, it looked a little weak in Europe to me. Anything to factor in relative to the last quarter for European performance for Klisyri and how we should expect that to evolve during the year?

[Carlos Gallardo Piqué, executive]

Sure. Thank you Lucy. Thanks for the questions. Look, let me take the first question and the third one, and Mike will take the second one. Paolo is also here, so also he might be able to add something on -- some more color about Klisyri Europe. But on the recent deals, yes, we want -- our ambition is to, again, as we -- in our ambition to become a leader in medical dermatology, I think we've to be present in the more relevant markets, and this includes the U.S. and eventually beyond Europe and the U.S. So we're aiming always to get global rights. And we're very pleased that we've been successful in our last deal to get these global rights.

To your question, yes, it's easier to launch a rare disease product in the U.S. than launch a biologic given the tremendous commercial effort and investment that you've to do. So -- but the answer is not clear because these products, again, will come to the market in a number of years from now. And let's see how our commercial infrastructure and our robustness is in that market. So it's difficult to answer whether what's going to be our commercial strategy down the road for a biologic, right? So we'll review the different options, and we'll make the decision when it comes. So -- but at this stage, we're not giving out any options.

In terms of Klisyri Europe, I mean, we're quite pleased with the performance of Klisyri. And I think it's very well accepted by physicians, by patients. But perhaps Paolo wants to add something -- a bit more detail about the broad performance. But before going to Paolo, Mike, why don't you take the Seysara question, please.

[Michael McClellan, executive]

Yes. Thanks, Lucy. So with the license in Seysara China, we see this as an option. We're not quite sure how big of a product it's going to be, but we're very excited to have a partner in China. We signed this in Q2. You'll see a minor amount of upfront licensing income in Q2 related to this. But that's not part of the revised peak sales we gave was for the U.S. We still expect the U.S. to get between EUR 30 million and EUR 40 million. We still need to continue to grow, but we're seeing some decent momentum, especially as we get into Q2 with Seysara. So overall, the U.S. is still performing according to our expectations. And China for us will be a nice option, and we'll see how it plays out.

[Paolo Cionini, executive]

Hello, good morning to everybody. So about Klisyri, as also, we've presented a 40% growth in Europe. So year-to-date, March '23 versus year-to-date, March '24. When we look at our competitive positions, we're, I'd say, very happy with our market shares in those countries where we've launched the product. And also, we've to consider that basically, we're market leaders in many markets, not only with Klisyri, but because we own a full portfolio in increasing actinic keratosis, also with Solaraze, Actikerall. So we want to make the market growth because there's a lot of medical needs here. There's a lot of patients that are yet not treated. And with Klisyri, we want to offer patients and doctors a new treatment that adds on top of our portfolio on actinic keratosis. So happy with the performance so far in Europe.

[Operator]

And your next question comes from the line of Alistair Campbell from Royal Bank of Canada.

[Alistair Campbell, analyst]

I've got 3 questions, if that's okay. First one on Ilumetri. A very strong quarter, which is great to see. But now basically annualizing at around EUR 200 million, growing at 30%. So it just makes me wonder whether your peak sales target of EUR 250 million feels cautious? Or is there anything else we should be aware of in the competitive dynamics in the marketplace there?

And secondly, on the Ebglyss and atopic dermatitis, really more a question about the...

[Operator]

Apologies. It looks like we've lost the line. I'll go to the next question and wait for him to dial back in. Your next question comes from the line of Thibault Boutherin from Morgan Stanley.

[Thibault Boutherin, analyst]

Yes. First question on Ebglyss in Europe. Just wanted to know if you've some market intelligence of what is the penetration today of high efficacy medicines, so biologics and JAK inhibitors for atopic dermatitis in Europe, just to kind of estimate the maturity of the market?

Just a second question on the leadership of the company. Carlos, is there any plan to operate a management transition at some point with an external CEO? Or are you committed to the role in the foreseeable future?

And then maybe last question on the royalties, royalty payments on products, Ilumetri and Ebglyss. So can you just confirm that the royalty spread in Q1 were mostly related to Ilumetri? And can you give any details on the royalty rates for these 2 products, in particular, Ebglyss and how we should think about the ramp-up of royalty payments in the future?

[Carlos Gallardo Piqué, executive]

Sure. Thank you, Thibault. I'm not sure I got your question about the maturity of the market. Let me answer what I think you're asking. But if not, please feel free to come back to me.

There is still -- the prevalence of atopic dermatitis is very high, very high in Europe, between 2% to 4%. And there is still the majority of patients that are eligible for advanced systemics that, of course, is a subset of this total prevalence. And the majority are not treated with these advanced systemics. So let's say, probably we're treating now -- or the market is treating now around 10%. So it's a huge market. Patients have severely undertreated, and it's a market -- that's why we see still a lot of expansion, and we'll continue to see expansion probably until the end of the decade, if not more.

And in terms of your second question, my plan is to -- I'm fully committed to the role, no plans to change. I'm committed in the long term. And I'll go back to -- Mike will take the question about the royalty payments. And again, feel free to come back to me about your first question if I've not addressed it properly.

