Ipsen SA

PAR:IPN

Earnings Call Transcript 2019-Q1

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to today's Ipsen 2019 First Quarter Results Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, Wednesday, 24th of April 2019. I would now like to hand the conference over to your first speaker today, Mr. David Meek. Please go ahead, sir.

[David D. Meek, CEO & Director]

Welcome to the Ipsen First Quarter 2019 Sales Conference Call. With me on the call today is Aymeric Le Chatelier, our CFO. Thank you for joining us as we provide a quick update on the business before opening up the call for the Q&A. Before we begin, here is our safe harbor statement that outlines the routine risks and uncertainties contained within this presentation.We're excited to share our excellent results for the first quarter. The momentum of the business remains strong. We are executing against our objectives and positioned to deliver another outstanding year of growth and ongoing transformation. We remain focused on our threefold growth strategy: growth on the top line, growth on the bottom line and growth on the pipeline. Starting with the top line. In the first quarter, we achieved strong double-digit group sales growth of plus 15.8% driven by Specialty Care sales growth of plus 17.6% and continued Consumer Healthcare sales growth of plus 3.3%. With a strong start to the year, we are confident in confirming our 2019 guidance of sales growth greater than 13% and core operating margin of around 30% of net sales. As for the pipeline, and in line with our external innovation strategy, we announced and closed the acquisition of Clementia Pharmaceuticals, which I will elaborate on a little later.Now I will turn the call over to Aymeric, who will provide the financial highlights.

[Aymeric Le Chatelier, Executive VP & CFO]

Thanks, David. Now, maybe look at some detail on our major product performance of the first quarter. First, Somatuline continues to drive Specialty Care growth with a 16% growth and a strong momentum globally. In North America, with almost 23% growth driven by volume increase and steady market share gain for both new patient as well as total patient share, but also in Europe, in a more mature market where Somatuline is growing double-digit in the first quarter.Next, on the launch of Cabometyx in second-line renal cell cancer is progressing steadily as it is positioned as the TKI of choice. As for the expanded indication, we have secured reimbursement now in 9 countries for first-line renal cell cancer including Germany and the U.K., and 5 countries for second-line liver cancer. We continue to launch gradually in additional countries during 2019 in the coming months.The RCC competitive environment is evolving rapidly, with the first immuno-oncology combination approved in the first-line settings in January this year. We continue to believe Cabometyx has a solid place along the RCC treatment paradigm, particularly in the second-line markets. Currently, immuno-oncology has the majority market share in the second line, we expect that the combination of immuno-oncology will gradually move into first line as standard of care, and as this happens, the opportunity for Cabometyx in the second-line market will expand significantly.Moving now to Onivyde. We are steadily growing market share in the first quarter in second-line metastatic pancreatic cancer and increasing the duration of treatment for patients. We are also seeing a growing demand for more ex U.S. partners as the European and other country launch is progressing.Now turning to neuroscience and our key product, Dysport. We see a growth of 10% reflecting strength in both therapeutic but also aesthetics market with our partner Galderma. It's good to notice that the U.S. is performing very well in a growing but also increasingly competitive market.Finally, for Consumer Healthcare business. We continue to see growth driven by the strong in-market demand for the key product Smecta in all key markets including Russia, France and China as well as the good performance of the other products from our Consumer Healthcare portfolio. Now I turn the call back to David.

[David D. Meek, CEO & Director]

Thank you, Aymeric. Next, a few words about our acquisition of Clementia Pharmaceuticals, which we announced at the end of February and closed last week. Clementia's key late-stage clinical asset is palovarotene, for the treatment of extremely rare and severely disabling bone disorders. The regulatory submission for the lead indication of FOP is expected in the second half of this year. With fast-track status along with breakthrough therapy, orphan drug and rare pediatric disease designations, the regulatory decision is expected in the first half of next year in the U.S. and in the second half of next year in Europe. We are working closely with Clementia to ensure a smooth transition of operations while maintaining a strong patient-centric culture, and we look forward to keeping you updated on this important program for Ipsen.To close, we are focused on delivering our 2019 objectives. In terms of top-line and bottom-line growth for Specialty Care, we aim to maximize our market share gains worldwide for our differentiated, best-in-class products and for Consumer Healthcare to continue the sales growth and the OTx transformation. The continued topline growth along with the optimization of cost to leverage our commercial capabilities will drive further margin expansion. As for the pipeline, we aim to accelerate key internal R&D programs and to continue to identify, execute and integrate additional business development transactions. In terms of culture, we are driving further transformation and ambition through leadership and people. By successfully executing on these objectives, we will continue delivering superior value to the patients we serve and our shareholders.And finally, a quick reminder that we will host an Investor Day in Paris on May 14th. We look forward to providing a comprehensive company update with a focus on our R&D portfolio. And now back to the operator, and we're ready to open the call for questions.

