Almirall SA

MAD:ALM

Earnings Call Transcript 2022-Q3

[Operator]

Good day, and thank you for standing by. Welcome to the Almirall 9 months 2022 financial results and business update conference call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Pablo Divasson. Please go ahead.

[Pablo Divasson Fraile, executive]

Thank you, Sandra. Good morning to everyone on the call. Thank you for joining us to review Almirall's Q3 results and business update.

As usual, you can find the links to this call on the Investor's page of our website at almirall.com.

Moving to Slide 2. I would like to remind you that information presented in this call contains looking forward statements that involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially.

With that please advance to Slide 3. Presenting today, we have Carlos Gallardo, Chairman and Interim Chief Executive Officer; Mike McClellan, Chief Financial Officer; and Karl Ziegelbauer, Chief Scientific Official. Carlos will start with a reminder of our strategic priorities, and Mike will follow with the highlights and growth drivers. Karl will provide you with details on the progress of the pipeline before passing again to Mike to review the financials. Carlos will then make some closing comments before opening up for a Q&A session.

I would like to pass you over to Carlos Gallardo.

[Carlos Gallardo Piqué, executive]

Thank you, Pablo. Good morning, everyone. I'm Carlos Gallardo, Chairman of the Board since last May. At that time in May, I already had the opportunity to introduce myself during the subsequent earnings call, but let me quickly go through my bio again. I'm an engineer by training. I joined the industry 20 years ago when I joined Pfizer based in New York right after graduating from business school.

After that, in 2004, I joined Almirall, where I have remained until the present day. First, in a Phase I, so to speak, as an executive in a number of countries and positions, ranging from strategy to sales through licensing, to M&A and, lastly, to country management.

In 2013, I left my executive position to start a career in early-stage private investment in technology, but I was also appointed as Board Director. More recently, 2 years ago, I was appointed Vice Chairman and, more recently, Chairman.

As you might be aware, last week, I was appointed by the Board as the interim CEO following the departure of Gianfranco Nazzi. I want to take just a minute to thank Gianfranco to -- for the great work that he's done in this past 1.5 years that he's been with us.

I'm taking this interim role in a full-time capacity until we find the right person for the search process that we have already started. I'm not planning to do major changes in our current strategy. We have the right plans and the right team to execute.

So the plan in the coming months is to continue the great journey that we've begun some years ago to establish Almirall as a leading dermatology. We have great opportunities ahead of us, both with our current growth portfolio, but especially with lebrikizumab.

In parallel, we'll remain focused on building a best-in-class dermatology pipeline R&D. We are very proud with the latest development on this front, the agreement with Simcere, the acceptance by the EMA of our dossier of lebrikizumab, and Karl will provide you more details on these 2 items.

So overall, a great place to be as a company, and I look forward to contributing to this exciting journey ahead in this new capacity.

Let me hand now over to Mike for the progress in this past quarter.

[Michael McClellan, executive]

Great. Thank you, Carlos.

Let's move to Slide 7. I'm pleased to say that we had a very good business momentum in Q3, with growth in our core net sales for the first 9 months up 5.3% year-on-year. Performance of the core sales is driven primarily by our European dermatology business, powered by our recently launched products, which I will discuss in later detail in the presentation. Based on the solid performance of the business, we are pleased to reiterate our full year guidance for 2022.

Let me highlight the performance of our recent launches. We continue to see strong performance of Ilumetri, with excellent momentum of the anti-IL-23 class and solid contribution from recent country launches. Since the launch of Wynzora and Klisyri in Europe, we've achieved increasing market share in key countries, particularly in Germany for both products, while making excellent progress with the rollout in other EU countries.

We also continue to work hard on the pipeline, with continued robust clinical updates from lebrikizumab. As you have seen, we announced the detailed results of the 52-week lebrikizumab Phase III at EADV Congress in September, and Karl will give you additional color on this later in the presentation. We continue to work with our partner, Eli Lilly, towards a targeted 2023 EU approval and launch soon thereafter.

Additionally, in the early-stage pipeline, you will be aware that we have entered into a licensing agreement with Simcere. We also initiated a Phase I study of our anti-IL-1-RAP during the quarter, and Karl will provide additional details on these 2 assets and the rest of the pipeline later in the presentation.

So let's now move on to the growth driver performance details. On Slide 8, let's start with the strong momentum of Ilumetri, our anti-IL-23 biologic for psoriasis in Europe. Here in this slide, you can see the market dynamics of the anti-IL-23 class in Germany, where we can see the new patient market is clearly driven by the anti-IL-23 class, with 43% market share of new patients within the biologics. This is despite the new launches in the anti-IL-17 class recently.

As you can see on the right-side chart, Ilumetri has had a strong performance year-to-date, although somewhat lower sequential growth in the third quarter due to normal seasonality. We expect Q4 to resume the growth momentum, and we continue to expect 2022 growth in absolute terms to be similar to that seen in 2021.

