Swedish Orphan Biovitrum AB (publ)

STO:SOBI

Earnings Call Transcript 2018-Q1

[Operator]

Ladies and gentlemen, welcome to the Sobi Q1 report. Today, I'm pleased to present CEO Guido Oelkers; and CFO Mats-Olof Wallin. [Operator Instructions] I will now hand over to the speakers. Please begin.

[Guido Oelkers, Chief Executive Officer and President]

Thank you so much. Welcome to the Sobi earning call in Q1. I'm really excited to present to you some of the results. As indicated, I'm joined during this conference call by Mats-Olof Wallin, our CFO; and also the head of our therapy unit Philip Wood; and also by Armin Reininger who is the head of [indiscernible] further questions; our Head of IR, Jörgen Winroth.So I would propose that we go straight into the presentation and basically as you can see from the agenda on Page 2 basically we want to lead you through business review, we want to share with you the financials, talk about the progress we have done with our pipeline and then summarize.Basically, when you go straight to Slide 3 on the Q1 highlights, we felt it was a very good quarter. I mean we are gratified to seeing our revenues rising by 43% at constant rate to SEK 1.64 billion and we had an increase on EBITA of 90% to SEK 771 million.I mean when you look at the underlying -- the underpinning factors of this significant growth, it's -- will be a 2.7x increase versus previous year [indiscernible] at constant rate at a 9% growth in specialty care at constant rate that basically propelled the company to -- into this earning capacity. Net cash position increased as a consequence subsequently as well to SEK 1.744 billion and Mats-Olof will share with you later some of his thinking around our financial situation in more detail.Important to note is that some of our highlights, this is very important as well, is Elocta is becoming really increasingly a standard of care and in Ireland we won the [indiscernible] product of choice and which is a significant proof of trust by players, by providers and also by the patient community and we feel very gratified by this.The other important decision is also that Alprolix launching its reimbursement in France, which was one of the key markets that we were mentioning and very happy now that we can provide the product to patients in this very important market to us. Important to note as well also that we got a positive CHMP opinion on Still's in Europe and as you are aware, we're still having trail running of Still's in the U.S. in phase III. So this will expand the utility of our Kineret franchise and we are optimistic about this and technology for [indiscernible] which is not evident in times when you face the vastly generic competition we have been able to grow the Orfadin franchise at 7% at constant rate and at 4% at actual rate. So very positive development here. We have avoided too much to generic influence so far.For our specialty organization, the Ravicti launch, which is one of the largest we had in these products in United States, in Europe, was a big event and we have launched it in our numerous markets, among those Germany or Denmark for instance. We will roll it out in the rest of Europe during the rest of the year.We have also got Fast Track approval for SOBI003 and we have moved into phase I. We expect the first patient in the second half of this year. We have -- as reported earlier, we had a change of teamwork that's in forthcoming in late spring officialized only in July of this year. Henrik Stenqvist is going to join us from Recipharm and Mats-Olof will make sure that there is a proper transition during the course of this year and this will be done cordially.So this really, in a nutshell, summarizes some of the key highlights in Q1. When you think about the important ramp-up, the reporting period, I mean [indiscernible] or after the reporting period in order to [indiscernible] we get the Still's indication that the new Head of HR who is Fredrik Wetterlundh who's joining us [indiscernible].Regarding the financial highlights in more detail, you need to turn to Page #5. Here you can see the quarterly performance and a very beautiful ramp-up, really strong growth quarter-by-quarter and summarizing the results, but I just mentioned the gross margin obviously on a total basis was substantially expanded, but percentage base, as you can visualize a 74% to 32% contraction, this is related to the fact that we had some accounting adjustments on Kineret in the first quarter last year that Mats-Olof will explain during his part of the presentation and as I said the cash flow [indiscernible] is related to the taxes that we are now paying in the first quarter and also you will hear more in the next -- in the second part of the presentation.When you look at the revenues per region, we are clearly an international player with an emphasis on Europe and a stronger position in the EMENAR region, and in the U.S. and Canada. Our goal is clearly to expand let's say in North America. As we pointed out, this is something that you would try to address during the later part of this year, but let's say the haemophilia franchise is performing so extremely well that even with very good performance of our specialty franchise, the relative importance of North America has declined for this previous year, but I mean a significant progress with the Kineret franchise, but also with the Orfadin franchise.Getting to the business review as the haemophilia goes, let's say -- I think it's important to note and there have been a lot of questions regarding the prospect of our haemophilia franchise, a lot of speculation given the fact that new therapies come on-stream. I think we are not here to profile our product against competition as much, we want to talk about the good stuff that we have and what we believe in.When you think about it, I think it's very nice to have sometimes more direction. I mean the therapy area that had a history is very serious side effects with the infections with a lot of debt. You want to make sure that your safety is established. And the positive news here is we have established safety in multiple thousands of patients real-world evidence.And on top, let's say, our products are more than just what is prolonged half-life product. We have, let's say, the execution technology that gives us ways to believe that the product has a utility