Almirall SA

MAD:ALM

Earnings Call Analysis

Almirall's Strong H1 Solidifies 2023 Guidance

Almirall continued its strong performance into the first half of the year, fueled by its European dermatology business, which grew by 15%. The company is on track to achieve the upper end of its sales and mid-range of its EBITDA guidance for 2023. Flagship product Ilumetri drove substantial growth, with a 40% increase over the previous year, and it's expected to maintain its momentum. Additionally, Klisyri and Wynzora contributed to growth, particularly in Spain and Germany, while Klisyri sales in the U.S. look promising, with a label extension anticipated in 2024. Early-stage pipeline developments continue with a capital increase of EUR 200 million earmarked for strategic in-licensing and acquisitions. Regulatory approval for lebrikizumab is expected by Q4 2023, adding another potential growth driver.

Almirall Continues Its Positive Trajectory with Strong Sales and a Focused Pipeline

Almirall has steered through the first half of 2023 with a positive momentum, particularly bolstered by its European dermatology business which showcased a commendable 15% growth. This robust performance in Europe is mainly attributed to Ilumetri and its recent launches, with Ilumetri alone achieving an impressive 40% growth. Almirall is well on its way to hit the higher end of its sales targets and a mid-range EBITDA as per the reaffirmed guidance for the year.

Investments and Strategic Moves Pave The Way for Future Growth

The company has not been shy about making strategic capital investments. A recent EUR 200 million capital increase bolsters their financial agility, enabling them to actively pursue growth opportunities like bolt-on acquisitions and in-licensing opportunities to potentially extend their dermatology portfolio further. Moreover, the positive cash flow from operations, amounting to EUR 57.1 million, aligns with their proactive business strategy and robust operational progress.

Lebrikizumab: A Future Growth Driver with Expected Approval and Promising Studies

Lebrikizumab is a key focal point in Almirall's future, with expectations of European market approval by late 2023. The drug has demonstrated efficacy and safety through clinical studies covering over 2,000 patients. An extended study to assess long-term benefits for up to five years is also in the works, with Almirall and its partner, Eli Lilly, believing in the potential to strategically position lebrikizumab against IL13, the pathogenic driver of atopic dermatitis.

Revenue Growth and Margins Reflect Solid Business Operations Despite Market Pressures

Almirall saw a 6.8% net sales growth, with general medicine and OTC businesses in the EU compensating for expected declines in other areas. Despite inflationary pressures and a challenging sales mix that slightly affected the gross margin, the company managed a positive net cash position and anticipates increased investments in R&D and SG&A in preparation for the commercial launch of lebrikizumab.

U.S. Market Challenges Offset by European Success

While facing net pricing pressures in the U.S. and generic competition impacting legacy products, Almirall's European success, led by Ilumetri, helps offset these challenges. The company is making efforts to improve script processing in the U.S. and anticipates further growth with Klisyri following a label expansion in the second half of 2024.

Almirall's Strategic Direction: A Balanced Approach to Business and Product Development

Almirall has shown a consistent and tactical approach in navigating the pharmaceutical landscape. With substantial growth from their dermatology segment, particularly in Europe, and strategic investments in promising clinical studies and potential market expansions, the company is positioning itself for sustained success. The management's precision in financial planning, including a solid net cash position and controllable R&D costs, provides a transparent and favorable outlook for investors interested in a company that is both expanding its market presence and maintaining fiscal discipline.

Earnings Call Transcript 2023-Q2

[Pablo Divasson]

[Starts Abruptly] ‘23 Results and Business Update. As per usual, you can find the slides to this call on the Investors page of our website at almirall.com.

Please move to slide number two. I would 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 number three. Presenting today, we have Carlos Gallardo, Chairman and Chief Executive Officer; Mike McClellan, Chief Financial Officer; and Karl Ziegelbauer, Chief Scientific Officer. Carlos will start with the highlights, biologics growth drivers, and key products. Karl will provide you with details on the progress of the pipeline, before passing to Mike to review the financial and the closing comments before opening up for a Q&A session.

I would like now to pass it over to Carlos Gallardo, our Chairman and CEO to discuss the highlights. Please move to slide number five.

[Carlos Gallardo, Chairman and Chief Executive Officer]

Thank you, Pablo. I am pleased to say that Almirall's positive trajectory continues in the first-half of the year. The business momentum from our growth drivers remain solid. Based on the good business performance, we are reiterating our full-year 2023 guidance. We are on track to land in the upper end of the sales guidance and mid-range of the EBITDA guidance. The performance was driven primarily by our European dermatology business that showed 15% growth, underpinned by Ilumetri and our recently launched products. This will be discussed in more detail later in the presentation, but let me touch upon a few highlights.

Let me begin with Ilumetri. The product continues to see strong performance across geographies, with continued good uptake in Germany and solid contribution from recently launched countries. The launch of Wynzora and Klisyri in Europe has helped drive continued growth in key countries, particularly in Spain and Germany for both products, while we also make excellent progress with the rollout in other European countries.