[Operator]

[Operator Instructions] Right now, sir, we have seven questions, and our first question comes from the line of Luisa Hector.

[Luisa Caroline Hector, Pharma Research Analyst]

Firstly on the outlook for Somatuline in terms of generic competition. Is there anything more you can say how confident are you that we can get through 2019 without seeing any generic Sandostatin? And also any visibility you may or may not have on the U.S. Somatuline generic situation? And then maybe -- I saw on your slides for full year the -- you're flagging some Phase II NET data for Satoreotide in this year. I just wondered if you could give us a bit more color; what is that trial, what is the key data and when we could see a filing maybe for that asset?

[David D. Meek, CEO & Director]

Great. Hi, it's David. I'll tackle those questions. The first one, in regards to potential generic somatostatin analog, we're diligently monitoring the competitive environment, and at this point, we are increasingly confident there will be no generic launch of the somatostatin analog in 2019. So we are not -- we have no impact planned for 2019 for generic somatostatin analog. That's globally, so that would include the U.S. in that. So hopefully, that answers both of your questions regarding a potential generic somatostatin analog. The last question, regarding Satoreotide, we're going to provide a pretty detailed update on May 14 about the Satoreotide program. The program is in early development for dose finding as well as safety. And we'll provide an update on the activity as well as safety that we see with Satoreotide. We're very encouraged with the early clinical results we're seeing with Satoreotide, and we think it's a program that's going to offer a lot of tumor activity in multiple tumor types including NET. So on May 14, we'll go do a deep dive. Don't expect submission for regulatory approval in the next couple of years, it's more of a midterm regulatory filing for us with Satoreotide. So we'll go into in more detail on May 14. Thank you.

[Operator]

Our next question comes from the line of Jean-Jacques Le Fur.

[Jean-Jacques Le Fur]

Jean-Jacques here from Bryan Garnier. I have just one broad question regarding the neuroendocrine tumors because you have delivered very strong growth for Somatuline in the U.S. Looking at Novartis figures, Sandostatin in the U.S. is plus 10%, Lutathera is -- has delivered a quarter with $106 million, so quite a strong quarter also. What is happening there? It seems this market is suddenly accelerating. Is there any explanation for all these 3 products delivering these very strong figures in just one quarter?

[David D. Meek, CEO & Director]

Hi, Jean-Jacques, it's David. I can't comment on what Novartis has posted, but I understand the numbers for -- what we can talk about is the market. The market, we think, is growing at mid-single digits for somatostatin analogs as well as patients for NET. And we're continuing to grow our market share each and every month, as you know, so that's happening in the U.S. with Somatuline. We're very pleased with the volume and market share performance. So we think with the -- and then I would add with Lutathera, one of the dynamics that we are seeing happening with Lutathera is many patients are remaining on a somatostatin analog while being treated with Lutathera. And so therefore, the patient is not coming off of an SSA. They are being treated with Lutathera for the number of cycles before Lutathera, while on Lutathera and after Lutathera. So we're hearing about that, that's quite common in clinical practice right now. So therefore you could have Lutathera growing not at the expense of a somatostatin analog, which we've been talking about that for the last couple of years, and we assume that market dynamic is going to happen. But I think the -- what I will say is this: Somatuline is fueling the market growth with volume and patient share in the U.S. much more than the competition.

[Operator]

Our next question comes from the line of Emily Field.

[Emily Field, Research Analyst]

Yes. Given that organic growth came in 280 bps ahead of full-year guidance, are there any terms that you are expecting to decelerate over 2019, or was first quarter performance ahead of plan? Secondly, just if there was anything surprising in the label for the renal approval for the KEYTRUDA-Inlyta combo? And just when you would be expecting -- if you have an expectation on when European approval could come in? And then just the last one, sort of as we're getting -- I believe some of the competitor [ nascent ] neurotoxins will be launching in the U.S. in the near future, so just if you have any commentary on how you would expect those new entrants to impact the aesthetic market?

[David D. Meek, CEO & Director]

Thanks for the questions. So I would say, relative to the sales performance for Q1, those are in line with our expectations this year. So we're quite pleased, and therefore we're confirming our 2019 numbers that we have for our guidance. As you know that the base continues to get higher after many years of our sequential growth. So we're very firm and very committed to achieving our objectives for this year. It's just the base is getting higher, that's what I would say. Aymeric, anything else you would add on the sales trends, and I'll answer the KEYTRUDA.