New country launches have also contributed to the overall growth, and we're pleased to have achieved net sales of over 31 million in the quarter. We expect further contribution from new countries to continue to drive growth going forward.

With that, I'd like to turn our focus to our recently launched products in Europe, Wynzora and Klisyri. On Slide 9, let me start with comments on Klisyri in Europe for the treatment of actinic keratosis. We are pleased with the commercial launch of Klisyri in the EU. The product is doing very well and having achieved a strong uptake, particularly in the German market, where it has already been awarded the most innovative product of 2022.

It is also gaining strong traction in other countries where it has been launched. Klisyri offers an exciting profile, which represents a step forward in the treatment of actinic keratosis due to its short treatment protocol, its once-a-day application for 5 days, its proven efficacy and good safety.

Moving on to Wynzora, a product for patients with moderate to severe psoriasis, which we launched in May of this year. We are pleased with the progress, having achieved sales of $5 million year-to-date, and we have excellent traction in the first countries launched with around 11% market share achieved in both Germany and Spain.

We are still in the rollout campaign with 3 additional country launches coming this quarter in Austria, Denmark and the Netherlands. We are confident we can have a very nice uptake in these markets as well as in additional EU countries in the coming quarters.

Wynzora helps strengthen our position in the European psoriasis market, as we are the only company to provide a full range of psoriasis products covering the entire patient journey.

Let's now look at the U.S. business with Klisyri and Seysara on Slide 10. In the U.S., Klisyri has recently received a strong recommendation in the AAD guidelines. The product continues to gain penetration in the actinic keratosis topical market, with over 53,000 prescriptions since the launch in February of 2021. This is a good result for a new product launched in the market with a high level of generic alternatives.

Furthermore, 4,500 health care professionals have prescribed Klisyri since its launch, and we continue to see positive feedback and good patient engagement. We've also made progress on patient access, achieving 70% commercial coverage. And we continue to differentiate Klisyri from what is already available in the market based on efficacy, tolerability and convenience.

While we continue to focus on driving demand and gaining market share access in the near term, over the midterm, we're working on the large field label expansion, which we hope to launch in 2024.

Now let's take a look at Seysara. We have seen continued volume recovering during the third quarter, reaching pre-COVID levels. Seysara continues to make steady gains within the commercial lives with 74% of commercial payer coverage. We've also achieved more than 5% market share in the antibiotic market and continue to focus our efforts on driving demand and improving the gross to net through better payer coverage.

With both Klisyri and Seysara, there have been good improvements in Q3 in the TRx volume growth and market share. We think that these 2 products are very good with growth potential that will help build a sustainable platform for Almirall in the U.S.

With that, I'll pass over to Karl to update you on the pipeline.

[Karl Ziegelbauer, executive]

Thank you, Mike, and good morning, everyone. It is now my pleasure to update you on the progress of our pipeline.

Starting with lebrikizumab, we recently published the results from the maintenance phase of the ADvocate 1 and 2 Phase III trials. I'll give you more details in the next slide. We also announced that EMA accepted our filing for marketing authorization application for lebrikizumab in atopic dermatitis, and we expect approval in the second half of 2023.

For Klisyri, we are working on extension to large field, with a potential launch in late 2024 in the U.S. and 2025 in the EU. For sarecycline in China, the Phase III clinical trial is ongoing, and recruitment has been completed. For efinaconazole, we have submitted regulatory filings with an expected launch in 2023. We have also initiated Phase I of our anti-IL-1-RAP monoclonal antibody.

Finally, we have entered into a licensing agreement for an IL-2 muted infusion protein with Simcere, which I'll explain in more detail later. As you can see, we're making very good progress with both our early- and late-stage pipeline, and we are on track to strengthen our leadership position in medical dermatology.

On the next slide, now I start with lebrikizumab in more detail. We announced in September at the European Academy of Dermatology and Venereology Congress the detailed results of the maintenance phase of the 2 Phase III monotherapy studies, ADvocate 1 and 2, in atopic dermatitis. This slide shows the study design. Adult and adolescent patients with moderate to severe atopic dermatitis were randomized to lebrikizumab or placebo.

Patients received lebrikizumab 500 milligram initially and at week 2, followed by lebrikizumab 250 milligram every 2 weeks or placebo. Responders were defined as having achieved an IGA response of 0 or 1, with a 2-point improvement on EASI-75 without rescue medication at week 16. Those responders were then re-randomized to 250 milligram lebrikizumab every 2 weeks, 250 milligrams every 4 weeks or placebo.

Next slide. This slide shows the response of the 2 different lebrikizumab treatment group at week 52. In ADvocate 1, 74% of patients dosed every 4 week and 76% of patients dosed every 2 weeks maintained clear or almost clear skin, IGA 0 or 1 at 1 year of treatment. 79% of patients dosed every 4 weeks and 79% of patients dosed every 2 weeks maintained 75% of greater skin improvement EASI-75 at 1 year of treatment.