Regarding lebrikizumab, we'll continue to work with our partner Lilly towards a targeted late 2023 European approval and launch soon thereafter. Klisyri large field study showed it was well tolerated and a supplemental new drug application based on the Phase 3 study is expected by the second-half of the year, with the launch anticipated for the -- in the U.S. in the second-half of 2024. In the early stage pipeline, the Phase 1 study of our anti-IL-1RAP is ongoing and we expect to start Phase 1 for the IL-2 mutein during the year.

Finally, during the second quarter, we successfully closed the capital increase of EUR200 million, which will give us financial flexibility and agility in actively pursuing and swiftly executing inorganic growth opportunities, including bolt-on acquisitions and in-licensing opportunities that are currently under analysis. Since I am traveling this morning and may not be able to participate in the Q&A session later in this webcast, so probably there will be questions from this point. Allow me to elaborate a little bit more on the use of proceeds of the capital increase.

There are three areas we are focusing on, mainly in Europe. Firstly, bolt-on acquisitions that we can incorporate rapidly with minimal business disruption, primary care business over-the-counter in Spain or Germany. Good examples would be our acquisition of Crestor in Spain and [Indiscernible] earlier in 2023.

A second area of focus will be in-licensing opportunities to fill the pipeline with early-stage assets. Our examples will be the signed in-licensing deals with Ichnos and Simcere. As for indication areas, we are looking at immune-mediated inflammatory skin diseases like dermatitis, non-melanoma skin cancer areas like basal cell carcinoma and squamous cell carcinoma and relative dermatological diseases. Finally, these opportunities should have global rights and ideally explore multiple potential indications.

As a third area of focus, we'll also look at in-licensing this for late-stage assets. We have a good in-licensing history for both big and small products. For instance, both Ilumetri and lebrikizumab in terms of bigger products and Wynzora anti-CD in terms of smaller products.

Let me finish by saying that we are very pleased by the support in this capital increase from our shareholders, including the Gallardo family. As I said before, I will be available later if finally I cannot participate in the Q&A for traveling reasons.

Let's now move to slide seven to comment on lebrikizumab. We are now closer to lebrikizumab's potential approval in late 2023, which we anticipate following a potential positive CHMP opinion. Ahead of this, let me update you on some of the remaining events linked up to the launch. On top of the other studies we have completed, we have also initiated an extension study to explore the long-term benefits of lebrikizumab for up to five years. We believe that atopic dermatitis is a chronic disease that requires long-term treatment. We think that lebrikizumab has the potential to control AD effectively with every four weeks dosing in the maintenance phase as shown in our ADvocate studies.

In addition to that, our partner Lilly is conducting additional studies. For instance, ADapt, a study in patients who have been previously exposed to Dupixent. Another study is ADmirable, which is focused on patients with skin of color. And finally ADorable, a pediatric study. Meanwhile, Almirall continues to prepare and plan for lebrikizumab's rollout in Europe once we receive approval later this year.

Let's move to slide eight, please. Let's take a closer look at the strong momentum of Ilumetri, our anti-IL23 biologic for psoriasis treatment in Europe. On the left side, you can see the market dynamics and the biologics in Germany, where the IL23 class continues to lead in new patients market share. Ilumetri continued its outstanding performance with total growth increasing in the half-year by around 40% or EUR22 million, compared to the same period last year. The sales contribution of other European countries, compared to Germany is over 50%, demonstrating the good traction of the product in other key European markets. We expect the good level of performance to carry on for the rest of 2023.

Now let's move to slide 10 to complete the update on our key products. Let's start with Seysara. Despite continued 4% volume growth throughout the first-half of 2023, sales dropped by 10% versus the first-half of 2022, due to lower gross to net pricing. Market share in the antibiotic market remained stable and we continue to focus our efforts on driving demand and improving the gross to net through better payer coverage and increasing access to more commercialize.

In the first-half of 2023, Klisyri sales grew by around 60%, which is a very good result for a product launched in a market with numerous generic alternatives. The product has seen solid adoption in Germany and Italy with market shares of around 15% and 18%, respectively. In the U.S., we continue to differentiate Klisyri from what is already available in the market based on efficacy, tolerability, and convenience.

Klisyri large field study has shown it is well tolerated. A supplemental new drug application based on the Phase 3 study is expected to be filed in the second-half of the year and our launch anticipated in the U.S. in the second-half of 2024.

Moving on to Wynzora for patients with mild to moderate psoriasis, which we launched in May 2022. We are pleased with the progress, having achieved sales of around EUR7.7 million in the first half of 2023, with growing shares in Spain and Germany.

With that, I will pass to Karl to cover in detail our pipeline section on slide 12.

[Karl Ziegelbauer, Chief Scientific Officer]

Thank you, Carlos. This slide shows you the progress of our pipeline. We continue to advance our late-stage pipeline, while building an exciting early pipeline. For lebrikizumab, we have filed a market authorization application for atopic dermatitis with EMA and regulatory review is ongoing. We expect approval in Q4 2023.

