Ipsen SA

PAR:IPN

Earnings Call Transcript 2022-Q2

[Operator]

Good day, everyone, and welcome to the Ipsen’s H1 2022 Results Conference Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. [Operator Instructions] Please note, this call may be recorded. [Operator Instructions]

It is now my pleasure to turn the conference over to Ipsen’s CEO, David Loew. Please go ahead, sir.

[David Loew, Chief Executive Officer]

Good afternoon, or good morning, everyone. I’m delighted to welcome you to our first half results call. As you just heard, I’m David Loew, Chief Executive Officer of Ipsen, and it’s a real pleasure to be here today to run through our first half performance and upgraded guidance. Please note that this presentation is available on ipsen.com.

Please turn to Slide 2. This is our Safe Harbor statement, which outlines some key risks and uncertainties contained within this presentation. Also any commentary on growth you’ll hear today will be based on constant exchange rates unless stated otherwise.

Please turn to Slide 3. I’m joined today by our CFO, Aymeric Le Chatelier as well as Howard Mayer, Head of Research and Development. Howard will be with us for the Q&A session later.

Please turn to Slide 4. Here is the agenda for today’s call. I will start our presentation with an overview of our business, after which Aymeric will take you through our financial performance in the first half of the year as well as our upgraded guidance for 2022. Also concluding our presentation, we’ll be happy to take your questions.

Please turn to Slide 5. So let’s begin with the business overview. Please turn to Slide 6. The successful execution of our strategy yielded strong financial results in the first half of the year. Total sales growth of 10.5% at constant exchange rates was accompanied by a core operating margin of 39.6% representing an increase of 2 percentage points.

We continue to replenish our range of brands and the pipeline. In the first half, we announced the acquisition of Epizyme, expanding our presence in oncology from currently solid tumors to now include also hematological tumors. We also delivered on the divestment of our consumer business, and I’m delighted to say that this transaction closed yesterday.

Finally, given our performance in the first half of 2022, we have today upgraded our full year guidance for total sales and the core operating margin.

Please turn to Slide 7. Our growth platforms of Cabometyx, Dysport, Decapeptyl and Onivyde performed very well in the first half, growing by 19.5%. Cabometyx sales grew by 25.4% with good levels of uptake in renal cell carcinoma as an increasing number of patients on I-O progress to second line.

The launches of the first-line combination with nivolumab in a number of countries were encouraging. For example, in France, where we have launched in March as we have already 12% of new patient share in first line with the combination of nivolumab.

Dysport delivered a strong performance in both aesthetics and therapeutics. Growth of 15.5% was somewhat limited by supply phasing and aesthetics that was impacted by the preparations for an increased capacity given the strong demand.

Decapeptyl sales grew by 15.9% as we gained market share in the number of countries in Europe and the rest of the world. The ongoing impact of COVID-19 restrictions in China slowed our sales growth there, but I would like to thank our colleagues in China who have done so much this year for patients under very difficult circumstances.

Finally, Onivyde sales were up by 30.4% as we gained further market share in the U.S. while there were increased sales to our ex-U.S. partner.

Please turn to Slide 8. Somatuline sales grew by 1.1% in the first half. This was a robust performance, though we are aware that increasing levels of competitive activity in both the U.S. and Europe will continue to increase.

Turning firstly to North America. Stable Somatuline sales were helped by demand growth in the U.S. that was reflected in market share gains. We saw only limited volumes so far from lanreotide competition with around 5% volume market share by May. Somatuline pricing was adversely impacted by increasing levels of commercial rebates and channel mix continued to be affected by the growth of 340B.

In Europe, sales declined by 4%, where there was no generic competition, we gained further market share. Where the generic has launched, however, sales of Somatuline have been adversely affected. Baring by country, the impact has been on volumes and/or pricing. We anticipate further launches of the generic in Europe. Underline 10% of the total Rest of the World sales were up by 33.7%, with volume growth supporting strong performance in all geographies.

Please turn to Slide 9. Turning to external innovation, I’m excited by the acquisition of Epizyme we announced last month. The transaction gives us global access to Tazverik, which is already approved in the United States, generating sales and which has also a patent life in the U.S. extending to 2032.

Given our strong U.S. market presence and capabilities, we will leverage our infrastructure to accelerate its growth. The addition of Tazverik will enhance our long-term performance, particularly through the potential accrual of the combination in second line follicular lymphoma.

It is the early clinical data recently presented at ASCO are replicated in Phase 3 development, favorably impacting progression-free survival and overall survival. There is the potential to take the sales to around €800 million. The deal is in line with our priority of replenishing our pipeline with programs at both clinical and preclinical phases of development in oncology.