[Thibault Boutherin, analyst]

No, no. It's -- perhaps I was asking about the penetration rates, and you gave your estimate of 10%. So that's what I was looking for.

[Carlos Gallardo Piqué, executive]

Okay. Great.

[Michael McClellan, executive]

Good. Yes, in terms of royalty, the majority of the royalties we're paying right now are related to Ilumetri. Ilumetri is already in the high teens, moving towards the low 20s as we continue to hit higher and higher levels of sales of the product. Ebglyss will have royalties in -- starting in the low teens. So -- and then expanding as sales go on. But it will take a little while before we start getting some of the upper tranches of the Ebglyss royalties. So overall, they're both going to be products with pretty significant royalties. But that's the case when you've in-licensed products, they tend to come with a decent amount of royalties on them.

[Operator]

And your question comes from the line of Alistair Campbell, Royal Bank of Canada.

[Alistair Campbell, analyst]

Sorry about that. I'll try again, my phone cut out. I don't know if these have been answered or not. But basically, my first question was on Ilumetri, annualizing now at about EUR 200 million and growing quite nicely. So just in the context of your peak sales of EUR 250 million, is there a sense of caution there?

And then maybe just on the Ebglyss launch in atopic dermatitis, a sense of what's happening at the market level really in terms of penetration of biologics into the moderate to severe space. Broadly, what sort of level is that at? Is that growing quickly? Or is it fairly stable?

[Carlos Gallardo Piqué, executive]

Sure. Thank you, Alistair. So on your question about Ilumetri, yes, we're very pleased with the growth. The class is gaining market share. And within that class, we're gaining market share. So very pleased with the performance. And yes, it does seem that our peak sales are very achievable. But we've not done the exercise yet to review whether we -- what the peak sales and whether we want to revisit our estimates. We might do it some time down the road this year.

Ebglyss launch, I addressed a little bit in question with Thibault, but I think you were offline. But basically, the penetration of advanced systemics in the eligible population is still very low, probably not even reached a double-digit penetration. So there's tremendous opportunity for market expansion. Yes, we're seeing a little bit of that. We're seeing how the market growth has accelerated versus last year. And probably, that means that the penetration in the eligible population also is increasing and it's moving and it's increasing. And maybe -- and Paolo, maybe you can add a little bit more color to that, Paolo?

[Paolo Cionini, executive]

Yes, absolutely. So just to mention a number in between '22 and '23, the market has grown in terms of patients 37%, beating the growth between '21 and '22, that was 31%. And basically, 90% of this market is driven by naive patients getting into new treatment. That means basically that what Carlos is saying, only 10% of the patients suffering from moderate to severe atopic dermatitis are treated yet with biologics. So there's an enormous space available for new biologics.

[Operator]

And your next question comes from the line of JaI mean Escribano from Banco Santander.

[Jaime Escribano, analyst]

So my first question on Ebglyss would be, you -- I assume you've not provided the units per month because you only have 10 weeks, but my question would be if we could see March, April evolution, what is -- what you're envisioning for Q2 in terms of the ramp-up in new prescriptions? Also, if you can give us the breakdown or more or less on how much of the growth is coming from new patients and how much is from switches? I think that would be interesting to have.

And then a question on the milestones for following years and this year. So if you can give us a figure for modeling. And in the gross margin, you said that it was coming below due to one-offs. Could you quantify that one-off and just elaborate a bit more on how is this going to recover along the year?

[Carlos Gallardo Piqué, executive]

Thank you, Jaime. On Ebglyss update, what we can say is that we're very pleased with a strong start. But realize that we only have 2 data points of market dynamics data because there also we've delay between what happened in the market and when IQVIA gives us the data, that typically is around 6, 7 weeks delay, okay? So I think it's too early for us to get into predictions or getting into figures for our full year, okay? I wouldn't read that into whether it's positive or negative. It's just that we want to be prudent, okay? But I'd say we're reiterating that we're very pleased with the strong start.

In terms of the breakdown of what we're seeing in these 2 first -- with these 2 data points, maybe Paolo can mention, but I can advance you that the majority is first line patients. And that's what we want to see because this market is driven by first line patients, right? Paolo?

[Paolo Cionini, executive]

Exactly. And I can add that with 2 data points, basically, what we see is that the patients, of course, that they don't have any alternatives because they've been treated with 2, 3 or maybe others JAKs still with a lot of, let's say, concern. So that's why there's also a little bit of switches. But our strategy is clear. We want to be first line therapy, and the naive market is the one that trust is developed.

[Michael McClellan, executive]

Yes. So in terms of milestones, we had roughly EUR 80 million in the first quarter. I think the full year target should be roughly EUR 120 million, plus or minus a little bit in absence of doing any kind of new acquisitions. If we do some kind of product acquisition before the end of the year, that could be on top of that. But basically, those milestones are related to mainly Ilumetri and Ebglyss and then the few deals that we've done and a few other things that we're planning to do.