For Klisyri, we have completed the clinical study addressing the extension to large field in the U.S. This Phase 3 multi-center, open label, single-arm study evaluated the safety and tolerability of tirbanibulin ointment 1% applied to a field of approximately 100 square centimeters on the face or balding scalp in about 100 adult patients with actinic keratosis. The administration of Klisyri was well tolerated. Based on those data, we are on track for a submission to FDA in Q3 2023 and would expect the potential approval of the label extension in 2024.

For Seysara, in China, the Phase III clinical study with primary and key secondary endpoints and we plan to file with the Chinese National Medical Products Administration this quarter. For Efinaconazole, we are under regulatory review and target an approval towards the end of 2023. The Phase 1 for our anti-IL-1RAP monoclonal antibody is ongoing, and we aim to start Phase 1 for our IL-2-mutein fusion protein that we developed in collaboration with Simcere later this year. As you can see, we are making good progress with our early and late stage pipeline and are on track to strengthen our leadership position in medical dermatology.

Next slide, please. Let's do a quick recap of the key clinical study we have completed thus far for lebrikizumab together with our partner, Eli Lilly. Overall, we saw in those studies a very consistent efficacy profile in a clinical development program covering more than 2,000 patients. The safety profile was mild and consistent with prior lebrikizumab studies in atopic dermatitis. ADvocate 1 & 2, a 52-week randomized, double-blind, placebo-controlled Phase 3 study designed to evaluate lebrikizumab as monotherapy.

In these studies, 80% of lebrikizumab responders at week 16 maintained improvement in skin clearance and disease severity at week 52. Lasting improvement in each were also observed. Week 52 data supported both every two-week and once every four-week maintenance dosing with consistent and durable responses.

ADhere is a Phase 3 randomized trial to study the efficacy and safety of lebrikizumab in combination with topical corticosteroids in patients with moderate to severe atopic dermatitis. At week 16, 70% of patients receiving lebrikizumab combined with standard-of-care topical corticosteroids achieved at least 75% improvement in overall disease severity measured by EASI-75. The ADvantage study is a Phase 3b study in patients not adequately controlled by cyclosporine or for whom cyclosporine is medically not advised. The primary endpoint at week 16 was met and we will publish detailed results later this year.

As already mentioned, we have started a long-term extension study in Europe called ADlong to explore long-term benefits of lebrikizumab up to five years. Furthermore, we are working with our partner Eli Lilly on additional clinical studies to value -- to maximize the value of lebrikizumab as we believe lebrikizumab is the best antibody targeting IL13, the key pathogenic driver of atopic dermatitis.

Finally, we continue to be extremely excited about lebrikizumab and are confident on the expected approval and launch of lebrikizumab towards year-end. We are steadily intensifying our internal efforts to be prepared for a successful commercial launch.

With that, I hand over to Mike.

[Mike McClellan, Chief Financial Officer]

Thank you, Karl. On slide 15, as Carlos mentioned, the first-half of the year showed solid performance with net sales growth of 6.8%, driven by strong growth in Europe from the dermatology portfolio, in particular, Ilumetri with 40% year-on-year growth.

We achieved a total EBITDA of EUR101.3 million in the first-half of the year, slightly down from the first-half of 2022, mainly due to lower contribution from other income. As most of the milestones related to the Covis agreement were recognized in 2022, we expect a lower contribution going forward.

In the first-half, our gross margin came in at 65.4%, which was impacted by inflation, which affected some of our raw material purchases, as well as our sales mix and higher royalties. This is in line with what we anticipated for the year. SG&A in the first-half of 2023 was up 2.1% as we continue to invest heavily in our newly launched products, as well as some pre-marketing ramp up for lebrikizumab. Partially offset by lower corporate costs, we expect SG&A to accelerate in the second-half of the year, as reflected in our full-year guidance.

R&D investments increased to 11.3% of net sales in the first-half of 2023 and we expect the R&D expenses to accelerate for the full-year in the range of 12% of net sales. We managed to finish the first-half of 2023 with a positive net cash position of EUR31 million, aided by the Q2 capital increase. In the first-half of the year, we made several investments such as Efficib/Tesavel extension deal, the Physiorelax acquisition, Ilumetri and Klisyri milestones and the Isolex upfront payment.

Let's move on to the sales breakdown on slide 16. As seen on slide 16, the dynamics of the net sales with the European dermatology business showing a very strong performance and a 15% increase year-on-year. We also had a strong first-half from our general medicine and OTC businesses in the EU, which more than offset the expected decline in Efficib/Tesavel in Spain following the patent expiration and price decrease experienced in Q4 2022 for this product. Our U.S. business recorded a decrease in the first-half 2023 and I will provide more details on the next slide.

Rest of world dermatology sales showed good year-on-year performance while general medicine had a small year-on-year decline, mainly driven by Imunorix in Latin America, which had high demand during the pandemic and winter months of 2022, as well as lower sales of Ebastel. Overall, it's important to reiterate that our portfolio has limited patent exploration risk going forward in the mid-term, especially following the Efficib/Tesavel patent expiration last year.