80% of patients dosed every 4 weeks and 81% of patients dosed every 2 weeks maintained clinically meaningful reduction in each at 1 year of treatment as measured by a 4-point or large reduction in the itch severity on the Pruritus Numeric Rating Scale, NRS.

In ADvocate 2, lebrikizumab demonstrated the following results. 81% of patients dosed every 4 weeks and 65% of patients dosed every 2 weeks maintained clear or almost clear skin at 1 year of treatment. 85% of patients dosed every 4 weeks and 77% of patients dosed every 2 weeks maintained EASI-75 response at 1 year of treatment.

88% of patients dosed every 4 weeks and 90% of patients dosed every 2 weeks maintained clinically meaningful reduction in itch at 1-year treatment, as mentioned, measured by a 4-point or large reduction in the itch severity on the Pruritus NRS.

Safety among patients at week 52 was consistent with the induction phase of the trials and prior lebrikizumab studies in atopic dermatitis. These data give us confidence that lebrikizumab has the potential to be a first-line biologic and may support less frequent dosing during the maintenance phase.

In summary, we are very excited about the totality of the data and the profile that is emerging for lebrikizumab. Lebrikizumab shows a consistent profile across the clinical development program with more than 2,000 patients, consistent across geographies, whether it be monotherapy or in combination with topical corticosteroids in adults as well as in adolescent patients and across ethnicities.

The safety profile is consistent with prior lebrikizumab study in atopic dermatitis and, in general, very mild. Atopic dermatitis is an IL-13 dominant disease, and we believe lebrikizumab is the best antibody targeting IL-13.

Finally, for the maintenance of patients that responded at week 16, every 4 weeks dosing shows strong results that are similar to every 2 weeks dosing.

Those data demonstrate the potential benefit that lebrikizumab could bring to HCP and patients. Living with atopic dermatitis means facing a complex condition that impacts quality of life and overall well-being. We are convinced that when the proof it will bring into the market a promising first-line advanced systemic treatment for moderate to severe atopic dermatitis that offers robust and durable efficacy with less frequent dosing.

Let me now turn to our most recent addition to our portfolio and explain the licensing agreement for IL-2muFC fusion protein with Simcere, an innovation and R&D driven pharmaceutical company based in China. We have obtained exclusive rights to develop and commercialize SIM0278, now ALM223, for all indications outside of the Greater China region.

ALM223 is an Interleukin-2 mutant fusion protein that activate regulatory T cells. This IND-ready subcutaneous injection has the potential to do -- to be developed in various autoimmune diseases. ALM223 exhibits an improved PK profile and selective activation of regulatory T cells, with no activation of effector T cells or NK cells was observed in multiple preclinical models.

ALM223 is currently in the preclinical stage, start-up Phase I in the U.S. EU is expected in the second half of 2023.

ALM223 has great potential to treat a broad spectrum of autoimmune, skin and other immunological diseases, and we expect that its development will allow us to reinforce our leading position in medical dermatology. We are very excited about this opportunity, and it continues to strengthen our innovative pipeline.

With that, I'll hand back to Mike.

[Michael McClellan, executive]

Thanks, Karl.

Let's go to Slide 18. As mentioned in the introduction, we had a good performance year-to-date, with core net sales growth of 5.3%, and we are on track with our 2022 guidance. We've seen strong sales growth in Europe from the dermatology portfolio, which helped drive the overall core net sales increase.

We also achieved total EBITDA of EUR 146.6 million year-to-date, though the comparison to last year is impacted by a significant increase in our launch and R&D investments as well as less deferred income and lower divestments than 2021 through 9 months.

Year-to-date, we noted a gross margin of 66.5%, which is broadly in line with what we anticipated for the year, but impacted by higher energy costs and inflation affecting our material purchases, which were not foreseeable when we gave the guidance in February before the markets changed dramatically. We expect to hold the rates for the full year, with Q4 being slightly better than Q3 due to a better mix and a minor product divestment.

SG&A was EUR 308.9 million as we continue to invest heavily in our new launch products as well as some premarketing ramp-up for lebrikizumab.

R&D investments increased to 11% of net sales, which is in line with our expectations. We anticipate to reach closer to 12% of net sales for the full year.

As we've previously outlined this year, we will have to pay for the Phase IIIb reimbursement studies focused for lebrikizumab, the Klisyri large field study as well as an increase in investment for earlier stage assets, such as the ones mentioned by Karl in his presentation.

We finished the quarter at 0.8x net debt to EBITDA, thanks to good cash flow generation and a reduction in the pension plan liabilities.

