Almirall SA

MAD:ALM

Earnings Call Transcript 2018-Q3

[Operator]

Good day, and welcome to the Q3 2018 Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Pablo Divasson. Please go ahead, sir.

[Pablo Divasson del Fraile, Head of IR & Corporate External Communication]

Thank you, Mary. Good morning, everyone. Welcome to the Almirall Q3 2018 Financial Results Conference. This presentation was released earlier this morning and is available on our corporate website. Presenting today, we have Peter Guenter, Chief Executive Officer; David Nieto, Executive Vice President and CFO; and Bhushan Hardas, Executive Vice President, Research and Development, CSO. Peter will make some general introductory remarks about the quarter and later come to sum up. David will provide you with detail on the financials. And Bhushan will talk about our 2 near-term product launches. After that, we will open a Q&A session. Before we move ahead, I would like to remind you that certain statements that we will make in this presentation are forward-looking statements. These forward-looking statements reflect Almirall's judgment and analysis only as of today, and results may differ materially from current expectations based on a number of factors affecting our businesses. So with that, I will pass you over to our CEO, Peter Guenter.

[Peter Guenter]

Well, thanks a lot, Pablo, for the introduction, and good morning to everyone on the call. First, as you can see from the slides, we have continued strong business momentum in the third quarter driven by our key brands across Europe. And of course, the notable event that occurred in the quarter was the closure of our transformational deal with Allergan. We expect to see a meaningful impact in the fourth quarter. We were excited by the FDA approval for Seysara and plan to launch that product in the U.S. in January 2019, and Bhushan will make some comments on this shortly. He will also comment on ILUMETRI, which was also approved in the quarter, this time by the EU authorities, and we plan to commence the rollout of that product in Germany shortly, actually this week I should say. Our other recent launch, Skilarence, progresses according to plan. And our business remains very much on track to deliver the raised guidance we provided to you at the half year stage, i.e. EBITDA growth of around 30% year-on-year, which, of course, excludes contributions from Allergan. We estimate the contribution of Allergan portfolio or ex-Allergan portfolio in the fourth quarter 2018 to be around EUR 30 million to EUR 35 million in net sales. So here's our slide on strategy to look at how we are meeting our goals. For the launches, we continue to work very hard for preparing the launch of ILUMETRI in Europe and Seysara in the U.S. Further, our psoriasis franchise continues to grow nicely, with the Skilarence rollout very much on track, ahead of the upcoming launch of ILUMETRI. Operationally speaking, we remain focused on generating value from our existing portfolio; and have been pleased to see in the quarter that our selective investment behind some key brands such as Ciclopoli, Sativex and Crestor continue to pay off. In R&D, we already shared with you in the first half webcast the positive top line results for KX2-391 in actinic keratosis and P3074 for alopecia. We remain pleased with how our focused pipeline is progressing. Finally, while looking forward now to consolidate the Allergan acquisition into our portfolio, we nevertheless remain committed to assessing additional opportunities within the medical dermatology area which may further boost our growth prospects. On the next slide, on Skilarence, you can see from the chart that the rollout continues as planned. The sequential growth in Q3 is lower than in Q2. This is mainly due to the fact that we counted 1 calendar week less in Q3 as well as the softer oral market in summer months of psoriasis. So this is a seasonality effect. I can also tell you that the average number of boxes per week in sellout in the October month is accelerating compared to the average number of boxes per week in Q3. In terms of sales, we recognized in this quarter a onetime negative price effect related to the price equalization after the final price negotiation with the GBA in Germany. This is absolutely common practice. Finally, the rollout in the rest of Europe is going according to plan. Skilarence was launched in the Netherlands in July, and we expect this to be an important market due to the significant previous DMF use there; and more recently launched in Spain. Our next key launch will be in Italy in the first quarter of next year. This slide shows that this is a very exciting period in Almirall's history. We are transforming our portfolio with innovative products in dermatology. In 2017, we had net sales of around EUR 680 million, yet in a relatively short period of time, we hope to launch 4 products which combined have the potential to generate peak revenues with those launches of a similar amount to the EUR 680 million sales we realized in 2017. And of course, we have other products in the pipeline that could add to this as well as growth from some current products in our portfolio. So now I will pass over to David to provide you with some comments on our financial performance.

