Swedish Orphan Biovitrum AB (publ)

STO:SOBI

Earnings Call Transcript 2018-Q2

[Operator]

Ladies and gentlemen, welcome to the presentation of the Q2 results for Sobi. I will now hand you over to the CEO, Guido Oelkers; CFO, Mats-Olof Wallin; and Head of R&D and CMO, Milan Zdravkovic. Please begin your meeting.

[Guido Oelkers, CEO & President]

Yes, hello, everybody. This is Guido, and as just introduced, and I will be joined by Mats-Olof and Milan, and we have also here the incoming CFO, but -- Henrik Stenqvist, but you know obviously, Mats-Olof is in charge of this meeting. So before we start, the forward-looking statements on the next page, which is obligatory obviously. And then I think we can go right into the results, because, I mean, as you've seen, we were quite excited to report positive results from our perspective and I guess, as I see the share price stems from many other people's perspective. 20% top line growth clearly propelled by hemophilia, but also, let's say, very positive results with Specially Care. And this basically puts up the revenues for the quarter to SEK 2,289 million. Very nice is to see that we have operating leverage in the business, the earning was 94% on an EBITDA level and has a cash position now basically SEK 800 million ahead of where we have been, give and take, end of year, at SEK 2.3 million. And I mean, and really, as I pointed out I think what we -- what is very gratifying to see is that the Elocta is still on a nice growth path and more than doubling with 126% growth. And basically, we were able to address the relative weakness for Alprolix, now growing at over 200% -- 215% and this shows that the work we have been doing with the teams in the field is gaining traction. And for me, on a different scale, but from a business perspective, equally positive is the fact that we also accelerate now into the Kineret business. So now basically, with 19% growth, we can see that the investment we put into this business, in particular into the U.S. and the approval of the Still's medication in Europe is paying dividends. And this in conjunction with the Orfadin results growing at 7% despite the fact that we have [ lost ] patent, shows, again, really that in rare diseases, yes, there is influence on patent expiry, but there's a certain reality given also the seriousness of these diseases that we are dealing with that goes beyond what you would typically expect in big molecules or small molecules or big pharma product. So the -- and in addition to this, and Milan will talk about this, we have been able to progress quite a few of our R&D projects. Let's say, for those who have been part of WFH, I mean, pretty stellar results represented for 001 and we will try to express it in a little bit more detail given the fact that we have an opt-in here for this component in our territory, and we are very excited about the results. We have progressed 003 and now we are preparing everything to get the first-in-man in the second half of the year, and we have concluded the recruitment for anaGO. And all of this good news prompted us to lift guidance and I'm sure we want to give more time for questions, let's say, later, so keep it a little bit shorter, but very positive mood in the company about the progress. And I think when you go to Page #4, there basically, we showed the quarterly results. You can get a taste why we are quite bullish, because what you can see is now a strong acceleration on a quarter-to-quarter performance, again, in Q2 and basically gross margin had very strong earnings, 94% and obviously, as a consequence, also EBITA margin and EPS improved considerably. Let's go straight into the business review into Page #6. And basically, just to remind everybody why we believe that we have an unique play in hemophilia. I think, very important for us, we have products that have demonstrated safety in thousands of patients not only in the study population. We feel that with the Fc fusion technology we have a unique pathway and a significant point of differentiation. And this is demonstrated, as we have talked about earlier, with the joint data, but also with the data that prompted us to go into ITI treatment. We believe that with the product that we have on hand, we can individualize treatment and when you -- just to remind everybody, when you look at this 1 arm with [ 100 ] patients and the average bleed rate of 0.8%, let's say, prompted us to think that we can push the boundaries significantly for -- in the interest of patients. And obviously, what we clearly think is important is that this is a natural way of replacing factor, is obviously the products in our offering and therefore being less associated with topics that have been reported for some of the competitive products. And let's say, no joint health [indiscernible] talked about. So when you look straight into the numbers on Page 7, you can get a taste what really propels growth in our company in hemophilia. And there obviously, the key that propels growth is really the product revenues. And on Slide 8, you can see the acceleration of Elocta and -- with 126%. We got also approval in Croatia, so now reimbursed in 25 markets. But the growth is really coming from the large countries in Europe, and we also see positive trends now also recently in Spain after we intervened in the global organization. And let's say, when we go into Alprolix, and I think this is very gratifying on Page 9. We were basically, now growing 215% and there we had a -- over a couple of quarters, we didn't make substantial progress or not enough progress and now it seems that basically the business is very well responding and that our message comes across. We go through the adoption funnel. Obviously, the reimbursement in France has helped, but the product seems to gain significant acceptance and that for us is extremely positive. So hemophilia, I think on track, and I think we can maybe open up later for the floor for more questions.So I'll go straight into Specialty Care, where we believe that we have a world-class commercialization platform. We believe that verticalizing the focus of this business by appointing Norbert Oppitz as the Head of Specialty Care was a very important move for us, because this shed more light on this business and gave it a clear leadership. And let's say, basically, what we have been working on is, obviously, life cycle management and indication expansions. Life cycle management was offered in various areas and indication expansion with regard to Kineret and obviously looking at partnering opportunities. Okay, guys, I just got a signal that maybe I should get a little bit more closer, so it comes across even clearer. Anyways, let's go to Page #11, Specialty Care. Let's see how this business performed. And obviously, overall, the business has performed very well with 11%, and we have launched Ravicti, I think, which is an important addition to our business. And we have quite a bit of experience in the UCD business and -- with Ammonaps, and for us, this is a fantastic launch. And we are now in a phase to expand on this. This helped us to -- what comes to discontinuation of one of the other product that we had under other specialty products and obviously, strong growth as I pointed out earlier with Kineret. So regarding Kineret, on Page 12, you can see how we have been able to propel growth, basically with 19% nominal growth, very positive. And this is across all regions, but really what drives this to a large extent, is obviously U.S., but in Europe, we are benefiting also from the indication expansion. So we believe that the Kineret franchise is really the platform for us in the inflammation, and we have been thinking about opportunities to expand in this area. And as you can see in the last quarter growth, it seems now that we get into a new acceleration mode. On the next slide, Page 13, when it comes to Orfadin, let's say, I think, we are very gratified by the fact that we have been able to overcome the Q3 difficulty in 2017. Product is now positioned again for growth, and we have won the tender in Canada. And basically, this gives the foundation, but it's a really a very individualized focus, where we're supporting patients and ensuring that they have access to this elementary treatment. I think this -- in the interest of time and making time for the other presentation, I think I would like to close. Before we -- I hand over to Mats-Olof, I would like really to thank him for a fantastic journey, that we -- that I personally experienced over the last 15 months. I think he has a done a fantastic job over many years for the company. This is his last earning call. And frankly, if you're going to choose your time, this is the results we got here, he probably chose well. We believe the best is still to come though, and on this note, Mats-Olof, big thank you, but before we get into sayonara mode, Mats-Olof, maybe you explain to us the financial results.