While we will not give 2023 guidance until our Q4 call in February, please consider the following as you look forward to 2023. We expect continued good sales momentum to be powered by our recent launches. We will have a price impact on Efficib and Tesavel in Spain due to generic competition that we've informed of previously. The U.S. legacy business will also continue to see downward pressure, which has led a little bit to the impairment that I will discuss in a few minutes.

Gross margin will continue to be impacted by inflationary pressures and high energy costs, similar to those impacting everyone in the industry. SG&A and R&D investments will increase to support more launches and for the preparation of lebrikizumab, which we expect to launch at the end of 2023 or beginning 2024, depending on the approval timelines. And finally, the other income line will normalize to the mid-single-digit range.

On Slide 19, you can see the dynamics of the core net sales where the European dermatology business has had a very strong performance, with 21% increase year-on-year. While there has been a decline in the line Others EU, this is mainly related to the previously mentioned small product divestment in early 2021.

Focused on our U.S. business, there's been an improvement in the third quarter, but we are still down versus 2021. I'll provide more details on that in the next slide.

Overall, it's important to reiterate that our portfolio has limited patent expiry risk going forward in the midterm outside of the Efficib, Tesavel impact in Spain, where we are managing the impact and some downward trends in the U.S. legacy business that we will see on the next slide.

Additionally, rest of world dermatology sales has had a good year-on-year performance, while general medicine has seen a small decline year-on-year driven mainly by Imunorix in Latin America, which has had a very high demand during the pandemic and winter months in 2021.

Let's take a closer look at the dermatology business on Slide 20. Year-to-date, we had a very strong performance in Europe driven by the growth of Ilumetri as well as good trends for our Decoderm franchise and growth in Solaraze. Others EU is also benefiting from the initial launches of Klisyri and Wynzora in our key markets.

Focusing on the U.S. business, it has seen steady progress with improvements quarter-on-quarter, and there's been a rebound in the TRx and market share of Klisyri and Seysara as well as an acceleration of net sales in the third quarter.

You can see the legacy business in the U.S. remains under pressure, including additional competition to Tazorac seen in the second half of 2022. In rest of the world, we've seen growth in the business from a low base mainly driven by timing of orders in the Ciclopoli franchise.

We'll now move on to the P&L on Slide 21. Core net sales grew at 5.3%, and we are on track to meet our guidance of mid-single-digit growth, which is our current pace. I've already highlighted the key factors on the sales performance slide, so let me continue to focus on the core business by running you through the rest of the P&L.

Year-to-date, we achieved a core gross margin of 66.5%, broadly in line with what we anticipated for the year. As anticipated, SG&A investments saw a 6% increase as we continue to invest in the successful execution of our product launches. Year-to-date, there has been an FX impact of around 3% on SG&A.

In terms of R&D, there was an acceleration to 11% of net sales, which is in line with our expectations. And as previously flagged, we anticipate R&D to reach around 12% of net sales for the full year.

There are a few factors that are driving the increase in R&D investment. First, the Phase IIIb reimbursement focused studies for lebrikizumab in Europe, which are hitting our P&L as compared to the development up to this point, which was funded by milestone payments to our partner.

Second, the spend on Klisyri large field studies, which are also shifting to our P&L as the Phase III was performed by our partner in a similar milestone setup.

Finally, we will increase investment in earlier-stage assets, such as the anti-IL-1-RAP. We are starting Phase I studies and the new IL-2 project that Karl mentioned.

The reconciliation at the end of the P&L reflects the deferred income in previous years, which was fully amortized in 2021.

Total EBITDA of EUR 146 million includes EUR 12 million of other income due mainly to the revaluation of our assets earlier in the year after the advancement of milestones following the AstraZeneca/Covis Pharma agreement. Overall, we remain confident in our full year guidance of core net sales growing mid-single digits and total EBITDA between $190 million and EUR 210 million.

Continuing down the P&L on Slide 22. There are not too many line items to explain. However, I'd like to remind you that our effective tax rate is affected by the inability to deduct the U.S. tax losses against the profitable European business. This quarter, we continued -- discontinued the sale of certain products in the legacy portfolio in the U.S., as our contract manufacturer discontinued production, and alternative suppliers were not available or too expensive. That triggered a small impairment in the quarter. We will continue to focus on keeping the U.S. business sustainable through future growth of Seysara and Klisyri.

Furthermore, financial expenses have been impacted by the lower share price, which is connected to an equity swap instrument that we have outstanding.

Additionally, I'd like to highlight that we finished the third quarter with a normalized net income of EUR 32.7 million, which resulted in a normalized earnings per share of EUR 0.18 per share.

If we look at the balance sheet on Slide 23, there are quite a few comments provided on the side, so I'll just highlight the most important factors. Some financial assets have been reclassified to accounts receivables following the agreement with Covis to advance certain milestone payments related to the China respiratory business.