[David Nieto]

Thank you, Peter, and good morning to everyone. We delivered a strong set of financials in the first 9 months of the year, the key highlights being our total revenue and net sales growing at 5% and 6% in constant exchange rate with good performance from key brands such as Ciclopoli, Sativex, Crestor and Skilarence. Strong gross margin improvement reaching 68.8%, an increase of 250 basis points versus last year driven by product mix and performance of key products. Despite investment in new launches, SG&A is below 2017 level, and this, together with our gross margin improvement, contributes to generate EBITDA growth of 49%. I would like to point out the excellent operational cash flow generation at EUR 102 million for the first 9 months. Of course, we also had some challenges, the main one being the continued decline in sales of ThermiGen due to the early termination of Instalift agreements and the poor performance of our capital sales. Note that we recently stated our intention to assess strategic options for the aesthetics business. The second being the emerging market slowdown mainly linked to the demand decrease for Imunorix. However, emerging market is a minor contributor to our total business. On the next chart, you can see that our base business as well together with Skilarence launch are the main revenue contributors year-to-date. Our U.S. business, particularly Thermi, was a key detractor today. If I move to the next chart, we're turning next to the P&L. We grew net sales by 6.1% in constant exchange rates with a minor contribution of EUR 2.8 million from Allergan acquired portfolio. As expected, other income declined double digits versus last year. New launches and improved product mix drove 10% increase in gross margin. As discussed, prioritization of R&D due to our portfolio optimization resulted in a lower spend year-on-year. All of these elements, together with the lower SG&A, drove EBITDA increase, with margin level reaching now 27.6% over net sales. In the following chart, you can see the evolution of SG&A in Q3 and year-to-date, small increase in SG&A during the quarter but still a reduction of nearly 5% year-to-date. We continue to drive savings and productivity in the quarter, which are being reinvested in new product launches. Year-to-date savings and productivity reached EUR 33.5 million, and our investment in European launches reached about EUR 16 million. On the next chart, we continue going down the P&L. There was an impairment reversal in the quarter related to our agreement with Sun Pharma and linked to clinical trials contributions. The fundamentals of the contract did not change. We modified the timing and contribution of both parties in order to properly allocate resources to the launch and maximize its success. On the financial expenses, which came lower, this was due to the interest expenses reduction from the redemption of our senior note, as you probably remember, and a gain from our equity swap. Combined, all these drove net income increase year-to-date, with normalized net income reaching now EUR 78.6 million. On the next chart, we illustrate the cash evolution to date. We delivered strong operating cash flow of EUR 102 million and executed a bridge loan to finance the Allergan transaction. As announced earlier this year, we are building a treasury position through an equity swap. At the end of Q3, we had a position of 1.4 million shares, representing 0.8% of Almirall and bought at an average price of EUR 12.7. Looking at the cash flow statement. Again, we delivered strong operating cash flow generation of EUR 102 million, an excellent turnaround versus last year. Investment increase is related to the Allergan acquisition we closed -- which closed end of September. Debt increase is related to the bridge loan used to finance this acquisition. Finally, looking at the balance sheet. The most notable change is again the increase in intangible assets linked to Allergan acquisition, Allergan medical derma acquisition; and the related increase of financial debt. Note that accounts receivable increase is linked to AstraZeneca milestones. We moved one of the milestones from noncurrent assets to current assets as we expect it to fall within the next 12 months. The reduction in current liability is mainly linked to the payments related to Athenex deal, ILUMETRI, Crestor and the Poli earnout. Now I pass it to Bhushan for the R&D update.