Going forward, I'd see that would regulate down a little bit because we'll get into a phase where we're paying a little bit less milestones until we get to some higher sales level of Ebglyss down the line, which is probably more '26, '27 in terms of the years. In terms of the gross margin, the one-off was a little bit less than EUR 2 million of some write-offs that we had for some excess inventory, mainly related to our supply business for products that are not necessarily in our promotional grid, but -- that we supply to other companies. That will normalize over the full year, but EUR 2 million in the first quarter can give us almost a percent of gross margin difference. So we still expect to get close to the 65% that we had last year and this year.

[Operator]

And your next question comes from the line of Guilherme Sampaio from CaixaBank.

[Guilherme Sampaio, analyst]

So 2, if I may. The first one, if you could provide a bit more granularity of the -- on the timing of the new country launches of lebrikizumab during 2024, what will be in Q3 and in Q4? And secondly, in terms of OpEx phasing, so you've alluded to some step-ups throughout the year. Should we see this already in Q2? Or is it going to be more driven towards the second half of the year?

[Carlos Gallardo Piqué, executive]

Paolo, do you want to take the first one, please?

[Paolo Cionini, executive]

Yes. So as Carlos has mentioned, you can find it also in the presentation. Next launches this year will be U.K., Austria, Denmark and Spain for Ebglyss. So all the rest of the countries will be launching in 2025.

[Michael McClellan, executive]

Yes. And in terms of the OpEx phasing, I think we'll ramp up more in the second half. We're benefiting in the first half from still some of the savings we did in the U.S. Last year in the U.S., we resized in July. So we've a significantly lower cost base in the first 2 quarters in the U.S. versus last year. That will annualize in the second half. And in addition, we're seeing, of course, the ramp-up of the Ebglyss investment as more countries come online with their launches.

[Guilherme Sampaio, analyst]

Okay. Could you give more detail on the launches for 2024, whether it will be in -- which ones will be in Q3, which ones in Q4?

[Paolo Cionini, executive]

Yes. We expect U.K. in the month of maybe June, July. Austria, Denmark and Spain will be more at the end of Q3, beginning of Q4.

[Operator]

We have 1 further question. And your question comes from the line of Alvaro Lenze from Alantra Equities.

[Alvaro Lenze Julia, analyst]

Just -- if you could provide some maybe midterm guidance, considering the royalty level of your current portfolio on what could normalized gross margin be? Is that 65% going to trend upwards as lebrikizumab -- sorry, Ebglyss ramps up? Or should it be stable considering the realities that it's going to pay?

And my second question would be on M&A. Over the last few quarters, you've announced small R&D deals mostly focused on early-stage drugs. Would you be considering incorporating maybe someone a bit more developed, maybe Phase II or approaching Phase III? Or are you continuing to -- are you going to continue to focus on very early stage products?

[Carlos Gallardo Piqué, executive]

Thank you, Alvaro. I'll take your second question, and then I'll pass it to Mike for the first question. So M&A, very pleased with the deals we've been making to fill our early-stage pipeline, very consistent also with the guidance we set a number of months ago when we did the capital increase. Yes, we'd love to get also assets in later stages of clinical development, and we're actively looking into that space as well. But again, it's not that there are many assets, and it's a very competitive space as well. So just bear in mind that. So maybe we can bring something, we can make a deal about with these assets and we will continue also to look at the earlier stages.

[Michael McClellan, executive]

Yes. So in terms of the gross margin, so we've given some guidance for this year of being close to the 65% of last year. I think we need to look in the longer term that given where we're seeing price levels potentially come in for Ebglyss, given the royalties and also given the stepping up of royalties of Ilumetri, we're more likely to see flat to even some downward pressure on the gross margin percentage than we're going to see expansion. But that's not really our investment thesis. Our investment thesis is rapid sales growth allowing us then to delever the SG&A so that we can expand the margin at the bottom.

So we're not going to get it necessarily from a gross margin percentage, but we're going to get margin expansion in the coming years for being able to grow sales much more rapidly than we grow the expenses once we've gotten the infrastructure in place this year and next year for Ebglyss in Europe. So basically, I think we'll see a little bit of pressure on the gross margin just because of the high royalties that come with licensed products. But we'll be able to expand margins in the coming years because we'll be able to grow sales much more rapidly than the SG&A expenses.

[Alvaro Lenze Julia, analyst]

Maybe a follow-up then, if you could provide. I know it's maybe early, but maybe the 25% to -- 25% to 30% EBITDA margin that you used to have is achievable again.

[Michael McClellan, executive]

I think definitely 25%. We'll have to see how the products develop before we can start talking about 30% because we've to admit that in that 30%, we did have some income related to the trailing divestment of the respiratory business that helped prop that a little bit. So definitely, we want to get to 25% pretty rapidly in the next couple of years. Now where we can then top out will really depend on how the portfolio develops.

[Operator]

There are currently no further questions. I'll hand the call back to Pablo.

[Pablo Divasson Fraile, executive]

Thank you very much, Sharon. We're now going to close our Q&A session. And with this, we'll conclude our conference today. We want to thank you for your participation. You may now disconnect.

[Operator]

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.