There's also been a slight decrease in financial debt related to a reduction in our pension plans due to an increase in interest rates and the cash that we've generated through the first 9 months.

We finished the quarter with a leverage of 0.8x EBITDA to net debt and a healthy cash position, which gives us flexibility in the current environment for additional licensing and opportunistic M&A activity.

Let's now take a look at the cash flow statement on Slide 24. We delivered operating cash flows of EUR 104 million year-to-date, which was mostly generated in the second and third quarters. We've also seen normalization as expected of the change in working capital following the timing impact on accounts payable and accounts receivable balances earlier in the year.

Tax cash flow turned to a net outflow due to a change in the phasing of the net refunds of corporate taxes in Spain. In 2021, we received 2 years refund, once in the first and again in the fourth quarter, instead of one refund per year as we've seen in previous years. We see this as a phasing impact to -- from a change in how the Spanish government was refunding taxes.

We have made key investments year-to-date, including the upfront for the anti-IL-1-RAP project and the Simcere project and other milestones. The divestments line here refers to the milestones and royalty collections from AstraZeneca and Covis. These have been reclassified as investing activities due to the reduced focus in our operations.

And finally, there was a decrease in debt related to the regular loan repayments to the European Investment Bank.

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

[Carlos Gallardo Piqué, executive]

Thanks, Mike.

Let's turn to Slide 26, please. As you have clearly heard from us this morning, we have delivered a solid operational performance as the core business continues to perform well and in line with our expectations, which puts us on target to achieve our 2022 guidance.

The third quarter has seen strong momentum of Almirall growth drivers, where Ilumetri, in particular, has shown very strong performance. Additionally, the performance in Europe of Klisyri and Wynzora has been robust that we continue to execute on the rollout, with an increasing contribution from new country launches expected in the coming months.

As detailed by Karl, we are progressing very well with our promising innovative early-stage pipeline, with exciting developments also expected in the coming quarters. We continue to execute on the transformation of the company by preparing the business for important launches and to support a strong midterm acceleration in sales.

This year has been very busy, with extensive EU rollout campaigns and also as we prepare the business for exciting future launches like lebrikizumab, which is one of our most promising assets and will be the key one -- the key growth driver going forward.

Almirall is well positioned for long-term growth by unlocking the value of the late-stage pipeline on top of growing contribution from the current growth drivers. We also hope to take advantage of inorganic growth from external opportunities by leveraging our strong balance sheet and flexible capital structure.

Pablo, let me hand the call back to you for instructions on the Q&A.

[Pablo Divasson Fraile, executive]

Thank you, Carlos. Sandra, back to you for the Q&A, please.

[Operator]

[Operator Instructions] We will now take the first question. It comes from the line of Harry Sephton from Credit Suisse.

[Harry Thomas Sephton, analyst]

My first one is on the U.S. dermatology market conditions. Can you just give us an update on the conditions there given that you're still reporting sequential declines and whether we can expect to see an improvement from that given your commentary on an improving environment for some of the products there?

On financials, the third quarter gross margins were a little weak at around 64%. I want to get a better understanding of the drivers there. And should we look at that as a new base for the coming quarters given the inflationary pressures?

There was also a EUR 3.8 million benefit to your other operating income in your core results for the quarter. That's larger than usual, so wanted to get an idea of what was contributing to that.

On R&D, can I get your latest thoughts on what additional studies you can run for lebrikizumab in 2023 and whether you'll consider a head-to-head study with Dupixent?

And then finally, on the CEO succession plan, can you give us an idea of how quickly you expect to find a replacement and whether you're considering internal and external hires? And then just given your final comments there on wanting to do further business development, how do you consider your ability to do further business development without a full-time CEO?

[Michael McClellan, executive]

Yes. So Harry, let me take the first couple, then I'll pass to Karl for lebri, and then Carlos can answer the CEO and business development questions. So the U.S. derm conditions, I mean, the market is restabilizing. I don't think we have many impacts anymore from COVID or the like. We've actually seen a nice back-to-school season with our acne products.

So if you look and see, we're driving very good TRx. We're getting the volume back in the product. We're just still struggling a little bit with high deductibles and gross to net. It's improving, but we're not back to the situation yet where we're growing year-on-year with Seysara. We're looking to do that in the fourth quarter. Klisyri continues to grow, but at a very modest pace. So it's tricky conditions more from the payer side than from the overall market.

Second, on the financials, the gross margin, Q3 was a little low, but it was a little bit of a mix issue in the summer. We saw a little bit of a slower sales with some of the higher-margin products just from the normal summer activity, where people slow down a little bit in their biologics.

And we actually saw a very good -- an abnormally good cough and cold sales over the summer, which is not very usual, and those are very low-margin products.

So it's more of a mix issue with Q3. We expect Q4 to get back in line with what we have year-to-date. As we go into next year, we will see some pressure on inflation and material costs and energy costs like everyone is. So we'll give guidance in 2023 on that, but there will be some additional pressure in the gross margin.