beyond the extension of half-life. And once one such element is -- this is -- what we're pursuing is the -- we eliminate inhibitors faster, we have seen very strong [indiscernible] out of collection of [indiscernible] products that we established at the ICH last year.And we followed up with 2 trials. We also saw utility in joint care addressing area of focus for our company as well, so we believe that we have the best haemophilia franchise in our stable. You see that basically the products becoming increasingly standard of care since I alluded to about the -- and it's this franchise that utility beyond replacing factor at a prolonged half-life.Then you go to the next page or Page 9, want to share a little bit all the franchise that developed and by quarter, there you see this very beautiful acceleration of course in the -- during the last, let's say for 15 months. And this is proof to the fact that we have spent obviously at the company a lot of time and effort for this franchise. As reported in earlier quarterly meetings, we basically felt this too good of an opportunity, we still believe this, we should not invest into this franchise. We clearly invested into significant clinical programs to our expansion of capability in the field into our medical liaison expansion to make sure that this franchise is recognized by keeping [indiscernible] by payers, also by patients.And this is really the underlying driver of the business, so when you think about it, this is the kind of goals we have experienced [indiscernible] potential and let's say what is also defined as obviously the loyalty stream, let's say, from Bioverativ is of the [indiscernible] a significant drive for the company and is also very accretive to our earnings. We have [indiscernible] our manufacturing which is de facto manufacturing of recombinant factor [ aid ]. So we felt that geological -- to partner it up by haemophilia, so all haemophilia is obviously the core element, over 1.2 billion out of 1.96 billion is a very substantial part of our entire company. As I mentioned and let's say this can be a good perspective.So when you go to the next slide, it looks very strong growth, 2.6 forward at actual rate, whereas the previous year you can see a very nice uplift over the -- particularly over the last 2 quarters and which we think is a function of internationalization of [indiscernible] of penetration because we are going through now the adoption for them and can really [indiscernible] we come from the trial stage into the significant adoption phase and also [indiscernible] us clearly becoming standard of care with very significant market shares.Coming to Alprolix in detail, the Alprolix is obviously a very formidable competitor who launched pretty much at the same time and there we have [indiscernible] that will be interpreted actually in business on a quarter-by-quarter basis. And let's say what we can see all the technology, obviously reimbursement in France, we had -- it's overall reimbursement stage, it's a little bit behind, and also given the reimbursement discussions we have and also the regulatory type cycle time, we gain momentum. That momentum is reflected also in our current perspective of this risk.Then we will -- we feel that the best is still to come. You know about our manufacturing business, we talked -- I mean, this essentially follows revenues of Pfizer, Pfizer's ReFacto business and basically the adjustment as we said are more a function of the phasing of inventories rather than the true performance and when you refer to the Pfizer annual report, you see the Pfizer performance [indiscernible]. So the income [indiscernible] and the capability is to further roll out the pilot plant and also secondly beef up our know-how of biomanufacturing which is very useful, but we also got [indiscernible].Coming to specialty care on Slide 13, we can say what makes [indiscernible] reported that we didn't sell -- partnering, this will be in my books to the organization to be happy to keep it because it gave us a testing platform in Europe, but now we have obviously in very well functioning organization in North America too. We have clearly an understanding now to [indiscernible] lifecycles by new indications by clinical trial in formulations, clearly, this is a source of very strong underpinning growth you have seen and [indiscernible] Q1 also for specialty care.The partnering products approval [indiscernible] that we can attract new products for this like we've seen launched in -- all in Q1 this year. Specialty care is driven very much by the very strong growth that we're experiencing in U.S., so the 5% at constant currency. I think when you look at the portfolio, is very positive evolution for this franchise, and driven obviously by the 2 flagship products Kineret and Orfadin we have a fourth product Xiapex and this is doing quite as well as there we have a couple of stringent plan to make sure that we have established this in a more prominent basis.Coming to Orfadin, when you look at the performance of Orfadin, very satisfied with this. We're creating quite a bit of impact for generic competition. We were able to compete with the generic in Canada [indiscernible], also launched [indiscernible] approved -- [indiscernible] a product at this stage of the lifecycle, 7% I think is quite remarkable. So [indiscernible] to the commercial organization that we are very focused on this business.We'll also show that it's a connection between the patient and the product, and we -- it's -- obviously it's clear when you look and you think about the disease, the patients can think about having their own children to pay means it's clearly related to the front office product. So feel very happy about the Orfadin product development.Kineret is doing extremely well as well, 12%, a constant rate in the U.S. in stronger growth shows that the utility of this product beyond the kind of indication, we see a lot of these debates and [indiscernible] about the variety of articles covering [indiscernible] as the rise of clinical trials in this field. It mean that although this therapy area is [indiscernible] exploited. And one of the positive effects was, you see the Still's approval in the EU.On this note, I think I will pause and hand over to Mats-Olof Wallin, CFO, who will educate you in the financial situation of the company.