The acquisition comes with Epizyme’s first-in-class or SETD2 inhibitor, EZM0414, which was granted FDA Fast Track status and is currently under evaluation in multiple myeloma and diffuse large B-cell lymphoma. This deal is a great strategic fit for Ipsen, strengthening as it is our portfolio in oncology and our early and clinical stage pipeline. Once we close the transaction in the coming weeks, we will focus on fast integration and the acceleration of the growth of Tazverik.

Please turn to Slide 10. Yesterday’s closing of the agreement to divest our consumer business to Mayoly Spindler was a significant moment for Ipsen. We are now 100% focused on specialty care. The transaction representing an enterprise value of €350 million, including an earnout contingent payment of €50 million was a major step forward in the execution of our strategic road map towards building a more focused Ipsen.

Please turn to Slide 11. Turning to the pipeline, given the recent approval of Dysport MVO indication and Cabometyx in second-line differentiated thyroid cancer, they are now in launch phase. The rest of the pipeline is unchanged, though I want to draw your attention to our longer-acting neurotoxin candidates, which are progressing nicely in Phase 1, 2 development in both aesthetics and therapeutics. I will now focus on the pipeline milestones coming up.

Please turn to Slide 12. We have a number of pipeline milestones between now and the end of 2023. We wait Phase 3 trial data from the combination of Cabometyx plus atezolizumab this year in second line non-small cell lung cancer as well as from Onivyde in second line small cell lung cancer. We now anticipate Phase 3 trial data for Onivyde in first-line pancreatic ductal adenocarcinoma this year.

Phase 2b data are expected in 2022 for Mesdopetam in levodopa-induced dyskinesia with Parkinson’s disease. Finally, the PDUFA date has been set by the FDA for the end of the year for Palovarotene in FOP.

Turning to 2023. There are three major milestones to consider. We await Phase 3 data from the combination of Cabometyx plus atezolizumab in second-line metastatic castration-resistant prostate cancer. Elafibranor is also expected to read out its Phase 3 data next year while a European regulatory decision for palovarotene in FOP is assumed in 2023.

Please turn to Slide 13. We have refocused our company, social responsibilities strategy. The new generation Ipsen identity centers on four key pillars, namely environment, society represented by patients and people and governance. I was very pleased with the progress we made under every pillar in the first half of the year.

Firstly, we reduced carbon emissions by over 20% year-on-year, driven by the switch of European-based manufacturing and R&D to green electricity in 2021. With the move to renewable electricity at a significant reductions in refrigerant gas emissions in recent years, our last stage obstacle to decarbonize our manufacturing will be to address the use of fossil fuels at our sites to produce heat and steam for the manufacturing process. We have already invested in heat recovery projects at [indiscernible] to utilize waste to reduce bottle fuel consumption.

Dublin is the most recent site to complete the installation of a new chiller system that uses a lower global warming potential refrigerant gas and incorporates waste heat recovery to use site fossil fuel consumption. The project is expected to deliver a 7% reduction inside greenhouse gas emissions.

Our patient focus has included support to people in Ukraine in medical needs. On top of the nation to the Red Cross and Tulip, we have donated medicines and supported nearly 100 patients with three months of supply of the necessary treatment, including with a capacity around 30 children with central precocious puberty. Access programs have also been extended in geographies with underserved patients.

You may remember that our revolving credit facilities include a key ESG element. Favorable ESG results are rewarded with charitable donations and one of these was awarded to international health partners, a charity supporting people in some of the world’s most challenging places to get the medicines they need. Within the people pillar, we are targeting a balanced gender ratio for our global leadership team by 2025. And we are very proud to report that ratio has already reached 45%. Ipsen was also recognized as an employer of choice in 21 countries. Finally, our focus on governance included the renewal of Anti-bribery certification by ISO.

I hand over now to Aymeric Le Chatelier, our Chief Financial Officer. Please turn to Slide 14.

[Aymeric Le Chatelier, Chief Financial Officer]

Thank you, David. So I will now run through the financial highlights for the first half of the year as well as the detail of our upgraded 2022 guidance. Please turn to Slide 15. As you can see, the first half financial highlights are showing a strong performance with a strong sales growth of 10.5% at current exchange rate as presented by David, a record level of margin at 39.6% of total sales, which I will detail in the following slide. Driving growth in core EPS over 20% and an increased level of free cash flow generation to fuel our ambition for external innovation.