And number three, the small amount in other operating income, we had some expenses in the first half of the year related to some cautionary reserves we made for some of the businesses, particularly those have impacted directly or indirectly by the war that's ongoing. We were able to release some of those, as some of that business free back up. So net-net, it's still a small minus, but it was a positive in the quarter.

With that, I'll turn over to the R&D leverage question to Karl.

[Karl Ziegelbauer, executive]

Yes. Thanks for the question. I mean, as I mentioned, we are very excited about the clinical data we have seen so far and the profile that is emerging for lebrikizumab. Now having filed with the EMA, the next goal and the next step of the Phase IIIb study is on the one side to ensure invest in Europe, on the other side to maximize the value for patients and shareholders of lebrikizumab in Europe.

We have already started one Phase III study called ADvantage. That is the study that explores lebrikizumab in atopic dermatitis patients that are not adequately controlled by cyclosporine A if medically not advised. This is a study with about 300 patients that has been fully recruited, and we expect the first readout in the first half of 2023. In addition, we are now carefully considering a number of different alternatives, including comparative studies. But today, it is too early to comment on that.

[Carlos Gallardo Piqué, executive]

And Harry, regarding the question on when we will appoint a new CEO, well, we are not in a rush. I think the most important thing is to find the best suitable candidate to succeed Gianfranco, and that's where we're focusing. So again, there's no rush. There's -- I'm comfortable in the role. The team is very strong, knows what they're doing. So we'll see.

[Michael McClellan, executive]

Yes. When it comes to business development, we will continue to be opportunistic and go full speed ahead. We've got great professionals in the company. We've got a great relationship with Carlos and the Board. So the lack of a CEO will not stop us for doing things that fit the current business.

[Operator]

We will now take the next question. It comes from the line of Thibault Boutherin from Morgan Stanley.

[Thibault Boutherin, analyst]

Two, please, one on Klisyri. The EUR 250 million target is quite high given the performance since launch, both in U.S. and Europe. So we would have to assume a really major step-up in the dynamics following the launch of the larger indication.

Is there any chance you could review this target before the launch of the large field? Or should we expect to wait until we see the first quarter of sales following the large field indication before potentially we are seeing this target?

Second question on the guidance. When we look at your EBITDA guidance, compared to when you gave it at the beginning of the year, R&D is definitely on the top end of expectations. Gross margin is trending lower than we expected.

So is it fair to expect that you will probably reach more towards the bottom end of the guidance for this year? Or is there a scope for reaching the top half of the guidance range?

[Michael McClellan, executive]

Yes. Thanks, Thibault. I'll take these 2. So with Klisyri, clearly, in order to get closer to the original peak sales, we will need a big, big contribution from the large field. I think it's a little bit too early for us to come out with a new number, but clearly, we're not quite on track with where we need to be.

But the real opportunity, particularly in the U.S., will be once we get the large field label expansion. So if there comes a time where we're certain where that new number is going to be, if it's going to be different than what we've given before, then we will do an update. But right now, it's just still a little bit too early for that.

And second, with the guidance, we'd still like to reach the mid- to upper end of the guidance. We have had some unexpected things happen. The -- I don't think anybody in February would have expected the inflation we've seen, the material costs and some of the other things.

R&D is where we were expecting it to be, which is in line with the investments we need to make in our key products. So there's always going to be some swing factors. Let's keep a look out for what happens in Q4, but we're still targeting to make the mid- to upper end of the EBITDA range.

[Operator]

We will now take the next question. It comes from the line of Jaime Escribano from Banco Santander.

[Jaime Escribano, analyst]

So one strategic question for the President, which would be the following. How do you see Almirall in the long run in terms of M&A? And I explained myself, I remember Peter Guenter said that Almirall had a very good sales platform, plus R&D, but it was a little bit superscale in terms of top line, and that it would make sense to do acquisition in order to gain more operating leverage and increase EBITDA margin.

So the question would be, would it make sense in the mid-long run to merge Almirall with another peer similar in size and take the sales to EUR 1.5 billion sales and margins above 30%? I'm asking this question because we have the opportunity of having Carlos Gallardo in the call. So I would like to know what the family is thinking on the strategic in the long run in this sense.

[Carlos Gallardo Piqué, executive]

Thank you, Jaime. So I think Peter's comments has been valid. So I think that, as of now, our priority, again, is to make lebrikizumab a success, and that's where we're focusing. And then once we start everything on lebri, I think that opportunities will open.

There might be opportunity to go through that route they have described. And if it appears, we'll see, we'll look at this. But again, our focus is to launch lebri well. And of course, in the midterm, we'll look for the best opportunities to create shareholder value, for sure. So we'll see. Hopefully, we'll have many opportunities, and we will try to capture them.