[Mats-Olof Wallin]

Thank you, Guido. Thank you for the kind words. Well, as Guido said initially, so we had a very strong quarter. Q2 came out very, very strong. But if I may add a personal note, I don't think this is the end of the story. I think that there are many, many good quarters to come, but that's my personal opinion. Looking at the financials. Revenues came in at SEK 2,289,000,000 in the quarter, which is 40% higher than the same period last year, 36% increase at constant exchange rates and for the first 6 months, revenues increased with 40% to SEK 4,253,000,000. Gross margin came in at 73% in the quarter versus 72% in Q1 and versus 71% in Q2 last year. Operating expenses increased to a 10% and please compare that to the 40% revenue increase. And with this combination, EBITA came out very strong at SEK 951 million and that is an increase of 94% versus the previous year's Q2. And for the full year, the first 6 months EBITA came in at SEK 1,722,000,000. Net profit for the Q2 came in at SEK 685 million and for the first 6 months SEK 1.2 billion, and this SEK 1.2 billion for the first 6 months is higher than the full year 2017. And then over to the balance sheet. Intangible assets continue to decrease, as the company is amortizing on the intangible assets. Inventories and accounts receivables have increased due to the increase of the business, the substantial increase of the business and as we say that revenues increased with 40%, we should also pay respect to that the product revenues increased with 55%. So that has a substantial impact. Cash has increased to SEK 2.3 billion and the positive cash flow in the quarter came in at SEK 556 million. And equity now is getting very close to SEK 8 billion at the end of the quarter. By that, I hand over to our CEO, Guido Oelkers.

[Guido Oelkers, CEO & President]

Thank you, Mats-Olof. And I think it's now time to give you a little bit more details on the pipeline, as you know where we stand today, Milan please.