[Bhushan Hardas]

Thank you, David. Firstly, a brief reminder on where we are at with our late-stage pipeline. As Peter already mentioned, the 2 Phase III clinical trials with KX2-391 in actinic keratosis have met their primary efficacy endpoint at day 57. We are still following this patient for 1 year from a regulatory perspective, and we will come back to you with the results of that. In addition, top line results of the Phase III clinical trial for P3074 for androgenic alopecia has already met its primary efficacy endpoint, and the team is working really hard to submit the dossier to the European authorities. The rest of the late-stage pipeline is progressing extremely well. We should have top line results for Phase III clinical trial for P3058 in onychomycosis shortly. In order to consolidate and streamline our product development identification, we have introduced a new coding system. You will see how we have applied it to our pipeline in the next slide. In the pipeline slide, as you can see, the products that we already mentioned are Phase III as well as the products which are in registration. Today, I will be focusing more on the 2 near-term product launches: ILUMETRI, which is a biologic approved for moderate to severe psoriasis; and Seysara, which is recently approved for moderate to severe acne. First, let us have a look at Seysara. Seysara is a once-daily next-generation tetracycline-derived antibiotic with proven anti-inflammatory property, and it has been developed for moderate to severe acne. The product is first oral antibiotic designed and developed by dermatologists which has demonstrated a good efficacy and improved tolerability. Seysara has demonstrated rapid onset of action, thereby we see improved inflammatory lesions in just 3 weeks. Approximately 85% of the subjects which were recruited in the trial had moderate acne, which is consistent with the real world population. Seysara was very well tolerated, with almost all side effects very similar to placebo. Subjects as low as 9 years of age were recruited in the trial. In the next slide. The trials we first submitted to the FDA showed really good efficacy in treatment of moderate to severe acne. The trials also showed fewer adverse effects compared to approved antibiotics such as minocycline. The primary efficacy analysis was done at week 12, which is 3 months, and the trial was continued up to 1 year to determine the safety and tolerability of the drug. There is one thing I would like to mention here is, because of this anti-inflammatory property, we prescribe this drug for at least 3 months and then it could be followed on for long term. That's why FDA wanted us to do a trial for 1 year. The key opinion leaders and dermatologists in United States are extremely excited to finally have an oral antibiotic in their armamentarium which is explicitly designed and developed for anti-inflammatory properties in acne and has demonstrated rapid onset of action, especially on inflammatory acne. When we look at ILUMETRI, the one thing I would like to really emphasize here before we go into the data is psoriasis is a chronic disease. This is not something you look at in 16 weeks, 18 weeks or 28 weeks. This goes on for rest of your life. So when we look at our long-term study, it shows that 92% of the patient who showed improvement at week 28 maintained the efficacy at week -- at year 3. As of today, this is the longest follow-up trial with IL-23 blocker. Furthermore, ILUMETRI has shown to be effective in 3 out of 4 patient who did not respond to TNF alpha inhibitors. In the clinical trial data, it shows that ILUMETRI has excellent safety profile and has longer dosing -- lower dosing frequency, which encourages long-term patient adherence to their treatment. ILUMETRI is the only biologic approved for psoriasis where a dermatologist has the flexibility in selecting the dose not only depending upon the weight of the patient but also on the burden of the disease. KOLs also know that, when one does an independent analysis, indirect analysis, of all the trials that has gone on for long term, ILUMETRI shows better maintenance of efficacy at 3 years, which is PASI 90, was 92%, over IL-17s which show in about mid to low 60% and anti-IL-23 which shows about in lower 80%. We believe that ILUMETRI has a strong profile, with the key attributes being long-term maintenance with proven lasting efficacy and only 4 injections a year that makes it extremely convenient. This convenient dosing allows the patient to get on with their life and not be consumed with the treatment of the disease. In terms of launch planning, we will first roll out ILUMETRI in Germany in next week, like Peter just mentioned. 2019 will be extremely busy with our marketing team, as you can see, with number of key market introductions, and then wrapping up in 2020. Let me hand it over to Peter to conclude the presentation.