Let's take a look at the dermatology business on the next slide. On slide 17, you can see we had a very strong performance in Europe, driven by the growth of Ilumetri. Other products such as Klisyri and Wynzora also benefited in Europe from continued market penetration, as well as initial launches in new markets.

Focusing on our U.S. business, we managed to grow both the TRx volume and market share of Seysara, but we are still facing net pricing pressure due to high net rebates and a higher mix of consignment sales in 2023. We continue to work to improve our ability to get more scripts through the prior approval process so that they can come through as coverage scripts instead of consignment.

Klisyri keeps growing at a good rate and we expect further growth acceleration after the large field label expansion in the U.S. in the second-half of 2024. You can see that the legacy business in the U.S. remains under pressure from ongoing generic erosion related to Cordran, Aczone and Tazorac. In rest of world, there is some growth across countries highlighting the sales of Finjuve in Korea.

Now moving on to the full-year financial statements on slide 18. We have seen the net revenue development in the previous slides, so let's focus on the rest of the P&L. Gross margin was in line with expectations at 65.4%, given the ongoing pressures of energy costs, material inflation, and sales mix I previously highlighted.

Other income was lower in the first -- than the first-half of 2022 due to the milestone income recognized last year that I previously mentioned that did not repeat. R&D expenses are up double digits from 2022 and reached 11.3% of net sales. The increase is mainly driven by the IL-1RAP project and lebrikizumab projects. As I said, we expect R&D costs to accelerate during the year to a full-year level around 12% of sales.

SG&A investments grew in low-single-digits, compared to the first-half of 2022, but this will also accelerate in the second-half of the year as we prepare for the expected launch of lebrikizumab. Financial expenses have been impacted by the lower share price, which is connected to the equity swap on the balance sheet, with a EUR4 million negative impact.

I would like to remind you that our effective tax rate continues to be affected by the inability to deduct the U.S. tax losses against the profitable European business. We expect this to continue and potentially accelerate in the coming quarters until the U.S. business regains a critical mass. We did not have any meaningful unusual items in the quarter and therefore the normalized net income is aligned with the net income.

Please move to the next slide to look at the balance sheet in more detail. On slide 19, the key point to highlight here is the impact of the capital increase that Carlos mentioned. We received around EUR200 million of proceeds from the capital increase. A part of this has been allocated to short-term investments and a part is registered as cash equivalents in the balance sheet. At the end of Q2, we are also in a slight net cash positive position, giving us a significant flexibility for bolt-on M&A and dermatology-based R&D and licensing in the next 16 months, as described by Carlos.

Let's now take a look at the cash flow statement on the next slide. On slide 20, you can see that we delivered operating cash flows of EUR57.1 million in the first-half of ‘23, a level similar to last year as the operating cash flow was in line with the progress of the business. The other adjustments are mainly related to the net financial income including the value of difference in the equity swap.

Amongst the investing activities, we made key investments in Q1 2023, as I mentioned earlier, like the Efficib/Tesavel extension deal, Physiorelax acquisition, Ilumetri and Klisyri milestones, and the upfront payment for Isolex. The divestments line here refers to milestones and royalty collections from AstraZeneca/Covis. These have been classified under investing activities due to the reduced focus in our operations and are lower than 2022 based on the agreed schedules. The short-term deposits outflow as I mentioned before are a result of the capital increase in June and will reverse by year-end.

Let's now move on to the conclusions on page 22. To wrap up, we've delivered a good operational performance in the first-half of 2023 and we're pleased to reiterate our guidance for 2023. Our focused strategy on the medical dermatology field positions us well for the mid-term. We continue to execute on the transformation of the company by preparing the business for the exciting launch of lebrikizumab later this year, with pre-launch activities advancing in the key markets in Europe.

We are confident that Almirall's growth drivers will continue the growth trajectory in 2023, as we heavily support these key products. Ilumetri has been a very strong performer and we expect increasing contribution from recent country launches during the year. We also expect positive trends from the rollout of Klisyri and Wynzora in Europe to continue. Furthermore, as detailed by Karl, we're making good progress with our late-stage pipeline, while also strengthening our early-stage pipeline with exciting new assets.

Overall, Almirall is well positioned for long-term growth from our current and future growth drivers, as well as potential inorganic sources that we can leverage using our strong balance sheet, flexible capital structure and firepower that was enhanced by the capital increase.

With this, we conclude the presentation. Pablo, I hand the call back to you now for the instructions on the Q&A.

[Pablo Divasson]

Thank you very much, Mike. Nadia, back to you for the Q&A, please.

[Operator]

Thank you so much. [Operator Instructions] Now we are going to take our first question. And the question comes from the line of Lucy Cordrington from Jefferies. Your line is open. Please ask your question.