[Milan Zdravkovic]

Thank you very much, Guido. This is Milan Zdravkovic, Head of R&D and CMO at Sobi. So this slide illustrates our pipeline and how we are working to increase the value of our pipeline. The 3 assets that I will discuss in detail today, that's the BIVV001, a Bioverativ of now Sanofi development program, to which Sobi has added to our collaboration agreement, but we have not yet opted in. I'll speak more to the Phase II study with anakinra and acute gout and I will speak to the emerging clinical study with SOBI003 and lysosomal storage disorder, specifically MPS IIIA. If I can have the next slide. If we start with BIVV001, then this is the first novel investigational factor VIII therapy to break the [ continuous ] aspects half-life ceiling. The molecular format is illustrated on the right-hand side of the slide. Essentially, it builds on Elocta, through which -- to XTEN natural amino acids repeat sequences that have been added as well as parts of the von Willebrand factor domain. Upon thrombin activation, both the 2 XTEN [ moralities ] as well as the von Willebrand factor domain is cleaved off and you are left with the pharmacologically active asset, being the Elocta molecule with this known safety and efficacy profile. Interim data represented at WFH, as mentioned by Guido, by Bioverativ, this was the first 4 patients that were dosed at a low dose of 25 units per kilogram. This showed a favorable safety profile and quite impressively, the half-life was 37 hours at this low dose of BIVV001 single dose versus 13 hours for the comparisons for recombinant factor VIII. This also translated into a very high factor VIII activity levels, which was just about 5% after 7 days post again a single dose, which should be compared to the recombinant factor VIII levels, which was less than 1% after 3 days. We are very encouraged by the emerging clinical data and the profile of BIVV001. We think not only does it bring a convenience offering, but even more importantly, potential to even take protection of patients with hemophilia A even further. The high dose cohort is currently ongoing, testing a twice-monthly dosing regimen. If I can have the next slide. Here we are providing a bit of background around MPS IIIA, which is the lysosomal storage disorder. Fundamentally, it's caused by a mutation in the gene for sulfamidase. This causes incomplete breakdown and increased lysosomal storage of heparan sulfate. This in turn is associated with significant CNS morbidity and actually also mortality. There are up to 2,000 patients across Europe and U.S. estimated to be living with MPS IIIA and there's currently no treatment available for this significant disease. We have been developing SOBI003, which is an enzyme replacement therapy that we have been modifying using our proprietary Modifa technology, which is, we have been changing some of the glycan structures. And if I can have the next slide. This slide gives an illustration of the status, we have Orphan Drug Designation in Europe and in the U.S. We, earlier this year, received the fast-track designation and on the right-hand side, you can see the first-in-man story that we are concentrating starting. This is a classical first-in-man, a sequential ascending multiple-dose study. Patients will be treated over a period of 24 weeks with weekly IV administrations of SOBI003, and following a 4-week safety review of the first 3 patients, there is the potential to escalate the dose to dose level 2 and dose level 3 respectively. Patients that have completed the initial 24 weeks will be offered to participate in an extension phase of 80 weeks for a total study duration of 2 years. We're very encouraged by the fact that we were able to screen the first patient recently, and we expect to be able to dose the first patient later this year. If I can have the next slide. Here we're providing a bit more detail around the Phase II study, where we are examining the efficacy and safety of anakinra in patients with acute gout flares. Gout is a metabolic disease characterized by increased uric acid levels that leads to crystal formation that accumulates in joints and in other organs. These patients then eventually develop flares or acute attacks and in the joints, this is associated with significant pain, tenderness and swelling and also in the associated tissue. Current treatment includes NSAIDs, colchicine and steroids. There is also data supporting the potential use of IL-1 blockades in this disease and this is the basis for Sobi to initiate the Phase II study where[Audio Gap][Technical Difficulty]

[Operator]

Ladies and gentlemen, apologies for the interruption. Please bear with us while we reconnect your speakers.

[Milan Zdravkovic]

Hello again, Milan Zdravkovic, I'm sorry for the interruption. What I will do is I will start with the gout Phase II study and discuss this slide again, to the extent that people were not able to hear it. So this slide illustrates the Phase II study that we have initiated studying the efficacy and safety of anakinra in patients with acute gout flares. Gout is a metabolic disease, characterized by increased uric acid levels that then forms eventually crystals that affects not only joints, but also other organs. The disease is characterized by acute flares, which leads to significant pain, swelling and tenderness in the joints and in the surrounding tissues. Current treatment of acute flares include NSAIDs, colchicine and steroids, but there's also evidence around the potential role of IL-1 blockade in this disease to treat the acute flares. This is the basis for Sobi to initiate this Phase II study, where we enrolled approximately 160 patients with at least 1 flare within the last 12 months that were intolerant or unresponsive to NSAIDs and colchicine. These were randomized to 2 doses of anakinra, the 100 and 200 milligram dose as well as a 40-milligram dose of triamcinolone. The primary endpoint of the study is pain over an average of the first 3 days, 72 hours, and the primary result readout will be based on the 15 days' data. Patients will be allowed to continue for a period of up to 2 years, where we will accrue additional information around the efficacy and safety of anakinra in the treatment of acute flares. We are very happy that the enrollment was recently completed and we expect to have results from the first 15 days, you can say, primary results analysis by the end of the year. Based upon those results and if they are favorable, we expect to be able to have an end-of-Phase II meeting with the FDA in the beginning of 2019 to get understanding and agreement, hopefully around how Phase III could be initiated. And with that, I hand it back over to Guido, for the summary and conclusions.