[Peter Guenter]

Well, thanks a lot, Bhushan. So as we have just explained to you in some detail, we saw a continued strong business performance in the third quarter. Our emerging psoriasis franchise gathers strength and will benefit from the near-term launch of ILUMETRI -- or the this-week launch of ILUMETRI initially in Germany. That launch will be shortly followed by our newly approved oral antibiotic Seysara in the U.S., which we anticipate for January next year. While investing in these new launches, a strong focus on cost has been and will continue to be a priority for us, but we will also probably fund our launches to maximize our chances for success. Last, we will continue to seek out additional external opportunities to generate sustainable value for our shareholders. Having said this, full portfolio transformation has indeed started. Last slide. We provided you at the half year results with an upgraded guidance. Clearly, that did not include any contribution from the ex-Allergan portfolio as that deal came after the upgraded guidance, so in order to help you in your financial modeling for 2018, here's an estimate of what we expect the ex-Allergan portfolio to contributes to Almirall in 2018. The impact of adding these products to our portfolio will boost our total revenues from mid-single digits to mid- to high single-digit growth, net sales growth from mid- to high single digits to low double-digit growth. This solid fourth quarter contribution of the Allergan portfolio should not be extrapolated for 2019 because typically the third and fourth quarter in dermatology in the U.S. are always better than the second and the first quarter because of a different gross-to-net perspectives. Regarding EBITDA, we estimated a guided growth of around 30%. And now we expect a figure between EUR 205 million to EUR 210 million for the full year or, differently said, 44% to 47% growth rate on the EBITDA. So Pablo, I hand it back to you now for the Q&A session.

[Pablo Divasson del Fraile, Head of IR & Corporate External Communication]

Thank you very much, Peter. Mary, back to you for the Q&A, please.

[Operator]

[Operator Instructions] We will take our first question from Trung Huynh of Crédit Suisse.

[Trung Chuong Huynh, Research Analyst]

Three, if I may. First one, with the launch of ILUMETRI imminent, can you perhaps talk about your pricing strategy for it versus the current biologic products and the advent of potential biosimilars? Second question, the data for Seysara looks very good. Have you started your discussions with payers yet? And if so, can you tell us how these discussions have gone? And then one final one, on costs. In the short term, how much more cost savings are there left? And how do you balance these cost savings to make sure you don't take out too much infrastructure? And given the EU and U.S. launches in R&D -- and R&D, how should we think about your cost lines going forward?

[Peter Guenter]

Well, thanks, Trung, for the questions. So let me take them in the order. So first of all, on ILUMETRI pricing strategy, I'm not going to give you the scoop. This will come later this week because we launch later this week, actually at the end of this week, but let me tell you that we have done a deep analysis on what is the exact price point compared to others out there in the market. And we will launch ILUMETRI at a price which I would qualify as a competitive price without, of course, leaving any money on the table. Perhaps just a side comment on the biosimilars. There has been a lot of, let's say, noise in the last couple of weeks on the prices of adalimumab and the biosimilars. It's true that in the -- at the earnings call there have been amounts mentioned of significant price cuts on that product. Now you have to bear in mind that in the -- if you look at the different classes or the different subgroups of biologics in psoriasis, actually with each new generation of products came a better efficacy or a better tolerability or a better product proposition. So it's a little bit early days, and we will have to follow up in a couple of months what is the biosimilar for -- of adalimumab going to change into the landscape of the biologics in the treatment of psoriasis, but we do believe that the newer generation of biologics definitely show big advantages compared to the initial biologics, which were the TNF alphas. And therefore, we do not believe at this point in time that this price erosion will directly impact the newer generation of biologics. And it may also, by the way, expand further the biologics as a class. On your question on Seysara and the payers, obviously, it's early days. We have, of course, gone out to payers both in advisory boards and individual discussions. We received very good feedback from the market, as mentioned in Bhushan's talk. And again, we will make sure that we find the sweet spot between list price, gross-to-net discounts and patient access schemes and then, of course, a net price which allows us to really have a profitable pull-through of the demand. So a little bit early days but obviously more to come in the next couple of weeks. In terms of cost savings, I think, David, you hinted already towards the fact that we have still a significant cost decrease year-to-date. And of course, in the third quarter, you saw, due to the preparation of the launches, that cost line start to increase. And of course, for next year, it's a little bit early days to give you any color on that, but given the launches we have next year both in Europe and in U.S., you should, of course, foreseen that the cost decrease that we have been able to implement this year will not repeat itself next year. I don't know, David, if you want to add to that.