Please turn to Slide 16. Looking at the detail of our core P&L, the growth in total sales was impacted by the positive evolution of the currency, especially the U.S. dollar, boosting our total sales by additional 4.7 points to 15.2% growth.

Other revenues increased by 24%, primarily reflecting the increase in royalties received from our partner for this cost. Given the unfavorable mix of sales, with flat total sales, the gross profit margin was slightly down at 87.6% of total sales. R&D costs increased by only 1% with lower investment in the existing oncology program and despite the higher level of investments in neuroscience and rare disease, including lanreotide.

SG&A expenses increased by 14% or 9% at constant exchange rate, reflecting the commercial investment to support our growth as well as preparing for the several upcoming launches. We also see an increase of the impact of post-pandemic spend on travel and expense as well as in medical and marketing activity, all of that being more than offset by the cost efficiency across the entire organization. As a consequence, our core operating income grew by 22% and our core operating margin improved by more than 2 points to 39.6% of total sales.

Please turn to Slide 17. We also continued in H1 to increase our cash flow generation with free cash flow growing by 17%, driven by the enhanced profitability as well as the sound management of working capital and capital expenditures. After the payment of dividends and net investments from business development, Ipsen is now fully deleveraged with a closing net debt of only €2 million.

Our capital allocation priority remains to increase our firepower for our external innovation strategy. And I’m very pleased to say that at the end of H1, on a pro forma basis, which means after the proceeds that we just received from the sale of the Consumer Healthcare business, and the expected closing of the Epizyme transaction, we have a total firepower of €2.2 billion available for further transactions.

Please turn to Slide 18. Based on the strong momentum of H1 results, we have announced upgraded expectation for total sales and the core operating margin for full year 2022. This new guidance assumes a closing of the Epizyme transaction in the third quarter and exclude obviously any contribution for our Consumer Healthcare business. So we now anticipate total sales growth at current exchange rate to exceed 7% this year, which represents a 5% improvement as compared to our initial guidance of a growth greater than 2%.

Compared to our H1 performance, we expecting the centralized an increasing adverse impact from the competitive activity for Somatuline in both Europe and in the U.S. We assume also a larger favorable impact from currency of around 5 points based on the average level of exchange rate in June, meaning that we anticipate to grow our top line by more than 20% in this year 2022. The core operating margin is now expected to be greater than 36% of total sales as compared to greater than 35% in the initial guidance in February. Assuming first the dilutive impact of the Epizyme transaction, which will be integrated and which will remain limited given the expected timing of the closing.

It is worth noting also that beyond Epizyme, we anticipate a higher level of expenses in H2 given the level of additional prelaunch activities, notably for palovarotene and elafibranor but also the pressure from inflation on raw material and salary costs as well as the traditional seasonality as we see more activity in the second half of the year. And to finish this guidance on margin exclude any potential impact of incremental investment from external innovation transaction.

With all of that, I will now hand back to David. Please turn to Slide 19.

[David Loew, Chief Executive Officer]

Thank you, Aymeric. Please turn to Slide 20 for the conclusion. To summarize, we are successfully executing on our strategy and delivering strong results, advancing the pipeline and focusing on more external innovation opportunities. We have upgraded our 2022 guidance, reflecting the strong progress across the four strategic pillars.

The pipeline is advancing nicely. And over the next 18 months, there are a number of potential milestones, including life cycle management for Cabometyx and Onivyde as well as new molecules, palovarotene and elafibranor. Finally, our focus on external innovation as the main capital allocation priority has generated over €2 billion of current firepower. We are moving at pace with our preparations to integrate Epizyme, and we will have a real momentum at Ipsen to do more deals.

Thank you for listening. Aymeric, Howard and I will now be happy to take your questions. Please turn to Slide 21. Operator, over to you.

[Operator]

[Operator Instructions] And our first question comes from Michael Leuchten with UBS.

[Michael Leuchten, UBS]

Thank you very much. Two questions, please. One, just the implied margin for the second half, Aymeric. Forget my math, it is about 35%. How good of a jump point – jump of point is that as we think about 2023? You talked about R&D being sort of flattish in the first half because some trials are coming to an end. Is it a good benchmark to use H2 as we think about 2023? Or is that too premature to think about that?

And then the second question is, have you changed any of your assumptions around Somatuline again, your implied guidance for the second half. So your guidance seems to imply the second half of Somatuline, a fairly flattish trajectory. So no significant deterioration. We’ve seen a slight incremental negative impact in Europe, which I presume is mostly the pricing that you talked about before, but it doesn’t seem to assume an acceleration of those trends into the second half. Have you changed any assumptions for Somatuline as you now have a bit more experienced in Europe? Thank you.