[Guido Oelkers, CEO & President]

Yes, excellent. Thank you, Milan. And I think on this note, let's go straight into the outlook. And as you have seen with the results that we have now been able to achieve in Q2 and with some of the insights on Orfadin that we have obtained by now, we felt that it was indicated to increase our guidance. We increased our guidance to SEK 8.6 billion and to respectively SEK 8.8 billion on the top line from the SEK 7.9 billion to SEK 8.1 billion range. And gross margins, yes, minimum 70%. We see positive evolution obviously, as we have seen in the earlier data and with regard to the earnings, we also took it up to SEK 3,400 million to 3,600 million. And I think this also reflects the confidence we have gained into the momentum on the business and that we see now the -- that our commercial strategies are working and that we're making significant progress. And so the -- so basically, when you bring this just into a strategic rearm, so where we at in terms of what we were set out to do? We further internationalize our business, obviously drive commercialization in hemophilia. We've got more markets approved, but the main driver is clearly penetration and becoming more standard-of-care in more accounts. We are focusing on Specialty Care. We feel convinced that we have -- we've got conviction that there's much bigger opportunity for us with Kineret in inflammation, and we will -- let's say, we are working on strategies in this regard. We want to obviously work to -- definitely on strengthening our position. With 40% organic growth that's clearly what we are on the way to do. And working on the pipeline, as you can see from Milan's presentation, let's say, we have a couple of seasonal goings and that's I think a distinctly difference versus maybe our situation a year ago. So we have a couple of very exciting projects in our pipe now and in particular, 001 is for us a priority. On this note, maybe we open the floor for questions. Obviously, we are here to make the best use of your time and maybe we can open the floor.

[Operator]

[Operator Instructions] And our first question comes from the line of Eun Yang from Jefferies.

[Kyung Yang, MD & Senior Equity Research Analyst]

I have a couple of questions. One on financials. So sequentially, second quarter is quite strong growth, is pretty -- of 17%. So we saw that in 2017 as well, but when you look at quarterly growth from second to third quarter, it seems to kind go flattish for the last couple of years, and so I don't know if there is a seasonality. So my question is do you expect to see some seasonal weakness in third quarter if there is any seasonality? Or do you expect hemophilia franchise to continue to drive strong growth sequentially?

[Guido Oelkers, CEO & President]

Yes, I mean, obviously we don't make forward-looking statements now at this point of time. But what we clearly have to see is that there is a seasonal effect on our business in Q3, driven primarily by the vacation period, to be honest. In Europe, the activity level in the hospitals is reduced and the number of patients getting switched to other therapies is reduced. And that's basically -- and this effect you have seen and, let's say, we cannot make the holiday season disappear in Europe. Let's say, we think that the business has still strong momentum. So we'll have to see this, so I don't want to -- I want to refrain from predicting, but it could be, let's say, that there is -- that the business will be affected, but I don't want to make a forward-looking statement.

[Kyung Yang, MD & Senior Equity Research Analyst]

Okay. The second question is on the pipeline. So in May, you presented low dose cohort data for XTEN program for 001. So in upcoming -- at upcoming ASH, I think previously, you mentioned that we would be able to see high dose cohort data there. So with the high dose cohort, is it reasonable for us to expect that the trough levels of factor VIII to be higher than the local -- low dose cohort? And also at ASH, do we also expect to see some update for XTEN program for hemophilia B?

[Guido Oelkers, CEO & President]

Milan, you want to take this?

[Milan Zdravkovic]

Eun, I think it's too early to comment on when we would be able to release further data on the ongoing clinical study. I think the thinking has been that a higher dose being the 65 units per kilogram would translate into a higher trough and that's also why the higher dose group is now being studied with twice monthly dosing, but commenting when we would have, you can say, data from that cohort is premature.

[Guido Oelkers, CEO & President]

But Eun, when you look at the trough levels after one week and the low dose is over 5%, obviously, this gives rise to confidence.

[Kyung Yang, MD & Senior Equity Research Analyst]

Okay. And any comment on XTEN program for hemophilia B?

[Milan Zdravkovic]

I think this is in a very early phase. We will update when there's additional information available.

[Operator]

Our next comes from the line of Erik Hultgård from Carnegie.