[Mats-Olof Wallin]

Thank you, Guido. As Guido said, so we had a very strong quarter with 41% sales growth which is 43% at constant exchange rate, and the growth, it's very much driven by performance of the haemophilia franchise. Gross margin came in at 72% in the quarter versus 74% last year. However, last year was impacted by a onetime inventory evaluation of Kineret of SEK 59 million and if that onetime impact is eliminated, gross margin last year was 69%.Sales and administration expenses has increased to 13% and R&D expenses have increased to 7% meaning that EBITA has increased to 90%. And also if we exclude the onetime effect in 2017 of the SEK 59 million, EBITA has increased to 122%. Tax exemptions came in at SEK 148 million and Sobi is now in a tax position where we have to pay tax and the tax expenses are 22% on net profit.The other line, other operating revenue is positive with SEK 25 million and that is mainly related to the positive operation currency effect.The balance sheet. Turning over to the balance sheet, Sobi has a very solid balance sheet and the company is debt-free since some quarters and looking at each individual item, the intangible assets have decreased due to the amortization. Inventories is more or less flat. Accounts receivables have increased and that is due to the excellent sales performance with a sales growth.That it's also due to the total sales in the first quarter where February and March is very strong month which also impacted the accounts receivable. Cash I think grew to SEK 1,760,000,000 and regarding equity, that has increased substantially as you can see quarter-by-quarter due to the profitability of the company and also the liabilities have slightly decreased. All in all, it's a very solid balance sheet.With that, I hand over to our CEO Guido Oelkers.