[David Nieto]

Yes. Thank you for the question. I think, as Peter said, in Q3, you saw that the SG&A in absolute value is going up by about 2.5% but still a significant decline in percentage of net sales. So as we go into next year, we have a lot of products to launch. We will continue driving productivity and savings, but we will never compromise launch of the products. We have a lot of products to launch, a lot of demand to create. And we're definitely going to decrease SG&A in percentage of net sales, but we will invest where we need to invest and finding the savings and productivity to do that. And I think you had another question regarding R&D. In R&D, we are a little bit in the same situation this year that we have done our portfolio optimization and our R&D percentage of sales is a little bit on the low side. Having said this, for your modeling, I always and continue to reiterate that you should model between 12% and 13% of net sales going forward. Some years it can be lower. Some years it can be higher. That's what you have to take. I hope these answer your question.

[Operator]

We will now take our next question from Jaime Escribano of Banco Santander.

[Jaime Escribano, Equity Analyst]

So 3 questions from my side. The first one is if you could tell us how is the Allergan portfolio evolving. Because from the data we have from Allergan in the first half, the legacy portfolio, let's call it that way, was down around 50%. So maybe you can give us some visibility of what do you expect for 2019 so that we can do better estimates with the contribution after -- of Seysara. And the second question is regarding the portfolio legacy of Almirall excluding the derma franchise, excluding Crestor is going down in Q3 significantly, more than 20%. So maybe you can give us some color apart from rest of the world that you mentioned, but I don't know if there's anything else we should take into account. And lastly, regarding the Sun Pharma agreement, can you explain us a little bit more about the EUR 20 million capital gain? So what have you agreed with them? And why this EUR 20 million back?

[David Nieto]

Thank you, Jaime, for the 3 questions. I will try to address them one by one then maybe turn it to Peter if he has further comments. So regarding the Allergan portfolio, I think we had a special call with you after we announced the Allergan portfolio acquisition. Nothing has changed at this point. I think we have -- on the opposite, I think we have reconfirmed as we go into the acquisition that things that we have planned are happening and are happening nicely, I would say. First, we closed the deal on time. Second, we financed it with a bridge loan, which is very favorable. Third, we closed -- actually, we had the approval of Seysara even faster than we expected. We're going to launch in January. And our assumption for the launches are still intact. So I think all the Allergan portfolio acquisition is delivering as expected. I think I will refer you back to that call and maybe that presentation to understand that we have gone from a quarterly run rate -- I mean that portfolio had a quarterly run rate of about $30 million to $35 million a quarter. And as we go into next year, of course, there some products are off patent. Some are going to go off patent, like Peter said, on Aczone next year. And at the same time, we will compensate -- or try to compensate that with the launches of Seysara. So it's a portfolio mix that needs to happen as we go into 2019. And all the assumption we told you at the moment of the acquisition remains intact. And we see we're delivering as expectation -- as per expectation. Regarding your question on the legacy if we exclude derma and Crestor, I don't see the 20% decline. So what I will do, we will follow up on this with Pablo and get back to you directly. One element that this year is very strong on our side is a generic impact. I have to tell you that generics impact in our portfolio is less than we expected, so I don't know how you calculate the 20%, but we'll maybe take this off-line. Regarding Sun Pharma, so basically during the quarter, what we did is to talk to them and update our agreement, renegotiate part of the agreement. The only change that you see here going through the P&L is a commitment we had towards a clinical trial that had basically no value to us. It was linked to pediatric and that we took and impaired last year. And because we took out -- this out of the contract, we have a positive impairment. It's just the technicality going through the numbers and through the -- between the balance sheet and the P&L. It was something -- yes, it's a commitment that has no value for you. You have to impair it; and the moment you take it out as an obligation in a contract, have to reverse that because they're impaired last year. So nothing has changed on the Sun Pharma agreement. Our launch is, as we said, going to happen this week or this month in November. And we have reallocated some of the resources with Sun Pharma to make sure that we maximize the launch.