[Operator]

We will now take the next question. It comes from the line of Guilherme Macedo Sampaio from CaixaBank.

[Guilherme Sampaio, analyst]

So 2, if I may. The first one is just again follow-up on the previous question. Whether there's any change regarding your target presence in the U.S. and whether M&A could be considered more actively in this area. And second, on lebrikizumab, when do you think you could be able to disclose the pivot study and whether you have a view on your strategy regarding pricing and market positioning versus [indiscernible].

[Michael McClellan, executive]

So Carlos, maybe you can talk a little bit about the strategic importance of the U.S. presence.

[Carlos Gallardo Piqué, executive]

Sure. I think if you look at our portfolio today, you can see that the majority of our growth is going to come from the biologics in Europe. So I think that remains our key priority.

In the U.S., we have a portfolio that, from a market perspective, is growing. It's serving a need, and we have payer pressures there. So the goal is to, one -- priority #1, focus biologics Europe. But of course, we will try to make the best out of our portfolio in the U.S.

And in terms of M&A, well, tactically, selectively, if we find opportunities to strengthen our portfolio and operation there, we will definitely look at it.

[Michael McClellan, executive]

And in terms of the leverage strategy, I think it's a little too early to talk details about pricing and that. But we've got an excellent product, a great opportunity for us. We will try to maximize it. The teams are working very hard on all of the health economic dossiers to make sure that we go through the proper pricing and reimbursement channels.

We want to find the right price for this product, but it's a little bit too early to talk details of that strategy. But we're very excited. We've got a wonderful asset in our hands. The data that Karl has shared with you is extremely good, and we're looking very much forward to getting this product in the market and being a big player in the atopic dermatitis market.

[Operator]

We will now take the next question. It comes from Alistair Campbell from Royal Bank of Canada.

[Alistair Campbell, analyst]

Just got a couple. The first one is just on the lebrikizumab opportunity in Europe. I just delved a bit deeper because, obviously, Dupixent has been out there now for a little while. And sort of recently, sort of looks like it's annualizing in Europe at about just under EUR 1 billion in sales, growing about 40%.

So also across several indications, so against that backdrop, I wonder if you can sort of give us any thoughts on how big you see the AD market for biologics in Europe likely to become and how lebri fits into that.

And then the second question is just on the CEO search. I wonder if you can give us any indication if there's any particular skill set or experience you're looking for on appointing the new CEO.

[Michael McClellan, executive]

Well, let me address a little bit the lebri question, then I'll pass to Carlos on the CEO question. So we've put out when we signed the deal with Humira a peak sales of EUR 450 million, which was based on what we saw then. The way the atopic dermatitis market has developed and the success that Dupi has had, this is a market that may be even bigger than we originally thought.

It's a little bit too early for us to give an updated number. We've got some things to work through, the labeling, the dosing, exactly where the usage of some of the other products are going to fall out.

But we're very excited. So we see the atopic dermatitis market just continuing to grow. We see it as a market that's still very early in its development, almost like psoriasis was 5 to 10 years ago.

So a wonderful opportunity. If anything, since the time we originally scoped the size of our opportunity, things have been on more of a positive trend. And once we feel comfortable that we've got a good target, once we get a few more data points in, we'll come back to an update to the market.

But wonderful opportunity that's a game changer for Almirall. This will be a real game changer on the size of the company and our positioning in the medical dermatology community.

Carlos, do you want to answer the CEO skill question?

[Carlos Gallardo Piqué, executive]

Sure. Thanks, Mike. And thanks, Alistair, for the question. Well, I mean, we're looking for someone that brings us -- as we said, that is aligned with our strategy and our priorities, right? So we're looking to someone with a very good knowledge of the European market, with strong execution capabilities, launch experience.

And of course, our priority for us is to continue to build an exciting pipeline in R&D, so someone that is comfortable with science, comfortable with taking decisions into some pipeline.

[Operator]

We will now take the next question. It comes from the line of Peter Welford from Jefferies.

[Peter Welford, analyst]

I've got 3 left. So just first of all, actually, just continuing on the prior question just with regards to the CEO skill set, so you obviously mentioned Europe. I mean, is it fair to say that someone with experience of the U.S. market and the derm market is now much lower on your list of priorities for the new CEO?

And equally, what about someone with experience of deal-making, of sort of business development? And that -- is that -- that wasn't something you mentioned. Is that as high? Or would you say that the European, if you like, marketing launch, understanding and commercial experience within the age of the company now is probably a greater priority for you when searching for an ideal candidate given, as I said, was obviously coming in the near future?

Secondly, just then on Klisyri, you mentioned obviously the prescription trend and the number of doctors. Are you generally finding the doctors who use dupilumab into the U.S. used Klisyri, then reorder and do it again?