[Aymeric Le Chatelier, Executive VP & CFO]

No. I think it's fine. I mean the -- clearly, I mean the growth of Q1 is confirming our guidance to at least reach 13%. And as you notice, also 2% positive impact of the foreign exchange.

[David D. Meek, CEO & Director]

Yes. And regarding a KEYTRUDA approval in the U.S., no surprises from us. We do expect a KEYTRUDA approval within the next 12 months in Europe. And as you know, Emily, then they'll have to go to the reimbursement conversations, just like nivo/ipi is right now, they're going to those. While they are approved in Europe, nivo/ipi, the reimbursement situation is unfolding as we speak. So we would not expect KEYTRUDA in the marketplace until 2020 at the earliest in Europe because of, one, registration's needed, and we don't expect that any time soon later this year. We would expect that, and then as you know well, the reimbursement conversations would be throughout 2020. But no surprises at this point in time relative to label. You also know the U.S. label may or may not be the European label, so -- and you -- I think you had one more question?

[Emily Field, Research Analyst]

All right. Yes. Just on how you -- any updates and your thoughts on the neurotoxins that are expected to be launching in the U.S.?

[David D. Meek, CEO & Director]

The neurotoxin launches in the -- maybe it's one this year. We do expect the Evolus neurotoxin, it is approved, it's launching pretty much now. And the target is really Botox there. They're positioning directly against Botox with their messaging, their dosing as well as their pricing is very much targeted towards Botox. So we expect more impact with Botox. We also see this as a very favorable market dynamic. As you know, the neurotoxin market has significant growth potential. The number of patients eligible that could be on a neurotoxin is still very low. Even in the aesthetic space, where the Evolus asset will be, they are only approved for aesthetics, they're going to be marketing only in aesthetics. And so we see significant market growth; it's already double-digit market growth in the aesthetics space. So we see new entrants expanding the market, and we're confident in our numbers this year for Dysport in the U.S. We did assume the Evolus asset would launch this year, and that's the launch this year, and Revance will not be until next year at the earliest in the U.S.

[Operator]

Our next question comes from the line of Sarita Kapila.

[Sarita Kapila, Analyst]

Sarita here from JPMorgan. Could you please update us on the Cabometyx rollout in first-line renal cancer and then how you see that evolving going forward? And then secondly, could you potentially comment on the market share for Somatuline in the U.S. and how many patients -- new patients you're seeing as existing? And are any patients dropping out?

[David D. Meek, CEO & Director]

Sure. I'll answer the first question regarding the RCC market then I'll turn it over to Aymeric to go into the specific of the market share for Somatuline in the U.S. Regarding the first-line RCC rollout of Cabometyx, we're pleased with the early days of this launch. We're approved now in 9 markets for reimbursement in the first-line setting for RCC, Germany and the U.K. being the major markets where we have reimbursement in place. So we're seeing a nice market share growth with Cabometyx in the front-line setting for RCC. However, I want to be very clear that we see the opportunity for Cabometyx to be in the second-line RCC space today and well into the future. As was mentioned earlier by Emily, the launch of KEYTRUDA -- and we see other IO combinations will be registered in the coming years -- we see the IO combo market taking over the front-line RCC positioning. And so whether it's nivo/ipi, KEYTRUDA plus Inlyta, the new ones to come down the road, we see those products, based on the overall survival advantage they have, the response rate they have, they will take the lion's share of the business in the front-line setting. Then as you know, with sequencing if a patient exposed to an IO in the front-line setting, they will not receive an IO in the second line setting, and that's where the significant opportunity is for Cabometyx in the second line setting. Cabometyx is already the TKI of choice in the second line setting, and we expect that TKI choice to drive further market share if the IO combos do get registered, do get reimbursed and quickly accelerate into clinical practice setting and the front-line setting. So our EUR 300 million call that we have for RCC, the majority of that is in the second-line RCC space for Cabometyx. Does that help? I'll turn it over to Aymeric to talk about Somatuline market share.

[Aymeric Le Chatelier, Executive VP & CFO]

Yes. So regarding Somatuline market share in the U.S., we are now almost 30% market share globally. If you zoom on acromegaly, we have more than -- significantly more than 50% patient share in acromegaly. Regarding any change, we're approaching now 40% market share in new patients. And to answer your question, there is quite limited switch and most of the business is really new patient share and it is driving the continuous growth in market share in the U.S.

[David D. Meek, CEO & Director]

I would just add to that, it's a very sticky patient population and we've been sharing this in the past six months or so with many of the 1-on-1 investor meetings, is the patients that when they are on therapy, they are on therapy for years for NET and acromegaly. There is little switching and it is the sticky population, means the patients are on therapy for many, many years for NET as well as acromegaly.