[Peter Guenter]

I think, David, you summed it up very well. The only thing I would add on the Allergan portfolio is really that so far, so good. And if you look at the contribution of the fourth quarter, it is actually a very nice contribution. For the modeling of next year, let's hold on a little bit. The only thing I can tell you, of course, that in the first quarter and the second quarter, you're in the so-called high-deductible season, so you will see a gross-to-net which is less favorable in those first months of the year until the patients in the commercial plans hit their deductibles and then actually the coverage starts to kick in. So that is an important element in the phasing for next year in the Allergan sales. The other element I would add is that, actually, don't forget that when Allergan announced to -- that the medical dermatology portfolio was basically up for strategic consideration, they immediately stopped promoting the products. And products like, for example, Cordran Tape, which is a very strong legacy in the American dermatology world, we are confident that once we start to repromote those brands, that they will show re-activity to promotions. So it's -- what I would say in summary is that what you have seen last year on this portfolio -- or this year is not necessarily indicative for what you will see next year on this portfolio for many different elements actually.

[Operator]

We will now take our next question from Manuel Coelho from CaixaBank BPI.

[Manuel Dias Coelho, Analyst]

I have 3 questions, if I may. The first one, can you share your view about potential competition from Seysara? We understand that Foamix and Dermira are also developing drugs for similar indications, so if you can provide a visibility on this field, namely the key advantages of Seysara versus this potential competition, will be great. Then in terms of earnings for next year, can you provide some kind of EBITDA growth expectations versus 2018? And lastly, in terms of inorganic growth opportunities, is this really something for the short term? Do you have any kind of internal cap in terms of financial leverage?

[Peter Guenter]

Okay, I'll take the first question. I think, Bhushan, you may also want to add. When you talk about competition on Seysara, you can look from -- you can look at it from 2 angles, right? The oral antibiotics space because that's the space in which we will compete, and then perhaps the broader acne space. And I would say that if you look at it from the oral antibiotics space, we will be one of the few actually branded products, new products that will be actively promoting this product. And I have been personally talking to a lot of U.S. KOLs, and I get kind of initial, the feedback that they are really waiting to -- for this product to be launched; and that when they look at the product profile, they are really eager to use it compared to other oral antibiotics. Now in terms of the broader market where you look at other topical solutions, it's true that in many cases for moderate to severe acne, because that's the indication of Seysara, actually oral antibiotics used -- antibiotics, sorry, are used in conjunctions with topical solutions. And perhaps, Bhushan, you may want to add some more color to that.

[Bhushan Hardas]

Yes. Thank you, Peter. Any person or any patient who has moderate to severe acne will generally go home with 2 prescription. One will be topical. One will be oral. Oral prescription initially is for 3 months, and what our data show is that the percentage of improvement in global assessment by the investigator is about a difference of 10 points, which is the largest you would ever see. Also, because of the design, the side effects are really, really very close to placebo. That is also extremely attractive because, not only taking it once a day, having a good efficacy but also having low side effects is extremely important. Also, the third one is the early onset of action. As you know, this is involved in mostly -- or I will say, adolescent population, and anything which acts much earlier is extremely important. That's why everybody is so excited about this.