[Lucy Codrington]

Hi, there. Thanks for taking my questions. Just a couple, just firstly on the Klisyri large field data. Have you had any feedback from, in particular, U.S. physicians on that data? And how you are expecting the potential or expected approval of that to affect uptake? Is it going to be a significant uptake or a more gradual uptake as they get used to it?

Secondly, on the lifecycle management by Lilly for lebrikizumab, could you just remind us, is that -- is Almirall currently or are you planning to contribute to these studies or how does it work in terms of the agreement there for access to that data?

And then finally just on Skilarence, obviously that was significantly impacted during COVID. What are your expectations now for that product? Is it kind of -- has there any recovery happened and should we expect any improvement going forward? Thank you.

[Mike McClellan, Chief Financial Officer]

Thanks, Lucy. We'll let Karl start on the first two and then I'll chip in.

[Karl Ziegelbauer, Chief Scientific Officer]

Yes. Thank you, Lucy, for the question. On -- the main objective of the Klisyri Phase 3, I mentioned was the safety and as mentioned, Klisyri was well tolerated in those studies. We are planning to file based on data this quarter with the FDA and plan to publish more detailed result at scientific conferences later this year.

Now, on your second question on the lifecycle management of lebrikizumab, there is certain studies we do like the ADvantage trial and then there is certain studies Lilly does, as mentioned, the study in Dupixent pre-exposed patients, the study in skin of color and the pediatric study. Those are run and covered by Lilly and we of course will also benefit from those studies when they are being published and also specifically from the pediatric study as this is part of the European pediatric plan.

[Mike McClellan, Chief Financial Officer]

Yes. To add with Klisyri, I think the large field extension will give us the ability to access more of the market. A lot of the topical use in that market in the U.S. is for larger surface areas. So that will give us more opportunity. I would say, we should be able to quite -- I wouldn't say rapidly, but we should be able to accelerate the sales quite a bit once we get that large field indication.

When it comes to Skilarence, I think we have to see that the class that Skilarence is in is getting squeezed a little bit, because of the biosimilars in the psoriasis market are starting to act a little bit earlier and moving patients through the funnel. So I think what's realistic for Skilarence is that we hold, maybe have slight decline as we move forward, but growing that product again, knowing that a lot of patients are not staying on the orals as long as they used to, I think will be a little bit of a challenge. So I'd say flat to minor decrease as we move forward.

[Lucy Codrington]

Thanks very much.

[Operator]

Thank you. Now we are going to take our next question. The next question comes from the line of Jo Walton from Credit Suisse. Your line is open. Please ask your question.

[Jo Walton, Credit Suisse]

Thank you. If I can start by going back to Klisyri, just to get a sense of how many doctors are using it? I mean, we know that there are sort of smaller free samples which effectively cover the whole of a small lesion, but just to give us some sense of how this might pick up. Can you give us any sense of the level of penetration, whether you do have a few doctors that have used it, liked it and are repeat using it and actually getting some sort of sales?

And can you tell us also -- I believe that you -- the key thing that's required is to look at the recurrence rate of lesions, as well as the tolerability. So do you have any data as to whether this in large field actually stops them coming back, because, I mean, I appreciate that repeat sales are good, but you want patients to get a period of time without a lesion there? So a little bit more on that. Could you also tell us a little bit more about the strength of the general medicine and OTC business? Is there anything one-off in that or is it just a good market background in terms of demand?

My final question would be on the SG&A investment. We can see the investment for lebri. With only in the second quarter 1% CER growth in sales activity versus 2Q last year, we're not seeing much evidence of this investment in lebri. So can you give us an idea of what's actually happened so far in the second quarter? Give us some idea perhaps of a number of people or whatever you may be able to add or wish to add in the second half of the year? Thank you.

[Mike McClellan, Chief Financial Officer]

Alright. So let me start with Klisyri. We do have several thousand physicians in the U.S. that are prescribing it. I don't have the exact number on me. But there is a pretty good base. What we are seeing is that, we're still seeing a lot of consignment use, because we need to get through the prior authorization. But we think that will help once we get into the large field, because there'll be more patients that have previously used the 5-fu and the others that they need to step through.

Karl, maybe you can comment a little bit on the recurrence.

[Karl Ziegelbauer, Chief Scientific Officer]

Yes, happy to do so. So good morning, Jo. Thanks for the question. I mean, Klisyri so far is a one-cycle treatment of five days. And we will only study recurrent treatment in future clinical studies. I mean, as this is a kind of a disease that's mainly triggered by UV irradiation, of course there is recurrence as patients are continuously to be exposed to that and we have to better see in future studies how this exactly will look like.

[Mike McClellan, Chief Financial Officer]

Yes. So when it comes to the general medicine OTC business, we saw very strong performance in the first-half from our cough and cold business in Spain. I think we did see some competitors that were out of stock of some of the basic products like paracetamol and a few other things. That gave us a little bit of an opportunity, I mean, it's several million. It's not a huge, huge amount, but it was a nice bump for that business. We'll see if that's sustainable in the second-half. It really depends on how the season goes in the winter and where all the competitors are at. But we are seeing a nice performance and it was able to offset what we saw as a decline in the Efficib/Tesavel.