[Operator]

Our next question comes from the line of Trung Huynh.

[Trung Chuong Huynh, Equity Associate]

I have two, if I may. So firstly, thanks for your comments on HCC during the presentation. Can you just give us a bit more color into the traction you're getting in second-line liver for Cabo? You've prepared us for a slow ramp, but we are now six months post approval. Is there anything different to what you expected? Has there been any difficulties or any key wins you can tell us about? And then secondly, can you tell us if there's anything we should be looking out for at ASCO next month?

[David D. Meek, CEO & Director]

Sure. It's David. Regarding HCC, we're pleased with the early days. As you know, we received approval in November of last year with the European Commission. So reimbursement, we're very much in the reimbursement mode at this point. We have reimbursement in 5 countries now including Germany. So in the second line space qualitatively, we can -- and actually quantitatively -- there is traction in the second-line HCC space. Physicians seem very pleased to be able to use Cabometyx in the second line setting, but we're pretty much 4 months into the launch at this point with reimbursement in Germany. So we're pleased with the early days. Feedback is good at this point in time, a few months into the launch. Does that help on the HCC?

[Trung Chuong Huynh, Equity Associate]

Yes. That's great.

[Operator]

Our next question comes from the line of Florentin Senan.

[Unknown Analyst]

[indiscernible] for Christophe-Raphael from ODDO BHF. Three questions please. What is the price effect for Somatuline on Q1? Same question about Cabometyx, since it is now available in the first line of treatment. What is Cabometyx' market share in Europe for just Q1 2019? And do you believe in being able to maintain growth of Somatuline and Dysport for the rest of the year?

[David D. Meek, CEO & Director]

Yes. It's David. The price effect for Somatuline in the U.S. or the price effect for Somatuline globally is -- it's all volume. The growth we see with Somatuline -- actually the whole portfolio -- is volume and market share gains. We do not have a positive price effect. If anything, our price effect is neutral with the pricing we have. So there's no positive price effect at this point with Somatuline. With Cabometyx -- excuse me -- Cabometyx sales, it's the same thing with pricing. For first-line RCC, we actually assume a 5% to 10% price decrease for Cabometyx. So for example, when we add the first-line RCC and potentially the second-line HCC indication, that will result in a price cut in both of the markets and we assume that's a 5% to 10% price cut. And those numbers are already into our guidance for 2019 as well as our long-range forecast. We do assume those price cuts to achieve that. And Aymeric, anything else you would add on it.

[Aymeric Le Chatelier, Executive VP & CFO]

No. I think it's clear. The question was also on the market share for Cabometyx in Europe. I think that today in the second line, we are exceeding 20%, and depending on the country, 20% to 30% market share. And the latest question was, yes, we anticipate Dysport and Somatuline to continue to grow for the full year in line with Q1.

[Operator]

And our last question comes from the line of Michael Leuchten.

[Michael Leuchten, Co]

It's Michael Leuchten at UBS. Firstly, just a quick one, you called out the importance of Europe as a headwind in Q1, do you expect those to normalize in the second quarter or will that drag on for longer? And second question, you did elaborate on your view how first-line use of immuno-oncology and RCC will prevent second-line use. Could you explain your view on why first line use of the TKI will not prevent second-line use of a TKI? In other settings, we see the same modalities have been used in sequence. And then thirdly, just a clarification. So the Lutathera use you're seeing at the moment, do I understand you correctly that a lot of it is actually off label, given that the label calls for Sandostatin use after Lutathera therapy? I thought I heard you say that actually you see that's free for the physician to decide what analog to use?

[David D. Meek, CEO & Director]

Okay, Michael. Well, I'll begin. Regarding the first-line RCC and the sequencing and then moving onto second-line RCC. So this all -- a lot of this came out at ESMO. It was discussed last year at ASCO, ESMO there were some significant highlights in 2018 with ESMO. So regarding the sequencing, the IO, if an IO is used in the front-line setting, as you mentioned, an IO will not be used in a second line setting. Now products like another TKI, like Inlyta for example, if it's used in the front-line setting, would a physician go to Cabometyx in the second line setting? And the answer is yes. And actually if you look at the guidelines from ESMO, from NCCN, then you talk about that if a front-line RCC patient is on an IO combo, Cabometyx would be a logical -- actually, it's listed as the first product in the guidelines, it's the TKI of choice over the next product in the second line setting. There was data presented at ESMO in 2018, it was a poster from Dana-Farber Cancer Institute. And they did a retrospective analysis of patients treated with Cabometyx after first-line IO combo use with anti-VEGF or any other therapy, for that matter. And the results were the same whether the patient was on IO or IO combo. And so this has been validated clinically as well. So this we see in the marketplace, this is what the guidelines support. Therefore, if the patient is on an IO combo with a TKI such as Inlyta, Cabometyx would be a logical second-line choice for RCC. Does that help with that? Let me go to the Lutathera comment as well. The guidelines, the study with -- the narrow study was done with Sandostatin, it was not done with Somatuline. However, turning back to the guidelines again -- NCCN guidelines, for example -- they're pretty much SSA-agnostic. So the patient can be treated with Sandostatin or Somatuline with Lutathera. So the -- again, the guidelines right now are agnostic on that, and that we see in clinical practice in the field as well. Did I answer your questions? Aymeric, did I miss anything on that?