[Erik Hultgård, Research Analyst]

I have 2 questions, if I may. First on Alprolix, it was surprisingly strong in the quarter. I note that you highlighted the reimbursement clearance in France during Q1 as one driver. Were there any other effects that explain the large performance like tender -- major tender, stocking. Should we see this as a sort of new level for continued growth or is this -- I mean, should we expect this strong quarter-over-quarter growth rate to continue in the coming quarters? Or is it more of a one-time step change and then we're back to sort of previous quarter-over-quarter growth levels? That's my Alprolix questions. And then I have one on BIVV001 as well.

[Guido Oelkers, CEO & President]

Yes, so I mean with Alprolix, I mean, basically you have 2 effects. Obviously, France plays significant role and they are performing extremely well and making significant headwinds now to penetrate the market, but it is generally carried by the other organizations who have also now significantly accelerated the business. We have overlaid commercial effectiveness structure that basically we are working with and working with the teams to improve productivity in the field. And that's a significant driver and obviously felt that let's say, there was a much bigger opportunity for us with Alprolix than what we had initially realized and this basically triggered one of the other performance-based dialogue. And hence the consequences. So there is, I think, the product was always great. But it didn't basically get the place it deserves. I mean, we have clearly not that I know of anyway, stocking effect here. This is -- we have created a new level and are now, obviously, very keen to go from here.

[Erik Hultgård, Research Analyst]

Perfect. And then on BIVV001. Do you think that a sequential Phase III study in pediatric patients will be required for approval in Europe as was the case for Elocta? Or do you think -- should we expect similar launch timelines in Europe and U.S.?

[Guido Oelkers, CEO & President]

Milan?

[Milan Zdravkovic]

Thank you. I think we would need to discuss with regulators before we would be able to comment on exactly which program would be required and associated timelines.

[Guido Oelkers, CEO & President]

Probably too early yet.

[Operator]

Our next question comes from the line of Peter Östling from Pareto Securities.

[Peter Östling, Life Science Analyst of Equity Research]

Most of my questions have actually been -- already been asked. But I have another one on BIVV001. You may have said this before, but could you just remind me what the timeline is when it comes to your -- you opting in, in the program? Is there any specific event that will trigger this?

[Guido Oelkers, CEO & President]

I mean, we have in our agreement with Bioverativ, we are allowed to opt in after the availability of Phase III trials -- Phase III results, so very much de-risked. But let's say given the excitement around the product, we might consider to opt in earlier and...

[Peter Östling, Life Science Analyst of Equity Research]

If you would opt in earlier, would that give you any additional benefits?

[Guido Oelkers, CEO & President]

No, I mean it's -- I think when you look at the discussions at WFH, I think this was clearly the late breaker on BIVV001. Was probably considered as one of the main highlights of the conference and so to be associated with the product at an earlier stage, we would consider as an advantage, yes.

[Peter Östling, Life Science Analyst of Equity Research]

Okay. Just a quick additional question. Could you give us a little bit more an update on your M&A activities? You have clearly said that you're looking to add products and/or businesses within the rare diseases.

[Guido Oelkers, CEO & President]

Absolutely, Peter. I mean, we are obviously in very intensive dialogues as we speak. And let's say, unfortunately, at this juncture, I cannot disclose anything. It will be premature, but yes, I mean, we are working on the things because we consider the expansion in Specialty Care and the bolstering of our pipeline as important elements of our strategy.

[Peter Östling, Life Science Analyst of Equity Research]

Have you seen the M&A landscape or climate change in anyway during in 2018?

[Guido Oelkers, CEO & President]

No, I think the key is really to find projects. I was addressing concerns that some of the investors said back to us, you don't want to overpay. You want to have a project that gives you growth because we don't want a -- because companies like us as we get it, need to grow, keep growing and we want to be -- you don't want to over diversify the company. So when you -- and that leaves you with some -- so it's not like these products, we can pick up in a blink of a moment. You need to work on this and we are doing this right now and hopefully we will be able to communicate good news in the not-too-distant future.

[Operator]

Our next question comes from the line of Christopher Uhde from ABG.

[Christopher Winston Uhde, Biotechnology Analyst]

So I guess, my first question is about the geographic expansion rate for hemophilia. So it was obviously little bit slower this quarter. Should we expect it to continue to be slow like this or do you think it's just very hard to predict? Or can you just give us a little bit of clarity on that?

[Guido Oelkers, CEO & President]

I think with Elocta now being in 25 markets, we are, I think, not too bad. I think we have nicely penetrated. We have, I mean, the biggest market where we are not is now Russia. We're in a regulatory process and obviously, to get approved -- investment approvals at a larger level across Central and Eastern Europe, whilst we got obviously inroads now into Poland, which was -- and Slovakia, so not too bad. I think there, let's say, these last areas are still missing, will make a material difference to the valuation. On Alprolix, obviously, we are earlier stage and there we have let's say a launch plan. But we are in discussions also because sometimes with the payers they would have different thoughts and they use the emergence of new products also as an opportunity to negotiate prices, and obviously we are concerned about the entire franchise and basically are willing to discuss opportunities but not at any cost. So there, let's say, we have discussions with various regulators in this regard and it's not that we try to be slow here but sometimes we're just trying to adapt to a new landscape. But you can expect in the next year, but it's very difficult to speculate and clearly it wouldn't help some of the discussions that are ongoing if we make predictions, forward-looking, on solving some of those discussions because we have to recognize that there are different incentives for different players in this market.