So I guess, what I'm asking, is the bottleneck repeat use? Is it insufficient U.S. doctors? Or is it the -- it doesn't sound like payer is a barrier. But I guess, I'm curious to try to understand what the barrier is given the number of HCPs you mentioned seem relatively high for the number of prescriptions that you've got.

And then thirdly just on the financials. Appreciate it's not a call for 2023 outlook, but you did start by mentioning it. Just trying to understand, when you talk about SG&A and R&D increasing, should we think about sort of similar increases to what we've seen this year? Or I guess, is there any way you can sort of gauge for us just how we should think about the level of increase perhaps for R&D and SG&A in '23?

[Carlos Gallardo Piqué, executive]

Thank you, Peter. I'll take the first question. So in terms of the skill set of the future CEO, of course, yes, it would be great to have everything. It has European, U.S., M&A. And of course, the more the better. But if you look at what the opportunity is for us is biologics Europe. So that's the essential skill sets that we're looking at, together with pipeline.

In terms of M&A, yes, it's important. But also, if I look at the leaders that we have in the company, there's a very strong capability in terms of licensing and deal making. So I think that if the future CEO that comes into the company is not super strong in this dimension, to me, it will not be a big concern because we have this capability already in house.

[Michael McClellan, executive]

Yes. So let me address the Klisyri. I mean, the issue in the U.S. is just market specific. A lot of doctors in the U.S. use cryotherapy for the small lesions of actinic keratosis, and that's always been the case. It's their preferred method for many reasons, including reimbursement to the physicians, which is one of the aspects there.

We're making good progress on repeat use of customers. And we think that all of the initiation, all of the trialing of the physicians is setting a good basis for us when we eventually get the large field because when you come to the larger surface areas, it's more tricky to just treat those with the cryotherapy because it's too big of a surface area. So our opportunity will increase significantly once we get the label extension.

For the third question on financials, you won't see R&D jump at the same percentage as you saw this year. I mean, if you look at last year versus this year, we're up nearly 50%. But I would say in that 12%-ish range again for next year with a growing top line is probably not a bad initial mark.

And then SG&A, it really depends on the investments we need for the new launches, but a similar growth trajectory for what you see this year, which isn't a huge number, I think, is probably something as an initial thought. We'll clarify all this and give a lot more guidance details when we come to the February call.

Now of course, keep in mind that as we launched lebri across Europe in '24, '25, '26, we're going to need to continue to invest what we need to, to maximize that product. So that is a clear priority for the company, and we will not skimp on our investment in lebrikizumab and the other launches we have.

[Operator]

We will now take the next question. It comes from Francisco Ruiz Martin from BNP Paribas Exane.

[Francisco Ruiz, analyst]

I have 2, as the rest has already been answered.

[Pablo Divasson Fraile, executive]

Paco, can you speak louder, please?

[Francisco Ruiz, analyst]

Yes. Can you hear me now? Much better now?

[Pablo Divasson Fraile, executive]

Yes. Thank you.

[Francisco Ruiz, analyst]

Okay. So the first question is a follow-up on the gross margin. As Q3 has been relatively weaker than the rest of the quarter, and for next year, you expect more pressure in terms of inflation and also probably a lower mix on higher -- on more licensed product. Could we see this 63 point-something percent gross margin as an indicator for next year gross margin?

And my second question is on impairment in the U.S. So could you be a little more to -- give more details on what it is for? And is your expectation for Seysara, the one you mentioned 3 or 4 quarters ago, has changed with this impairment?

[Michael McClellan, executive]

Yes. So on the gross margin, like I said, the Q3 is a little bit of an anomaly just because of the mix in the quarter and the summer season. We expect probably this year to end up similar to the year-to-date. We have about 66.5%. Next year, with the inflation and materials pressure, maybe we're talking 50 to 100 basis points. But we're not talking about a drop-down to something like a 63%. So -- but we'll give a little bit more clarity on that when we get to the full year call in February.

The detail on the impairment in the U.S. is 3 very small products. Like I said earlier, our contract manufacturer that we took over from our previous companies that we acquired these products from decided and based on their own cost structure and the volume of these products to discontinue them.

Unfortunately, when we look for alternative suppliers, it was too expensive to make a shift, both in terms of the initial transfer investment and the future cost of goods. So that led to the impairment of about EUR 16 million, which was on the balance sheet for those 3 small products, which are Verdeso, Xolegel and another small product. So nothing of significance.

When it comes to Seysara, yes, we did take an impairment last year. And I'll remind you that when you take impairments, you write it down to having a book value that's been equal to your expected value, so you don't have a lot of margin for error.

So as long as we can continue to drive Seysara as expected, we will be okay. If for some reason the trends drastically changed, we'll have to reevaluate. But at this point, we have not had further impairments on Seysara.

[Operator]

I would like to hand back over to Pablo Divasson for final remarks.

[Pablo Divasson Fraile, executive]

Thank you very much, Sandra. 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.