[Aymeric Le Chatelier, Executive VP & CFO]

Yes. Yes. Your first question regarding LAR, yes you should expect the issue we had in Q1 to rebound in the rest of the year. This is mainly related to a new setup for business in Algeria in order to secure the importation quotas. But we don't expect any impact for the full year.

[David D. Meek, CEO & Director]

That answer your question regarding RCC as well as the NET space?

[Michael Leuchten, Co]

Yes. Thank you very much.

[Operator]

Okay. Our next question comes from the line of Jean-Jacques Le Fur.

[Jean-Jacques Le Fur]

Just a quick question on the Consumer Healthcare. Because the 3%, 3.3% sales growth this year in this quarter seems quite strong. Is there any reason for this growth to be maintained, to decrease, or what could be the trend for the rest of the year after this very good Q1?

[David D. Meek, CEO & Director]

Jean-Jacques, thank you. Yes, we're pleased with the growth of the Consumer Healthcare business. As you'd remember, a couple of years ago, our key strategy was to get this back -- this business back to growth and we grew nicely in 2017 as well as 2018, and we plan this growth continuing over time. What was fueling this growth was Smecta. Smecta was a key driver of this growth. And as you know, it's our most important asset within the CHC business, so it was a good quarter for Smecta. And we do expect low single-digit growth for the CHC business for the remainder of the year. Aymeric, anything else you want to add?

[Aymeric Le Chatelier, Executive VP & CFO]

No. I would say this growth is more in line with the Consumer Healthcare market growing between 2% and 4%. And that's what we expect to deliver. There's always some phasing when you really look at the performance on one given quarter, but this is really -- the most important is that our key product Smecta is driving the growth of the division.

[Operator]

And our next question comes from the line of Philippa Gardner.

[Philippa Gardner, Equity Analyst]

Yes, just two quick follow up questions if I could, please. Just wanted to ask if you are aware of any European filings for generic lanreotide? And then just in terms of your commentary on Smecta, can you outline if there was any inventory in the first quarter that we should be aware of?

[David D. Meek, CEO & Director]

Great. The first question, regarding European filings of generic lanreotide. We are not familiar with any filings there. There is for the long-acting formulation, and that's really important because there are some news reports flowing around the filing of the generic lanreotide. That generic lanreotide is actually an immediate-release generic lanreotide. That's been discussed, but that's -- once again, it's an immediate-release. Short-acting immediate release octreotides are already available on the marketplace. So that's been out there. And then regarding your generic lanreotide, we're watching this just like we watch any generic SSA. There -- we're aware of intent-to-file. We're aware of some may have filed. We don't know that they are validated. The CMC and the manufacturing issues are significant, and we hear that from those that are considering filing, and we hear that through the regulatory channels and also companies may be able to -- they are not able to manufacture, that's the big issue. Even if they have a marketing authorization, they may not be able to manufacture either the generic or a potential generic SSA. So that's where we are at this point. We're watching it closely. We do not expect any generic somatostatin analog impact in 2019, and as we learn more, we'll certainly share it. And then Aymeric, I think you want to talk about the...

[Aymeric Le Chatelier, Executive VP & CFO]

I think on Smecta, I mean there's no specific inventory impacting Smecta performance in Q1.

[David D. Meek, CEO & Director]

It sounds like that may be the final question. Aymeric and I would like to thank everybody for your participation today. Thank you for joining us on our Q1 sales results call. We look forward to seeing you and hearing from all of you May 14 at our Investor Day that we plan on having. And we'll focus on the R&D pipeline as well as talk a little bit about some of the outlook and some of the assumptions with the key products. And we look forward to seeing you on May 14 at Paris. Thank you, everybody. Have a great day.

[Operator]

Okay. That concludes our conference for today. Thank you for participating. And you may all disconnect.