[Christopher Winston Uhde, Biotechnology Analyst]

Absolutely, no, I think that makes a perfect sense, obviously. So then, I guess, the second question, so you highlighted in the past, how important the science is in driving sales or penetration, let's say, of the Fc products. So I'm wondering, looking at the ReITIrate study poster presented at the WFH Congress, so do you have plans to undertake further studies for the EHL products that would permit more than, well, just hypothesis-generating conclusions to quote the poster?

[Guido Oelkers, CEO & President]

Milan, you want to comment?

[Milan Zdravkovic]

Sure. It's Milan Zdravkovic. So at this point, we have 2 studies ongoing in collaboration with Bioverativ/Sanofi, the first ITI and then the study in patients that have had several failed ITI attempts. And those studies are currently accruing patients and as part of that we will also be accruing additional, you can say, mechanistic information that would help us understand, you can say, a bit more around the molecular characteristics of the Fc portion and whether that -- and the immunological effects that these may have. And I think based on, you can say, the data from those 2 studies, we may even decide to do more. But I think that is a bit speculative at this point in time.

[Christopher Winston Uhde, Biotechnology Analyst]

Okay, that was very helpful. So to what extent can you influence BIVV001 development?

[Guido Oelkers, CEO & President]

Yes, we are in discussions with, obviously, Bioverativ and also with Sanofi Genzyme in this regard because it's clear that the landscape in Europe and with the need for health economic data is a bit different than in the United States. And this dialogue is currently ongoing because there the understanding is that both parties sit together and trying to do the best for both businesses. So we have here clearly, a seat at the table and we'll be taking charge of the seat.

[Christopher Winston Uhde, Biotechnology Analyst]

Okay, great. And so then how much of Kineret growth can you say was driven by Still's?

[Guido Oelkers, CEO & President]

Hard to say, I mean, because we are -- we don't have yet a prescription data that will tell us how much of the Still's sales -- how much of the product sales in Europe was driven by Still's and how much is driven other indications and so it would be very speculative. What I can say is that we -- and this is no coincidence that we saw in our Q2 a very significant uplift in U.S. where we don't have Still's driven by the investment that we put behind, but also in Europe where clearly Still's was Still's now the driver, was it the prescription of Still's, I can't tell you. But clearly, we have now more Still's patients, but possibly also the, let's say, that the indication reconfirms the confidence in the product and as it reconfirms the confidence in the product, it basically, physicians see a broader utility of the product also in another indications. And I think that's probably at least as big of an effect as the effect of the indication as such.

[Christopher Winston Uhde, Biotechnology Analyst]

Okay, I guess, the last -- one follow up on the Pfizer. So how will the production shift to Pfizer impact Kineret margins? I mean, I saw you said that you expect it to be cost efficient for you, but where should we expect that?

[Guido Oelkers, CEO & President]

We don't provide indications, I think, on the -- but we will have -- you will see a significant uplift on the gross margins of Kineret by 2 effects, which is driven by royalties that are stopping from the original -- originator and also the reduction of [ costs ]. But I don't think that we are commenting on individual product in this regard.

[Christopher Winston Uhde, Biotechnology Analyst]

Okay, and my very last question, sorry. So you said in the report, ReFacto results are due to phasing effects. Can you elaborate? I mean, does that mean you are expecting them to rebound?

[Guido Oelkers, CEO & President]

Yes, I mean, basically you have 2 effects and when you -- and it's not up to us to comment obviously on the performance of ReFacto, let's say, because it's driven by Pfizer. And -- but when you look at the Pfizer publication, you will see that maybe the progress of ReFacto is not as large anymore as it may be used to be in the years before. That I think is probably a fair description and I leave it up to you to look at the half-year report from Pfizer to get -- but what we can also see is that basically as you would expect, our sales are sales to Pfizer and not sales out of Pfizer. Hence you have inventory adjustments and these inventory adjustments should [ separate ] right now and they are coinciding with some of the slowdown of growth. But there it's really, we are really the wrong party to talk about it. This is something that should be asked to Pfizer.

[Operator]

Our next question comes from the line of Peter Sehested from Handelsbanken.