[Peter Guenter]

Yes. And Manuel, you also mentioned Dermira in your question. Remember that actually that oral program has been halted a couple of months ago, so that is no longer into the competitive spectrum. So to the next question, David?

[David Nieto]

Yes. Thank you, Manuel, for the questions. Regarding next year, we will provide guidance at the end of February, but so far, so good. There's nothing that we should tell you differently today about what we have been giving you as hints for next year, and we will give you the guidance at the end of February. Regarding inorganic growth and opportunity and firepower, I think you could see that our net debt is at -- is well below the 2.5x EBITDA that we guided to you when we bought Allergan. So we have -- so on one side, we continue to look at inorganic opportunities, but as you may imagine, we are also mainly very busy launching what we have on our hands, which are 3 products, plus 1, which is the Athenex actinic keratosis agreement or deal that we have that we are preparing for a 2021 early launch or end of 2020. So this is where our focus is, but any good inorganic growth opportunities, we are open. We're looking at it. We're seriously looking at it, and we have still an intact firepower in that sense. I hope these answer all your questions.

[Manuel Dias Coelho, Analyst]

Yes. Just a follow-up regarding the internal cap in terms of financial leverage. I mean this is subjective, right? It depends on the opportunity that you see. You can leverage more or less the balance sheet. And am I thinking correctly or not?

[David Nieto]

Of course. I mean the target is always part of what you calculate as the leverage. What I was trying to allude is that when we acquired the Allergan portfolio, we gave a guidance saying we will be below 2.5x EBITDA. Today, we are well below that number because of 2 things. First, we generated strong cash flow. Our strong cash flow is really a key driver of that. And second, I think we have an ability to finance [ our self role ], and we will talk more, I'm sure, in the near future about that. And our deleveraging is pretty rapid. So this, of course, linked to the future EBITDA -- or the target EBITDA, give us firepower, but I think it's too early to talk about this. We will, of course, keep you informed if that event happen. At this point, we're fully focused on launching the 3 products we have on hand, plus the actinic keratosis opportunity in the U.S.

[Operator]

We will now take our next question from Peter Welford of Jefferies.

[Peter James Welford, Senior Equity Analyst]

A couple of questions left. Firstly, just on the Allergan portfolio. First, the EUR 35 million contribution in 4Q seems a little bit higher, I think, than you're originally guiding to. I think you sort of talked about a run rate nearer to the bottom end of that in dollars. Just wondering what -- whether there's a rationale for that at all. And equally, on the U.S. portfolio of Almirall itself, the legacy portfolio in the U.S., it looked as though the third quarter was a little bit better perhaps than anticipated. Is that just some stocking of, restocking, I guess, of some of the older products? Or can you perhaps provide a bit of granularity as to what happened there exactly? And then just finally, on tax, I appreciate, obviously, low profits mean a lot of volatility on this line, but can you give us any sort of visibility, I guess, into how we should think about tax charge for this year given, clearly, it could have a fairly significant impact on where earnings numbers end up being?

[David Nieto]

Thank you. I let Peter take the first question. I will answer the last one.