[Aymeric Le Chatelier, Chief Financial Officer]

Thank you for the question on the margin. So we’ll address the question and Dave, you’re going to handle Somatuline. So clearly, as we – as I said, we are assuming and you right. A lower margin – a significantly lower margin in H2 as compared to H1. A big chunk of that is really related to the impact of Epizyme. Epizyme will be only consolidated for a few months this year.

So answering to your question for 2023, you should assume that there will be a more significant diluted impact from Epizyme, which will offset the declining R&D spend on the existing portfolio, as we’ve said, which is part of our overall trajectory to clearly replenish our pipeline. Beyond that, I think that there is also – in H2, some prelaunch activity that will impact the margin. I think it’s too early to take any conclusion on the level of margin for 2023.

[David Loew, Chief Executive Officer]

Michael, regarding your second question on the assumption on Somatuline, actually, we have always said this is a gradual erosion product holding up pretty well because the production is quite complex. And actually, it confirms what we have communicated to the market. Of course, we will see some further launches in some of the countries. But when we look at the total list where our competitors are registered, they could have launched in many money – in more markets since a long time, and they have not done. So yes, you will see some more impact from somewhat more volume, you will see also pricing pressure. We have not seen an octreotide generic yet in the U.S., which certainly is good news for us. So in that sense, we speak to our assumption that this will be a gradually eroding product over time.

[Michael Leuchten, UBS]

Thank you.

[Operator]

And we’ll take our next question from Keyur Parekh, Goldman Sachs.

[Keyur Parekh, Goldman Sachs]

Hi. Thank you for taking my question. Two, if I may, please. The first one is, as you kind of are highlighting, you’re going to bring forward the readout for the first line kind of pancreatic cancer study. Just wondering kind of how we should think about the factors that have enabled you to bring this forward? And how would you kind of characterize your optimism kind of ahead of this readout? So that’s kind of question number one.

And then question number two, kind of just talking to the – your broad kind of M&A strategy, you clearly, just an Epizyme. But as we look for the – into kind of 2023, can you characterize kind of some of the areas that you would like to kind of strengthen further? Is this kind of going to very much be focused on kind of the oncology part of the business? Or should we expect a bread – for the broadening of the specialty business here? Thank you.

[David Loew, Chief Executive Officer]

Perhaps, Howard, you can take the first one. I’ll read on pancreas.

[Howard Mayer, Head of Research and Development]

Yes. Thanks, David, and thanks for the question. I think we expect to have data in the fourth – in the second half. And I wouldn’t read in too much to bringing it forward because it’s only really by a couple of months and enrollment went a little better than expected. Our – we’re obviously cautiously optimistic. We’ve gotten this far – the trial is being – has a DMC, or a data monitoring committee that monitors the data and the study has continued as planned.

When we look at the data from Phase II, we’re encouraged by the fact that we saw a median OS of over 12 months. And when we read through with that and what we’ve seen with Gem/Abraxane, we’re obviously cautiously optimistic that we’re going to see a clinically meaningful difference in median OS. But obviously, the data will bear that out in the second half of this year.

[David Loew, Chief Executive Officer]

And Keyur, regarding your second question on M&A. Clearly, we have a very strong focus on M&A, as we have communicated since our Capital Markets Day. We are going to be very active in that space. So you’re going to hear more announcements on deals that we are working on, either licensing deals or acquisition deals.

In terms of the areas, to your question, we are really open for the three therapeutic areas that we have signaled. Obviously, we can still leverage more our oncology or hematology platform that we have built up, but we also believe that rare disease is an area where we are going to start building up a portfolio, as you have been seeing as well as CNS, where we have a good footprint also with our Dysport business. So we are really going to look at the right opportunities in these three areas.

[Operator]

And we’ll take our next question from the line of Thibault Boutherin with Morgan Stanley.

[Thibault Boutherin, Morgan Stanley]

Hello. Hi. Thank you for taking my questions. Just the first one on Dysport. I’m not sure we understood the comment on the capacity increase. So is the phasing benefiting H1 or H2? So just if you could give some clarification on this.

Second question, just on Onivyde. It’s been, I think, the second quarter in a row where we have good contribution from ex-U.S. So basically shipment to sale. I just wanted to know what kind of – what is stocking element in this? Or is it just that there is an underlying good performance in Europe, and so you’re just supplying on a regular basis to sale.

And maybe last question on the Somatuline Rest of the World. It’s been second quarter in a row where we see a good performance. So just trying to understand what is the scope to see more growth in other countries and the ability to kind of offset the erosion in U.S. and Europe to some extent. Thank you.