In terms of the lebri investment, it's going on. It will ramp up. We will start bringing in more sales force in the key markets that are launching early in ‘24 or late ‘23. We will start to see more and more spend as we get closer to the approval and we can't really do anything promotion-wise until we have that approval. So right now it's all preparation. We did invest more in terms of the overall marketing spend in the first-half, but we had some savings in what I would call more of the corporate general that we're able to help offset that.

As we go into the second-half, we will see even more investment in lebri, as well as continuing Ilumetri, Klisyri, and Wynzora rollouts in Europe. So that's why you will see an acceleration a little bit in the second-half versus the first-half.

[Jo Walton, Credit Suisse]

Thank you.

[Operator]

Thank you. Now we are going to take our next question. And the next question comes from the line of Juan Ros Padilla from ODDO BHF. Your line is open. Please ask your question. Mr. Juan, your line is open. Juan, are you on mute?

We will proceed to the next question, just give us a moment. Now we are going to take our next question. And the next question comes from the line of Manos Mastorakis from Deutsche Bank. Your line is open. Please ask your question.

[Manos Mastorakis, Deutsche Bank]

Hello, thanks for taking my question. Two, please. First one, if you could give some color on the timing for reimbursement of lebri in key European markets, please? And secondly, for the EUR200 million raise and the ideas that you outlined, what kind of time horizon have you given yourselves for that?

[Mike McClellan, Chief Financial Officer]

Okay, thanks, Manos. So in terms of reimbursement for lebrikizumab, we will first launch in the early markets like Germany, U.K., and Netherlands where you can get prices a little quicker, fairly quickly after the launch, I would say. Then we will follow the normal pattern you see in Europe. So probably nine to 12 months later you will see us get reimbursement in markets like Italy, Spain, and France maybe even a little later than that.

In between some of the smaller markets will also come online. So very typical rollout schedule, probably very similar to what you saw for Ilumetri, but of course the biggest market being Germany is usually a pretty fast launch, because you get to launch at a price that you set and then you go through the reimbursement process with the [AMNOC] (ph) with a payback later after that six months depending on where the final price lands. So typical of the usual launch sequence.

In terms of using the proceeds from the capital raise, we've talked about the next six to 18 months. We are actively working on several opportunities. As soon as we can get some of those across the finish line, we will hopefully sooner rather than later, but I would say from that date in June, six to 12 months, so definitely you should see some activity before the end of the year.

[Manos Mastorakis, Deutsche Bank]

Okay.

[Operator]

Thank you. Now we are going to take our next question. Just give us a moment. And the next question comes from the line of Alistair Campbell from Royal Bank of Canada. Your line is open. Please ask your question.

[Alastair Campbell]

Thanks so much. Hope you can hear me. Just in terms of -- couple of questions on atopic dermatitis. I wonder if you can give us any insights from sort of any early market research you've done on adoption of biologics. In the AD market in Europe, sort of, feels like it's been a bit slower than U.S. Is there sort of any sense you got there of a general adoption of biologics? And then secondly, thoughts on the competitive environment. Sanofi recently talked up amlitelimab is raising the bar. It's obviously Phase 2b data, it is quite early, but your thoughts on what you've seen so far from things like the OX40 drugs would be useful? Thank you.

[Mike McClellan, Chief Financial Officer]

Okay. So I'll try to take the first one and then general approach and, Karl, you can take the pipeline. So I think we've seen decent adoption of the biologics in Europe, but definitely slower than the U.S. And a lot of that has to do with market access restrictions. Most of the countries in Europe try to funnel severe patients through specialty centers or try to put some barriers, so that the cost doesn't explode on them. You don't see the same kind of restrictions or slow uptake in the U.S., but we think it's building nicely.

We think the market is still very early stages in terms of penetrating the moderate to severe. And that's what gives us a lot of hope and confidence that we really have a great opportunity here, because so far you've seen Dupixent really dominating the landscape and several other competitors have entered whether it's through tralokinumab or it's the oral JAKs, but nobody has really established a huge share yet. So we think that's a great opportunity for us to really come in with very solid data we have and position ourself as a real competitor to Dupixent in the atopic dermatitis space.

Maybe, Karl, you want to talk a little bit about future competitors?

[Karl Ziegelbauer, Chief Scientific Officer]

Yes, happy to do so. And thanks for the question. I mean, when it comes to the OX40, we have on the one side the OX40 ligand. So the ligand of this indirection pair that is mainly expressed on an antigen-presenting cell in a transient manner and the antibody Sanofi is developing is targeting the OX40 ligand, the antibodies called amlitelimab -- sorry difficult name. And Sanofi just released top line data from their Phase 2b, but it is difficult at this stage without the detailed data to really assess this carefully.

The second one targeting OX40, this is mainly expressed on T-cell is from Amgen, rocatinlimab, and this is now in Phase 3. Now, both have -- potentially can be competitors in atopic dermatitis, but we have to see how the final data will look like.