[Peter Guenter]

Yes. So Peter, thanks for the question. Actually, I hinted already to the fact that indeed the fourth quarter of the ex-Allergan portfolio comes in as a relatively heavy quarter, but remember that the fourth quarter and also the third quarter, by the way, in medical dermatology in the U.S. are kind of heavy quarters per se because of the fact that you have the high deductibles. You have left that behind you. And typically, many of the commercial plant, they hit their high-deductible ceiling, let's say, in April, May, so you have a -- typically, you have a depressed Q1 in gross-to-net. The thing starts to improve in Q3 -- sorry, in Q2. And then basically, you have the full steam or the full power of your portfolio in Q3 and Q4. So that's basically what you see. The other thing which I could add is that we have not yet sufficient and recent data now on prescriptions and stock in trade to see whether there will be perhaps a little bit of a restocking in the fourth quarter. So we don't know yet whether the stock levels were perhaps a little bit at the low end of the range when we took over the product. So that is a possibility. I did not exclude it at that point in time. So it's a little bit difficult for us to judge that fourth quarter, but for sure, what is clear, it's good to have and it's definitely coming in nicely. On the U.S. Almirall legacy products, yes, you're right. Things started to improve in the third quarter. That is, of course, also partly linked to the first phenomenon which I told you, which is again the third quarter is kind of devoid of high deductible impacts on the gross-to-net so that what is valid here for the ex-Allergan portfolio is also valid for the U.S. Almirall portfolio. And for example, for Veltin, we were able to drive nice growth in the third quarter of this year. David, on the tax question.

[David Nieto]

Yes. So on the tax question, I always guided for modeling reason to be around 18% to low 20% taxes, right? And I think, especially with the Trump reform now, you could be maybe on the low side of that range. Regarding Q4, because you were asking for the full year, it is true that this year and with my team we did a lot of things to make sure that we could claim some of the carrybacks from last year losses [ and likewise ]. So this year, tax line as well as the cash flow line on the corporate income tax looks very positive. I don't think you have to expect that on the year-over-year, but we're also taking advantage in the sense of the U.S. tax reform. And you will see in the fourth quarter sort of normalization of the taxes to more around the 18%, not for the full year but just maybe for the quarter. And then that's what you have to take going forward.

[Operator]

We will now take our next question from Isabel Carballo from BBVA.

[Isabel Carballo, Chief Analyst]

Two questions from my side. The first one is regarding Thermi, ThermiGen, if you can provide an update of your strategic review on this business. The second question is regarding the pricing for the new products. How are they evolving in regard to your expectation for margin improvement going forward?

[David Nieto]

So I'll answer the Thermi, and then you may have to repeat the second question. So regarding Thermi, as we said to you at the last earnings call, we said that we are considering strategic options. We see that we have hired banks for that. It's just, I mean, [ small, with big ], of course. And we expect the situation on the aesthetic business to be sorted out or behind us by the end of Q1 next year, and that's what I can tell you at this point. And regarding the second question, we could not hear well, so if you could repeat it.

[Isabel Carballo, Chief Analyst]

Well, it's regarding the new products and how -- the expected prices you [ are now waiting ] for ILUMETRI and Seysara. And then how do you expect those products to affect your margins going forward?

[Peter Guenter]

Oh, yes. So well, I commented already a little bit on that. So on Seysara, we are still in the process of defining the -- what I call the sweet spot between your list price, your gross-to-net strategy, ultimately your net price, your couponing strategy or your co-pay [ current ] strategy. So it's a little bit early days to answer that question. On the prices of ILUMETRI in Germany, well, you know that prices of -- in Europe are typically set having different standards in mind. You have cost effectiveness pricing typically in the U.K. You have more kind of competitor-based pricing in Germany. And before you go into discussions with the GBA and then you kind of have your final pricing post your first year, when the GBA and the pharmaceutical companies then finally agree on the net price. So again, it's a little bit early, Isabel, but of course, we are mindful of the fact that there's a lot of competition in the psoriasis market in Europe, and we will definitely price the product in such a way that we have a maximum chance in terms of market access.

[Operator]

This concludes today's question-and-answer session. Mr. Divasson, at this time, I will turn the conference back to you.

[Pablo Divasson del Fraile, Head of IR & Corporate External Communication]

Thank you, Mary. We are now going to close our Q&A session. And with this, we will complete our conference today. We want to thank you for your participation. You may now disconnect.