[David Loew, Chief Executive Officer]

Thank you, Thibault. Perhaps on the Dysport, your question on the capacity. Basically, we have a little bit less capacity this first half because we were actually investing into increasing significantly our capacity for the future. And that means that there is a bit of a phasing, if you want, where you have a little bit less supply this first half of the year, and it’s going to significantly increase in the second half of the year as the new line is starting to really be able to produce much more because we are actually seeing very strong demand in the market in both aesthetic and therapeutic. And so we have had a real big increase in capacity to be ready for the future to see this word growing also very strongly for the future.

On your second question on Onivyde, and Dysport, and Servier, I’ll let Aymeric answer.

[Aymeric Le Chatelier, Chief Financial Officer]

Yes. So on your question regarding ex-U.S. sales. As you know, there is always some shipments from one year to another one. And clearly, H1 last year was very low in terms of shipments. But beyond that, I mean, Servier has a pretty strong performance in a selected number of markets including Japan and China. So I think we are very pleased with the momentum from Servier, but you should not underestimate the impact of shipments which is impacting the performance ex-U.S. of Onivyde.

[David Loew, Chief Executive Officer]

And then to your third question on Somatuline in the rest of the world market, we anticipate strong growth of Somatuline in these rest of the world markets. Our competitors have not yet registered in almost any of those markets, and we see very strong growth in these rest of the world market. So yes, if it’s going to offset it, completely no. We have to assume that Somatuline is going to gradually erode in Western Europe and in the U.S., as we have always communicated, but of course, this erosion is going to be dampened by actually the very strong increase of sales in the rest of the world market and also in Western Europe markets where the competition has not launched yet.

[Thibault Boutherin, Morgan Stanley]

Thank you. Very clear.

[Operator]

We’ll take our next question from Elizabeth Walton with Credit Suisse.

[Elizabeth Walton, Credit Suisse]

Hi. Thank you so much for taking my questions. I have two. Firstly, on Somatuline, you previously talked to some quite large price cuts in Europe, which don’t seem to be having a meaningful impact just yet, although they happened at the start of Q2 as I understand. Perhaps you can talk us through the cadence that you anticipate there to be an impact to your European growth. And can you share any insights on what you’re seeing on the market today? Are there any additional geographies where your competitor have launched?

And then secondly, on Cabometyx, we’re looking forward to seeing the data for the combination with atezolizumab in second-line non-small cell lung cancer. Assuming this study works and it’s positive, how should we think about the incremental revenue opportunity building in Europe given you’ll need to take a mandatory price cut for the additional indications? Thankyou.

[David Loew, Chief Executive Officer]

Thank you, Liz. On Somatuline, we had, of course, in the markets where our competitors have launched in varying degrees of price cuts. So for example, Nordics are tender markets. The price cost there were very significant, and that’s where the competitors have taken the biggest lines of market share.

In other markets, for example, in Germany, the price cuts have been somewhat less, and we are holding up extremely well our market shares on volume. In France, as you know, there was a price cut of 40% and even somewhat more in Spain. But there as well, the penetration was not that strong. So I would say, all in all, we are holding up relatively well where the launch has happened. So far we have only seen launches in small markets. So the most recent ones were the Netherlands. We anticipate that the next one could be Portugal at one point also perhaps then a larger one with Italy. But this remains to be seen when exactly it happens.

To your second question on Cabometyx in second-line non-small cell lung cancer, we are not guiding yet on the incremental revenue. I mean, as you know, of course, non-small lung cancer is quite a large indication, but we have to see first quality of the data. And there is, of course, also competition unblinding. So we have to really see what’s going to happen on the clinical data there. Non-small cell lung cancer is, of course, always a bit of a tough indication as we all know. Regarding on the price cuts, we also can’t communicate on this because this is, of course, sensitive information.

[Operator]

We’ll take our next question from Simon Baker with Redburn.

[Simon Baker, Redburn]

Thank you for taking my question. Two, if I may, please. The first one really continue from Elizabeth’s question on Somatuline. It sounds like what you said most of the revenue impact at the moment is price rather than volume. I just wondered if you could sort of give us any color on that, how you see that evolving, not just in terms of the mix between the two, but the potential impact on gross margin going forward.

And then a second question on Tazverik. The more I read about Tazverik is at H2, the more I see this is a drug having potentially very broad utility well beyond hematologic cancers. I was particularly thinking of was in non-small cell lung cancer in combination with PI3 kinase inhibitors. I’m just wondering if, given you already have exposure to lung cancer, if that’s an area that you’re looking into it. Thank you so much.