[Guido Oelkers, Chief Executive Officer and President]

Thank you, Mats-Olof. And I think we want to conclude in our presentation just giving you a quick snapshot of what the company is doing on the pipeline. You can see on Slide 21, the pipeline -- the picture and you look at it, what are the main drivers of this as you would expect for company at this stage. Also like us, there is lot of emphasis driving -- providing evidence for our legacy currently [indiscernible]. I think important to note is, let's say, the hemophilia trial extend in the therapy IVV.The one that we share is Bioverativ and this is on phase I and look forward to basically closing evidence and establishing the [indiscernible] during the course of this year, and consider the acceleration towards the clinical development beyond this. This is very important innovation for our company that we see extremely nicely dovetail to what we are doing today.I think in the specialty care earlier, I mentioned the Still's trial in the United States, it is in phase III. So we look forward to expanding our indication for Kineret in the U.S. Still this trial is in a good way and we are in the midst of recruiting patients at a significant level. And we have moved 003 into MPS IIIA, again the [indiscernible] as I mentioned in different format, it could -- certainly could be strongest art in the mid of this year till R&D has been approved.So quite a bit of focus in the pipeline, which is a very good [indiscernible] and obviously get approval of Still's [indiscernible] in the R&D division. Based on the financial that Mats-Olof shown you, we ask ourselves how this -- if you look at 4 years guidance, 4 years guidance is lifted up based on the data points that we have obtained in terms of hemophilia penetration but also in terms of [indiscernible] for this. Hence it will be increased to 7.9 to 8.1. The whole year we have left our expectations for the gross margin unchanged particularly as a function of the top line increase, we also increased our guidance for developing SEK 2.8 billion to SEK 3 billion.So this is basically if there are some room still to invest -- to invest until the forecast is built on the feelers, we want to make sure that we stay a delivery organization and not a organization of promise. We want to make sure that we have enough money to invest into our business because we feel that the best is yet to come. And when you think about the strategic direction that we have, we want to further internationalize commercial [indiscernible] business, the view to specialty care platform as a preferred partner in Europe that we look for [indiscernible] conditions in North America particular to build off this business because the team is doing a good job building the products that they have. Same thing overall, our position at -- and also working on pipeline as mentioned before and we still believe that in terms of pipeline, we can benefit from couple [indiscernible]. So that is really where we are -- why we are advancing.In the interest of time, we open up now for questions. Thank you.

[Operator]

[Operator Instructions] Our first question comes from Kyung Yang from Jefferies.

[Kyung Yang, MD & Senior Equity Research Analyst]

I have actually a few questions. Number one, Guido, when you joined Sobi, obviously your #1 priority was to grow haemophilia franchise, but now it's doing really well. So can you talk about your current focus on business development? And the second question is in terms of what you looked at sales, what percent of total sales is actually coming from [indiscernible] induction use? The last question is extend program. I think previously you have provided that data in second half of this year and I wanted to make sure that that's on track and if it sure, what kind of a data should we expect?

[Guido Oelkers, Chief Executive Officer and President]

I mean, with the haemophilia we'll retain people through the -- in view of the opportunity that we still have ahead of us. So we will not, let's say, slow down only because we had a great quarter as we tropic about fair share. We will try to -- we are still absolutely passionate about the market. In fact, we want to gain significant position in all markets where we have jumped out of our territory. Regarding your questions on [indiscernible], we are obviously -- as we are alluding to -- we are screening. Let's say, we are -- we will, let's say, provide with clear guidance as early as we can, but this is clearly on our agenda, and to walk [indiscernible] such pipeline B to focus on North America presence, which we feel always is the kind of percentage we cannot be described and is a function of the excluded growth in Europe. So we -- to have problems we had, but it is definitely something that has not escaped our mind and we want to update you as soon as we can [indiscernible]. Regarding the [ ITI ], the sales development [indiscernible] relatively a minor event, more like in the region of maybe 3% to 5%. It's very difficult, let's say, to quantify this. Let's say [indiscernible] lot of this in this magnitude, yes, because we adopt the full disclosure on patient potential and sales [ volume ] in Europe as secured in United States with [indiscernible] approximation than we need, let's say the -- we need this junction, it's still evolution through opportunity as opposed to [indiscernible] when we think about some of our competition that is arriving and with opportunity and studies we may resolve. Regarding the status of the extend program, I'd like to refer you to Armin who can give you a quick update where we are.