[Peter Sehested, Research Analyst]

A couple of questions here. First of all, in terms of market share for -- across your market [indiscernible] are right now expecting on tax rates or what do you expect tax rates for the full year? And again on [indiscernible] health formulary [indiscernible] on the guidance, if we just extrapolate for the current run rate [indiscernible] guidance in [ past ] years as formulated seems a bit conservative, so was that [indiscernible] usual ones priced positively once again.

[Guido Oelkers, CEO & President]

It might be our line, but you know, at least, for us it is quite difficult to get all the points, but I'll try to paraphrase what I understood anyway. Let's say so maybe first to market share. Let's say where do we stand, I mean, as we have communicated in the past, we think that our market in hemophilia is give-and-take $3.5 billion in our territory. So basically when you look at, let's say, the total sales we have in a quarter, let's say, and it will be product sales that you divided, let's say, times the number of quarters and you divide it by $3.5 billion, that gives you give-and-take where we stand in total market share. Our market share in certain markets it's obviously higher. I mean, in the most extreme scenario, like Ireland, it's close to 100%. But we have markets also where we are around 30% and then markets where we are really at infancy. But basically, our market share in on demand is lagging behind because there is time-and-lag effect. We focus at this juncture more on prophylaxis. But that gives you order of magnitude at least a sense where do we stand in market share. Now the other part I understood and maybe then you could give me the third element of the question one more time because I didn't catch this was on the guidance. There basically, when we look at -- I mean, obviously the big question when you go through this substantial growth is where will it lead you? And obviously as pointed out in the past, we don't want to impress by promises. We rather impress by delivering results. And, let's say, so what we basically felt is now that, yes, we have enough data points to raise guidance because we feel that we have a better sense where the Orfadin patent expiry will lead us; and we have, let's say, better view on, in particular after the acceleration in hemophilia, where the hemophilia situation could lead us to; and hence we basically raised guidance. And so what I can say is, it's not a -- we cannot obviously guarantee this but it is using -- looking at the data points. It is what management feels very confident about and, let's say, we want to build this business and that's really what prompted this. And there's probably not much more to add to this. So maybe if you wanted the second part -- the third element of your question, which I didn't acoustically really get, and if it cannot be solved then we can obviously come back to you off-line and provide you with information, but maybe if you had -- if you could say some more time.

[Peter Sehested, Research Analyst]

Yes, it was regarding, I think -- there was one regarding the tax rate, which you factor in for the year. And the other one was with respect to the formulary changes at United Health with respect to the Orfadin [indiscernible] and, clearly, one of your competitors has been preferred instead of Orfadin?

[Guido Oelkers, CEO & President]

Yes, I mean, maybe can we start with the tax rate and Mats-Olof can give you a view on this.

[Mats-Olof Wallin]

Sorry, I did not catch your question fully, but I'll try to give an answer and please come back with further questions or we can take it off-line. But the effective tax rate for the quarter was 17.9% and for the first 6 months, 19.8%. And also the applicable tax rate in Sweden for 2018 is 22%, but there was this decision by the Swedish government on June 14 that the corporate tax rate in Sweden would be reduced to 21.4% from January 1, 2019 and from -- to 20.6% from the January 1, 2021. We have also used that also to calculate the deferred taxes and that has a positive impact on the quarterly statements with SEK 39 million positive impact in Q2. But that is relating to deferred taxes.

[Guido Oelkers, CEO & President]

And with regard to the Orfadin situation it is -- and there basically, we would not comment on individual countries, not only as such as basically we corrected our topic in Canada and basically gained back the largest tender there. But basically there, we have -- the good news is for us that we have -- a significant part of our business are new formulations. And patients appeared to see utility in those oral suspension in the 20 milligram and these products gained popularity and therefore market shares of over 50% depending on the market.

[Operator]

Our next question comes from the line of Erik Hultgård from Carnegie.

[Erik Hultgård, Research Analyst]

A follow-up question or few follow-ups on the pipeline, please. In the quarter, you spent 10% of sales on R&D, which is below industry average and also below levels usually considered required for sustainable growth. Should we expect this level to increase gradually going forward as you sort of speed up or increase or accelerate the activity within your in-house pipeline? Or should we wait for sort of some bolt-on acquisitions before you sort of get the R&D spending up to more sustainable levels. So that sort of a strategic question for you Guido. And then more detailed question maybe on Kineret. I was wondering if you're planning to develop that drug within oncology given some of the encouraging data that has been presented within Il-1, how some competitors report here?