[David Loew, Chief Executive Officer]

Your first question on Somatuline. I mean, there is a bit of both, I have to say, on price and volume, but it’s a mix, I would say, country-by-country. I just told you, on Germany, where we are seeing that the competitors have almost no market share.

But then, as I said, in the Nordic state, took almost like 80% or 90% market shares in the tender market. So there is price and volume, but these are small markets, if you want. So it’s going to be a bit of a mix. The same for the United States, I would say. We have seen our competitor with the pharmaceutical alternatives take about 5% market share in volume in the U.S.

You have seen that the U.S. kind of is now relatively flat in sales on Somatuline. And of course, therefore, there is a price effect coming from commercial discounts and also a little bit from the 340B, which is increasing, as we know, for all drugs in the United States. So it’s also a bit of a mix effect of price and somewhat of the volume.

Regarding Tazverik, it’s a bit early days, I have to say, and I don’t want to get ahead of myself. We haven’t even closed there. So we need to do the closing. But I do agree that there could be potentially a broader utility. I think it’s too early to speculate on the life cycle management and the indications there. We have to now sit down with the people from Epizyme and our teams to really go through the life cycle plans and see which are going to be the priority indications that we want to develop. Obviously, we have several trials already ongoing. So we also have to see how they are going to read out and how we are going to pay the life cycle management.

[Simon Baker, Redburn]

Thanks so much.

[Operator]

[Operator Instructions] We’ll take our next question from the line of Delphine Le Louët with Societe Generale.

[Delphine Le Louët, Societe Generale]

Hi, good afternoon. And congratulations, everybody, for this outstanding first half. I have three questions. The first one deals with U.S. performance. And especially, can you detail us the pricing impact that you had over the semester for the major drugs. So we’re talking about Somatuline, Cabo, Onivyde and of course, Dysport. Thank you.

Second question, we’ll deal with, can we get the breakdown between Cabometyx revenue first line, second line in RCC? And finally, a follow-up regarding Epizyme and Tazverik. How do you see the commercialization and the marketing in effort to be put in place in next year versus what you have been already made by Epizyme? How do you see sort of a convergence of the two teams or a full onboarding from Ipsen marketing team? What’s the plan there? Thank you.

[David Loew, Chief Executive Officer]

Thank you, Delphine. A lot of the detailed questions. I’m not sure I can answer to all of them, I have to admit because when it comes to the pricing impact, this is very sensitive information, and we are not giving that out to the market, obviously, because our competitors are listening to the calls as well. I just want to attract your attention that Cabo, we don’t commercialize that in the U.S. This is selected the progression to them. But we are not communicating the pricing impact in detail, obviously, because we don’t...

[Delphine Le Louët, Societe Generale]

But could you say they were only single digits were over like Dysport, you had some double-digit increase? Or can you make probably a more broad vision?

[David Loew, Chief Executive Officer]

No. The pricing on, for example, Dysport and Onivyde is, I would say, broadly flat. There is a new bit of 340B, but then we have also taken a bit of price increase on some of them on in line with inflation. So it’s – I would say it’s basically a bit of a wash there.

On Cabo, first and second line breakdown, most – the far majority for the moment of the sales is coming from second line sales, the higher penetration that we’re getting in the markets where we have already launched as more patients are moving from I-O combinations into second line. And Cabo has not been launched in many markets yet in first line. So you see a very strong effect of the sales that we are seeing right now from the second line, so that’s the vast majority.

We have launched so far Cabometyx in first line in Germany and in France. And in France, we have basically just launched in March. So that’s where I said, we are happy with the 12% new patient shares that we have started to take. But you will see a gradual increase of the first-line penetration and the sales coming from the first-line pool over the next coming years because that dynamic really needs to play out.

And then you have a little bit of a price decrease on Cabometyx, obviously from the markets where we are launching. So short-term, you have a slight price impact long-term that’s going to wash out. And then a larger proportion in the countries where we’re launching first-line is in the longer-term going to come from the first line setting most probably.

On Tazverik, so there – the question is on the commercialization. As you know, we believe that Epizyme did not have enough footprint to really see the office-based dermatologists. This is very important because most of the elderly and frail patients, which are representing the majority of patients in follicular lymphoma are actually being treated by office-based hematologists.

And that’s where our belief is that bispecifics play a little bit less of a role because you have the cytokine release syndrome, which for an office space hematologists can be a little bit of a challenge. But we have to see how this is going to develop. But definitely, we think Tazverik has an ideal place with the office-based hematologist. And therefore, we are going to use our field force in addition to the field force of Epizyme to really increase significantly the footprint. That’s true also for the MSLs because we need to really re-launch this drug.