[Armin Reininger, Head of Medical & Scientific Affairs]

Hello, everyone. I'm Armin Reininger. Hello Yang. So for the [indiscernible] 001 in human study, what we can tell you is that April had low dose cohort enrollment has completed, so we are on track with what we have planned. But those escalation [indiscernible] monitoring committee is targeted for the middle of the next month and we will present data at the WFH 2018 meeting that will take Glasgow. There we will also have [indiscernible] abstracts and more information. The high dose also cohort will start mid of next month, that's the plan, and since we're on track with the sort of low dose, we are strongly believing that we can fulfill that.

[Operator]

Our next question comes from Erik Hultgård from Carnegie.

[Erik Hultgård, Research Analyst]

I have a few questions. First, if you could say something about the market share of Elocta in the top 5 European markets and how that has developed since the previous quarter? And secondly on Alprolix in Europe, I know that the CSL has said that they are -- IDELVION is capturing 2/3 -- more than 2/3 of patients which is in the U.S. and I was wondering if you could give us a number on what share of patients which you said you're gaining with Alprolix in the European market without reimbursement?

[Guido Oelkers, Chief Executive Officer and President]

Yes, maybe Phil, you want to comment on market share position?

[Philip Wood, Head of Haemophilia]

It's Phil Wood here. So for a market share perspective, we continued to see significant growth in our share with a luxury across the -- all the countries that are presently in the big countries, big conferences as you say. And we see progress maintained in France, Germany and also in Italy and in Spain now. So we are very pleased with that progress as we see even in the [indiscernible] where we see shares significant now and matching in many changes the conventional therapy, so we're very pleased with that progress. And from IDELVION perspective, we see the position slightly differently for the U.S. position and we see a fair share of opportunity switching to our products versus any others that there may be switching elsewhere as well. So we see a more competitive position certainly with Alprolix, but we certainly see that we take our share of big conversions.

[Guido Oelkers, Chief Executive Officer and President]

And I recommend from my part, I mean, you have seen obviously some of the [indiscernible] data published that we tried to one of the other market in Europe. We might have not admitted some other market share like the 100% market share in this island. So I think it's pretty balanced. I mean we've taken very seriously [indiscernible], and it's also fair to say that we may be on top of promotional focus, we -- the focus was for us very much made upon the larger opportunity in [indiscernible], but we really want to get our first share now through -- with Alprolix and we can see the Alprolix very significant uplift in penetration. With the utility that goes beyond [ PK ] profile for this product and that's what we're trying to explain more and more to the community on the -- which is being increasingly recognized.

[Erik Hultgård, Research Analyst]

Just following up on my first question, I know that you've provided some sort of range of market shares across the major market at the prior conference call. Are you able to share an updated number?

[Guido Oelkers, Chief Executive Officer and President]

No, I think it will be -- I can't actually recall that we have given you merely one or the other number, but I think given the fact that there's no [ IMF ] number that gives a very good standardized outlook, I mean we have our own data that we measure with success by [indiscernible] like all the other companies would do, but let's say I think it will not be that we hold up to this on this call.

[Operator]

Our next question comes from Peter Sehested from Handelsbanken.

[Peter Sehested, Research Analyst]

First one, could you just give us a bit of perspective on how you think about your -- I mean in the reports you've talked about all the options that you have for business at all, [indiscernible] blah, blah, blah, et cetera, but just staying on top of how you think about the value accretion, are you looking at something that is EPS accretive short term or how do you think about, yes, just on the financial side of things? Secondly, the French [indiscernible] patients that you mentioned in the report, I mean probably net rate as to the potential size of this financial, is this significant or less significant, how should we think about that? And yes, your other product businesses you reported in the quarter, it was pretty strong. Could you elaborate should we expect this trend to continue for this year?