[Guido Oelkers, CEO & President]

Yes, Erik, absolutely. I mean, basically, where are we at now in R&D? We are basically in a transition. I mean, we are not oblivious to the fact, let's say, that in our industry other percentages are spent. You think -- but it's not about the number, it is about the project, yes? So really more preclinical is now not what we believe we need. What we need is late stage. And we cannot invent now -- create what has not been seen in many years back. So our strategy is obviously focusing as we have articulated on bringing in projects and as a consequence, once we have been successful, you will, by definition see an increase of R&D spend, let's say, which will be driven by the investments in the Phase III programs. So that's -- so we are very cognizant about this, but we feel that we will basically make our way. We are committed to R&D, 100%. We're not a branded generic model, [ Kineret is ]. So hence, we need to do this, but we need now to start from late stage and making our way then to earlier stages as opposed to from earlier stages to late stage. Because we need projects now that kick in faster and that was also our take away from the discussions that we had with a number of investors who felt that this was important. And then basically with regards to Kineret, I think, Milan should take this in more detail, but clearly we have realized utility of this project also in other indications, amongst those oncological indications. And -- but probably it's a bit early to, let's say, to talk about definitive projects. But let's put it this way, we are more confident about Kineret than ever. And maybe Milan, you want to comment?

[Milan Zdravkovic]

Thanks, Guido, I agree. You can say currently we have 2 main programs ongoing. We have the gout study that we discussed, Phase II, and then we have the Phase III Still's study hopefully enabling an approval in the U.S. And then beyond that, we have a number of programs that we are thinking of in oncology and you can see the encouraging data that came out of the canakinumab study. Prevention of lung cancer is one of the ideas that we are juggling with, but we have a number of other ideas and we'll prioritize those against each other and see where is it we have our strength and when is it the opportunity could arise. So I think it's a bit early to say exactly what we would do beyond but we are aware of it and we agree that it looks encouraging.

[Operator]

Our next question comes from the line of Rajan Sharma from Deutsche Bank.

[Rajan Sharma, Analyst]

Just a question on Orfadin please. Are you able to quantify the quantum of the impact of the contract in Canada? And how sustainable do you think the defense against generics is in the medium term?

[Guido Oelkers, CEO & President]

Yes, I mean we, the quantum in Canada, I mean, we would not comment on, let's say, because we don't comment on a product by country level typically, in terms of revenues. But it is -- we got, let's say, a significant part of the market back and we're very happy about this. Let's say, is the defense for Orfadin everlasting? No. Let's say, I don't think that this is a reasonable assumption, but I think the utility of the product is there. There's a lot of loyalty, I mean, don't forget the patients are today 20 years old. They owe this to the availability of Orfadin. But it is very -- I don't want to speculate how this can be sustained, but I don't think that you will see also in the foreseeable future the classical erosion curve, as you will have with the big pharma molecules that run out of patents. So we will -- and we have 7% growth -- in the second quarter, so quite encouraged and we don't think that this is overnight changing, but we also are not saying that we can defy gravity. So at this stage, let's say we have to accept that there are a couple of uncertainties, but we don't -- we'll not fall off the cliff any time, I mean, in the short-term. This is not what we're seeing here. I think we're approaching 3 o'clock. And maybe one more question.

[Operator]

Absolutely. Our last question comes from the line of Eun Yang from Jefferies.

[Kyung Yang, MD & Senior Equity Research Analyst]

Question on 001 XTEN product for hemophilia A. So as you increase the dose, is there like a kind of target trough for levels that you are going after, given the competitive environment?

[Milan Zdravkovic]

Thanks for the question Eun. It's Milan. I think we -- as I mentioned, we recognize convenience, but we also want to bring therapy forward and provide even better protection than the therapies today. So I'm unable to give you, you can say, a trough level that is specific in size that we are aware of. And we want to make -- try to make this product into more than a convenience offer.

[Kyung Yang, MD & Senior Equity Research Analyst]

Okay. So one quick question, the Still's disease with the Kineret, you are running Phase III trial for the Still's disease in North America. When do we expect the data?

[Milan Zdravkovic]

We are currently enrolling patients into the trial. We have enrolled 6 patients out of the planned 81 trial -- 81 that was preplanned. We are not entirely happy with the, you can say, rate of enrollment, so I think it's a bit premature for me to say when we would be done. Right now, we have opened quite a number of sites. So we are maybe running at a fuller thrust and then we'll have to see when we can recruit the patients. There is, maybe, a certain seasonality around Still's. Maybe it occurs more, you can say, in the winter period. But nevertheless, I think it's too early for me to say when we would complete enrollment.

[Guido Oelkers, CEO & President]

Thank you, Eun. On this note, I think we would like to end the call. If you have further questions, please do not hesitate to reach out to Jorgen or to Linda. And we'll try to address further questions as they may arise. Thank you so much, and wish everybody a great day.

[Milan Zdravkovic]

Thank you.