Epizyme was launching in the midst of COVID-19, that was a very suboptimal environment to actually launch a drug for any company. But Epizyme being a pretty small company, it was even harder to actually do that. So that’s why we believe this drug has a nice potential, and we are going to ramp up the field force. In fact, as soon as the deal closes, we are going to deploy our field force, so they are being trained on hematology right now. In a second step, of course, we are going to train them on Tazverik. And then once the close has happened, we can immediately deploy the two field forces together.

[Delphine Le Louët, Societe Generale]

Okay. Thank you very much.

[Operator]

We will take our next question from Richard Vosser with J.P. Morgan.

[Richard Vosser, J.P. Morgan]

Hi, thanks for taking my questions. A few, please. Just on Somatuline, I think there was maybe a little bit of restocking in the U.S. post destocking in Q1. Maybe you could quantify the impact that had in the quarter. And then just back on Somatuline pricing in Europe. It sounds like because advance can’t supply very much, you haven’t had to cut your price at all very much in Europe. Is that the right sort of understanding at this point in terms of Somatuline for Europe, say, in France?

And then just one last question, just going back to NAPOLI. Howard, it sounded like there’s been an interim analysis of the data from the DSMB, the Data Safety Monitoring Board. Can you – is that right? Anything you can share in terms of the idea of interim analysis? And maybe also in terms of the pull forward of the trial results. Are you seeing the events coming in faster than you had expected? Is that also a contributory factor? Thanks very much.

[David Loew, Chief Executive Officer]

Thank you, Richard. On your first question on Somatuline on the destocking effect, I’ll let Aymeric elaborate because you need to actually dig into details to really understand what’s going on there with this destocking effect.

[Aymeric Le Chatelier, Chief Financial Officer]

Yes. So we are talking here about Somatuline in the U.S. And as you can see, I think it’s more the Q2 performance that has been impacting destocking impact. As we said in Q1, the level of inventory has decreased following the entry of competition. The inventory have remained pretty stable in Q2.

So there is no impact on the Q2 of this year performance versus last year, there were a lower level of inventory during the second quarter, which in a way has boosted the performance that you see in the Q2. So as David explained before, I think that there is a sequential gradual erosion, which we see that the product continues to grow in terms of volume.

There is some pricing impact, which are a combination of selling mix and commercial rebates. And clearly, inventory will remain the same. It’s more the comparison quarter-to-quarter that make up the Q2 performance.

[David Loew, Chief Executive Officer]

On your second question, price in Europe, we know, of course, that they must have a bit of a lack of volumes because it’s not – they would have launched since a long time in many more markets. So they are launching very gradually. And obviously, then when you look at the pricing, that means that, for example, in the markets where they have not launched, there is basically no pricing question, so that’s already a good news for us.

And in the markets where they have launched, there is sometimes like guidelines from the government, how much you need to decrease the price like in France, for example. And for example, in Germany, it’s a discussion [indiscernible] In Spain, it’s the products which lower price is actually the most favorite product and needs to be distributed by the pharmacy.

So it’s depending on the strategy that they have, typically what happens is actually they took a pretty big price cost in Spain, and realign. What happens is that if you are aligned on the same price, then there is not a favoring of the generics. So you can protect also the volume by eventually following on the price.

So there is really a mix market by market. So it’s different market by market. But obviously, there is the good news for us that they don’t seem to have that much volume because it’s not they would have launched in many more markets much faster. Somatuline, I’ll let Howard answer.

[Howard Mayer, Head of Research and Development]

Yes. Thanks, David. So what I had intended to say before and what I meant is that we have an independent DMC that’s reviewing the data on an ongoing basis. And they’ve consistently told us that we should continue the trial as planned, which is always a better sign than the opposite view. So we’re encouraged by that.

And again, in terms of the second half versus very early first quarter, originally, really, in the grand scheme of things, doesn’t represent a tremendous acceleration of time considering how long the study has been going on. So we’re not overly concerned about it in the context of more rapid OS events, et cetera. It’s really – doesn’t really represent a large period of time in our view. But obviously, again, this will all be borne out by the data from the study, which we expect in the second half of this year.

[Richard Vosser, J.P. Morgan]

Great. Thank you.

[Operator]

We’ll take our next question from Sachin Jain from Bank of America.