[Guido Oelkers, Chief Executive Officer and President]

I hope I got it right, the -- [indiscernible]. Let's start with the in margins or equity position. It's pretty difficult already to talk about. I mean, we do get opportunity to have [indiscernible] next stage and let's say the [indiscernible] and obviously depending on the nature of the products, we were -- we have an immediate preferred accretion to EPS. So it's a bit difficult now to comment and detail, at this stage we really feel anything that given the maturity of our purchase. I think that will give you a little bit of a sense. Regarding let's say the -- I assume your question was regarding France, for the France I believe -- I mean French market, when you look at each one of those largest, they gave you 5 market, so it's essentially you have a lock in my books give and take around 50% of the [indiscernible] potential and also the material that we can take away it could be 60, it could be 49, so the -- that failure, that basically what you target, so it is a very significant let's say piece of drug. And to continue about what the -- another element in the accretion is that we thought the connection was not so good, let's say. If I haven't answered all of the specific question, you can ask them just one more time because the connection was difficult to hear.

[Operator]

[Operator Instructions] The next question comes from Christopher Uhde from ABG.

[Christopher Winston Uhde, Analyst]

I was wondering about what countries did Elocta, Alprolix get approved in besides France and also what countries are you working on getting reimbursable approved? And then can you comment on the reasons for the delayed Alprolix reimbursement in some territories as compared to Elocta? And then I guess the third question would be have you applied or are you applying for breakthrough for SOBI003? And my last question is if you can comment on the write-downs.

[Guido Oelkers, Chief Executive Officer and President]

Okay. Maybe we started this approval in German. Basically, I mean we have 16 countries approved, so let's say for Alprolix and 22 -- 24 for Elocta. I mean it's probably not part of this call to go through the entire list. We have a pretty good coverage. We are really locked in EU5, let's say, [indiscernible] Alprolix which is something now we are in U.K., in Germany, in Italy, in France.

[Christopher Winston Uhde, Analyst]

I meant any ones for the quarter, sorry?

[Guido Oelkers, Chief Executive Officer and President]

Sorry, so for the quarter it is basically in France for Alprolix and in Elocta it is in France and Austria; for Elocta in Slovakia, Poland and Portugal. Then there was the element or the question regarding the price and it takes long to get the margin improved. I think it's pretty much related to the fact that a mandatory situation of [indiscernible] that they want to have discounts, and let's say -- and the SOBI001, what we have accepted is [indiscernible], we try to competitively drive ourselves in the interest of patients' positions, make the product available sometimes with demands to not recognize the product that we are providing in the future and that basically leads us sometimes to negotiation and to delay and therefore we are [indiscernible] product approved. With regard to the write-down, I might -- I'd like to refer to Mats-Olof. Frankly, I'm not, to be honest, not quite sure [indiscernible] into perspective that any particular feature that --

[Mats-Olof Wallin]

I can comment upon that.

[Guido Oelkers, Chief Executive Officer and President]

Yes.

[Mats-Olof Wallin]

It's really the profit and loss statement, what it says, it says amortization and write-downs. But it refers to what I think 2017 -- Q1 2017 there was a write-down of SEK 12 million in that line. So that should -- so the normal amortization was SEK 110 million. That has increased from SEK 110 million to SEK 111 million [indiscernible].

[Guido Oelkers, Chief Executive Officer and President]

As with the primarily...

[Mats-Olof Wallin]

No write-downs in 2018.

[Christopher Winston Uhde, Analyst]

The last one was about whether you are applying for or had applied for breakthrough for SOBI003?

[Guido Oelkers, Chief Executive Officer and President]

We are -- I mean right now we are still -- we do have to go through phase I, so the -- obviously we will have. [Indiscernible], so absolutely.

[Operator]

Thank you. There appears to be no further questions. I return the conference back to you, sir.

[Guido Oelkers, Chief Executive Officer and President]

Thank you so much for your interest in Sobi. And we are here, as we can see, we tried to deliver [indiscernible] promise and hopefully for, let's say, we will have a very exciting moment in the next quarter. And thank you so much for your interest and look forward to catching up with [indiscernible]. Appreciate it. Thank you.

[Operator]

Thank you, ladies and gentlemen. This does conclude today's conference call. Thank you very much for attending. You may now disconnect your line.