Then there is another antibody that has recently published a Phase 2b result, that is called eblasakimab from ASLAN that targets the IL13 receptor alpha. They have tested various doses and 600 milligram every four week showed numerically the best result. Also here we have to see how the final data will look like. Atopic dermatitis is a heterogeneous disease. So there will be room for multiple therapeutics.

Having said that, we are very convinced about the profile that we have with lebrikizumab targeting IL13, which we believe is the key pathogenic driver and with lebrikizumab, we also expect to be significantly ahead of those mentioned competitors.

[Alastair Campbell]

Thank you.

[Operator]

Thank you. Now we are going to take our next question. And the next question comes from the line of Guilherme Sampaio from CaixaBank BPI. Your line is open. Please ask your question.

[Guilherme Sampaio, CaixaBank BPI]

Hello, thank you for taking my question. So three if I may. The first one on Klisyri, sorry for coming back again. So performance was stable quarter-on-quarter. Just wanted to understand whether this is a type of seasonality that we should expect going forward or if it's tracking beyond expectations?

Second question, if you can update us on the extraordinary gains with product disposals that you are embedding in your guidance for this year at this stage. And the third question, if you could provide us some initial color on how should we see R&D in 2024. Thanks.

[Mike McClellan, Chief Financial Officer]

All right. So, yeah, Klisyri has a normal pattern, the AK market tends to be a little bit higher in Q3 and Q4, a little bit softer in Q1, Q2. So no real thing to say on the quarter-by-quarter. We're still making good progress with the products. In terms of gains on disposals, overall, there is some little things that we're doing this year. But overall, it will be less than the amount that we had last year. Remember last year in Q4, we had a sizable disposal. Overall, this year, the little things that we have will not add up to the same. So there's a little bit of income there. But less than last year.

And then in terms of R&D for 2024, it will really depend on the progress of the projects and as well as our ability to license in anything more late stage than early stage. I would say, as for now, the 12%-ish is a good benchmark. If we are lucky enough to bring in later-stage asset, that will require R&D expense that might put some pressure upward on that. But given the needs to continue to do some work for lebrikizumab to move the existing portfolio forward, 12% of net sales is probably a good benchmark.

[Guilherme Sampaio, CaixaBank BPI]

Okay. Thank you very much.

[Operator]

Thank you. Now we are going to take our next question. And the next question comes from the line of Alvaro Lenze from Alantra Equities. Your line is open. Please ask your question.

[Alvaro Lenze, Alantra Equities]

Hi, thanks for taking my question. Just wanted to hear your views on potential pricing for lebrikizumab. You have mentioned in the conference that you expect the product to be potentially the best-in-class. So if you could please remind us what the average pricing in Europe is for Dupixent and how would you position yourself compared to that? Thanks.

[Mike McClellan, Chief Financial Officer]

Yeah. So, I mean, right now is not a great time to talk about the pricing of lebri, because it's really going to be competitively sensitive and we'll be going through the final labeling and discussions. What we do know is that in many markets, you will have a mandatory discount to the standard-of-care, which at this point is Dupixent. So we'll probably try to be as close as we can to the Dupixent pricing, which I think moves a little bit, but the average across Europe is currently above 10,000 a year per patient. Let's see where that comes in.

We will try our best to get the optimal pricing that will give us the opportunity to really grow this product, but it will depend on a market-by-market approach in the reimbursement process. It will also depend a little bit on the final dosing schedule that we have in our clinical trials. We've seen very good results from an every four-week maintenance dose. That versus a two-week could have a little bit effect on pricing because the pricing is based on patient years, not based on syringes. So you don't get a price per syringe that matches your competitors. They look at the overall cost of the patient here. So let's see where it goes. But we're very, very excited. We think we'll get a very good opportunity with this to really change the size of the company. This could really be a nice big asset for us.

[Alvaro Lenze, Alantra Equities]

Thank you.

[Operator]

Thank you. Now we're going to take our next question. Just give us a moment. And the next question comes from the line of Jaime Escribano from Banco Santander. Your line is open. Please ask your question.

[Jaime Escribano, Banco Santander]

Hi, good morning. Couple of questions. First one regarding performance in Ilumetri. Can you tell us a little bit about how are you seeing the market dynamics, because when we see the delta growth from Q1 to Q2, which is around EUR4 million increase, we see even more than last year in Q1 to Q2 2022. So we could even say that there's been an acceleration. So, any color that you can provide I think would be welcome. On the negative Ciclopoli kits declining in the last few quarters, again, if you can give us a little bit more of an outlook on -- in order to better estimate Ciclopoli.

And finally, a question on guidance. You are not changing the EBITDA guidance due to higher OpEx in the second-half, but the top line is already growing close to 7% year-on-year in the first-half and your guidance was, if I recall, well, low single digit to mid-single-digit. Are you willing to change that top line guidance or are you expecting somehow a slowdown in the second-half? Thank you very much.