[Sachin Jain, Bank of America]

Hi there, Sachin Jain. Thanks for taking my questions. I’ve got three, if I may, all of which are follow-on questions. So firstly on Somatuline, answer prior question referenced U.S. volume growth. I think that’s obviously been aided by simpler supply constraints. So I wonder if you could just update us on your competitive intelligence as to where they are with supply and where do you think there should be any material shift in their supply levels into the back end of this year.

Second one for Aymeric on margins into 2023. I understand not giving guidance just after – if you give us some high-level building blocks as we think about 2023 margins. Obviously, full year Epizyme dilution seems to be the main factor with them being roughly $200 million cost base. Is that the major driver of how we think about year-on-year change in margins for 2023? Or can you offset some of that? The reason for the question, obviously, as you’ve taken 2022 margins up despite a couple of months of dilution. Just wondering if that can be thematic into 2023?

And then final question on Cabolong. Just a follow up from prior commentary. Some of our physician feedback on the Phase 1 data you presented at ASCO updated was the response rates are very solid. The questions on durability of responses, which were in the low-single digit months.

So just as we think about the Phase 3 coming and you referenced in your answer, David, I think, competitive landscape, what PFS do you think you need to reach to be competitive? And if you could reference that relative to the duration of response in Phase 1 that I just commented on. Thank you.

[David Loew, Chief Executive Officer]

Thank you, Sachin. So on Somatuline regarding the U.S. volume growth and competitive intelligence, do we see a material shift? So first of all, of course, we have to be very humble and modest, I mean it’s hard to get kind of very detailed information on this. I think what we can say is that Cipla is also sourcing from Pharmathen. And you see that Pharmathen who is sourcing advance in Europe is not having that much supply.

And in the U.S. so far, they have only taken 5%. So far, I think we therefore need to assume that it’s going to be a gradual erosion that we’re going to see. And we don’t think there is going to be suddenly a huge amount of drug coming into it because as we always communicated, it’s very difficult to produce.

You need to have really stable production and you can’t have too much write-off in the production of this because the write-off has a significant impact on your margins. So therefore, we really stick to our guidance that we are going to see a gradual erosion. Regarding your second question on margins 2023, and this time I’ll let Aymeric elaborate on that.

[Aymeric Le Chatelier, Chief Financial Officer]

Yes. So as you said, Sachin, I’m not going to provide you the guidance that I would give you in February. But as you said, yes, we are starting from a higher starting point. Clearly, as you know, the diversity of the [indiscernible] business has significantly improved our profitability. The strong momentum that we see this year in 2022 will get us to a higher level.

And then I would say the component of – that will impact the margin going forward are first that we – the top line, I think the cost, and as you point out, Epizyme. Clearly, on the top line, we continue to see that the dynamic we’re going to be able to continue to grow even if Somatuline will continue its gradual erosion. And we’re confident that our growth product will continue on the strong momentum that you see here on the first line and we’ll see also in the second line.

On the cost base, I think we’re going to have more launch activity. We are managing also the inflation environment. But basically, we are also working on efficiency. So we do not expect any significant increase in our cost base. And clearly, Epizyme, as we said during the announcement of the transaction will have a more significant impact and any additional degree could also impact the R&D, while at the same time, as we know, at the end of a lot of the significant Phase 3 and a lot of them, which will read out in the coming months will have also a positive impact on the level of R&D.

So Epizyme, I think the message is the same. We talk about a moderate division that we mean that we expect to be able to recreate some momentum on the top line. We integrate and get synergy, but there will be clearly a much higher level of investment given the study for Tazverik and also for the pipeline once we have fully reviewed through the integration.

[David Loew, Chief Executive Officer]

And then on your third question on Cabolong and extrapolating from the Phase 1 ORR and the durability on to Phase 3 after two decades of working in oncology, I have given up on doing that. I have to say, I’m just waiting for the readout because the primary end point is overall survival.

To your question on PFS, what we need to see is definitely three months on PFS, and we should also see two months to three months on overall survival. If not, it’s mostly in oncology, not considered clinically meaningful. So that’s where we are, and we are just waiting for the readout now in the second half of this year.

[Sachin Jain, Bank of America]

Thank you very much.

[Operator]

And that is all the time we have for questions. I will now turn the floor back over to Ipsen’s CEO, David Loew for closing remarks.

[David Loew, Chief Executive Officer]

Very good. Thank you very much, everybody, for joining us today, and I wish you a pleasant rest of the day and the pleasant holiday for those of you who can take them. Thank you very much. Bye-bye.

[Operator]

And thank you, everyone for joining the Ipsen’s H1 2022 results conference call. This does conclude the program. You may now disconnect. Have a great day.