[Mike McClellan, Chief Financial Officer]

Thanks, Jaime. Let me take this. So Ilumetri performance is doing very well. We saw a 40% growth year-on-year in the half. I think we're seeing two different dynamics there. We're seeing -- one, we're seeing good uptake in even more markets, some of the ones that launched in the last 12 to 18 months is really helping. We're seeing good growth continuing in Germany, our main market.

What we have seen is that the anti-IL23 class and you see it on the slides is really becoming the dominant class for new patient share in Germany. Our market share is relatively holding. We've lost a tiny bit versus Skyrizi and Tremfya mainly, because they have the halo effect of having the PSA, the arthritic indication. But we're still holding on very well and we're still on track to meet our goal, which is absolute growth this year at the same or better than last year. So I think we're in good shape with Ilumetri.

Ciclopoli is suffering a little bit because of the economic slowdown. It's an OTC product in most of the markets. We're seeing in particularly in Germany a little bit of pressure on the OTC market. Basically what has happened in our product is instead of the larger packs, people are buying smaller packs to save a little bit of cash up front. So still doing okay. And we think there's still prospects for the product to continue growing in the future, but there is a little bit of an impact of, I'd say -- Germany is not really in a recession, but it's not really growing at this point and there is some consumer pressure.

And the third one on the guidance, as Carlos mentioned, we are looking at probably ending in the upper range of the sales guidance. That has been buffeted by some of the upsides that I talked about earlier in the cough and cold business in Spain. We have to remember, in the second-half, we will have a tougher comparison, because we did have the one product divestment in Q4 last year that will be a competitor.

But we still -- if everything goes according to plan, we probably will end up towards the upper end of that sales guidance. EBITDA is still probably more towards the middle of our guidance at this point, because we do have accelerated spend. And you can see that some of that extra sales has been coming through with a little bit more pressure down the gross margin. So overall, we're still very much on track and really starting to line ourselves up for the accelerated growth we expect in the coming years for lebrikizumab.

[Jaime Escribano, Banco Santander]

Thank you very much, Mike.

[Operator]

Thank you. Now we're going to take our last question for today. And the question comes from the line of Jo Walton from Credit Suisse. Your line is open. Please ask your question.

[Jo Walton, Credit Suisse]

Thank you. I don't know whether I am going to be lucky here or not, but we'll give it a go. We can see what the first year sales of lebri were -- sorry, of Dupi were in Europe, about EUR75 million. How should we look to see lebri in its first year? You don't have to create a market, so the market is already there. So you can take some share, but of course, there is an established player. So I just wondered how you should -- how you feel that we should look relative to what Dupi achieved in its first year?

Secondly, given that you're doing work on lebri versus people who have had Dupi in the past. Could you give us an update on what you think is the rate of people dropping off Dupi because of either side effects, conjunctivitis or whatever or lack of efficacy so that we can get a sense of what sort of share of the market you think you could take if it largely came from Dupi failures? Many thanks.

[Mike McClellan, Chief Financial Officer]

Yes. Let me take the first one and I'll pass on to Karl for the second one. So EUR75 million would be great. But you got to remember, when Dupi launched: number one, the price was higher than it is now, because they have actually seen a contraction after all the different indications. And two, there was a huge bolus of severe patients that had nothing really at that point other than cyclosporine and corticosteroids. So there was a kind of a bolus that helped them.

Now, that would be very, very ambitious. I think we'll do well in the first year, but I think that's a very difficult comparison, because of the situation now. We'll do what we can. I think it's a little too early to give you an exact number. We'll do that when we give the full-year guidance, but we do expect to have good early uptake given the fact that we do have quite a few competitors on the market versus Dupi, which had an open field at that point.

Karl, you want to talk a little bit about the pre-exposed patients?

[Karl Ziegelbauer, Chief Scientific Officer]

Yes. I mean, thank you, Jo, for the question. I mean, when we talk about Dupixent pre-exposed patients, this is a mix of patients discontinuing for various reasons. One, experience side effects. Second, not -- maybe not working well. But there is also maybe a reimbursement issue, access issue on Dupixent. So there is a mix. And I'm not sure there is really, really good data on rates that you have been asking for.

What we know from some of our trials we did where we included patients that have been pre-exposed to Dupixent, that lebrikizumab might be active in those patients. Also, we have to admit that, so far, we're looking at low patient numbers and we will learn much more from the study or from the dedicated study Lilly is doing both on what are potentially rates and what is the level of activity of lebrikizumab in this patient population.

[Mike McClellan, Chief Financial Officer]

Yes. And, Jo, one last comment on your question earlier about Klisyri prescribers in the U.S. In the last quarter, we had over 3,000 unique prescribers, so if that gives you a little context.

[Jo Walton, Credit Suisse]

Thank you very much.

[Operator]

Thank you. There are no further questions for today. I would now like to hand the conference over to our speaker Pablo Divasson for any closing remarks.

[Pablo Divasson]

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

[Operator]

That does conclude our conference for today. Thank you for participating. You may now all disconnect. Have a nice day.