Swedish Orphan Biovitrum AB (publ)

STO:SOBI

Earnings Call Transcript 2020-Q3

[Operator]

Ladies and gentlemen, welcome to the Sobi presentation of the Q3 results. [Operator Instructions]I'll now hand over to Guido Oelkers, CEO. Please begin your meeting.

[Guido Oelkers, CEO & President]

Yes. Thank you so much. Welcome, everybody. It's really my pleasure to welcome you to the Q3 earnings call. As per usual, I'll go straight into forward-looking statement as we have disclosed at many of these events.I'm joined today by Henrik, our CFO; and the first time by Ravi, who is our new Head of R&D and CMO. And what we'd like to share with you is a little bit the journey and what we -- and bring the numbers a little bit alive, so that you can share our excitement around the company.I'll go straight into the ongoing transformation. I mean when you think about maybe step -- quick step back where we are today, I think we have built quite a significant diversified portfolio into Haematology and Immunology. Our 2 core areas, as you will see later, are growing in the quarter at 16%, respectively, 11% in a difficult situation. So quite satisfied with this progress.We have 5 very important late-stage assets in our pipeline that we would -- I'll touch upon, and then Ravi will really explain into more detail. And we have really expanded the company to an international footprint, we have now a pretty entrenched position in the United States and have built organizations out in Russia, Japan and China. And this was done, obviously, on the strength of organic growth, but also through M&A.And for me, the emphasis is here on thoughtful because when you -- one thing for sure is when you're managing risk, there is no certainty. So you manage probabilities and you need to make sure that you apply here good practice as you move on. And let's say, the -- and I start right out with Doptelet. Whilst we are dissatisfied and would be much more happy if the CIT readout would have been positive, I'm equally gratified that with this CLD and with the ITP organization -- ITP indication, we have 2 very important indications that we are launching, and that made us very optimistic about our future. Hence, we didn't have to correct our guidance. We have brought in SEL-212 that has now progressed into Phase III. We're expanding Gamifant into internationally, but also bringing it into acute graft failure.So what I wanted to say is this is not just an aggregation of assets. There is -- let's say, there are various thoughts coming -- getting into this. And it is actually a very derisked, also pipeline that we have built up with a significant upside potential.When we go straight to operational highlights. Basically, we have 6% growth at CER for the quarter, 14% year-to-date. Our total adjusted EBITA growth is minus 15%. But please bear in mind, we had -- we were able, thanks to our gross margin expansion by 5 percentage points, to afford a 25% OpEx increase, investment that went straight into R&D and into the competitiveness of our commercial organization.And as I pointed out, that basically allowed us to drive growth in our core business. So our total sales growth has been pulled down in Q3 by the consolidation actually of our Specialty Care business that we, to a certain degree, divested and that basically -- and has grown -- has a negative growth of minus 45%, but our core moving into the future is showing healthy growth. And I'm very gratified that we also made progress at the scale now with Doptelet, 58% quarter-on-quarter growth and with Gamifant versus previous year in the quarter, 83%. And when you compare the year-to-date number, please bear in mind that we had a price reduction aggregated of over 50%. So very significant progress with the new assets.When we come to the pipeline, I just want to say, when you look at this pipeline with BIVV001 in Phase III, recently awarded New England appraisal. With Doptelet launched in CLD and ITP and now internationalized, yes, we missed the endpoint, but our peak sales remain -- guidance remains unchanged.Gamifant in primary HLH, now extending it into acute graft failure. And then obviously, we see -- we are still waiting for the outcome of the 06 trial, hoping to extend it also into secondary indications. SEL-212 moved into Phase III and nirsevimab also in Phase III. So actually quite a nice, let's say, portfolio of important assets.So I'm moving to the next slide. We see continued top line growth, as you can see here. And I talked about the -- let's say, the 6% and maybe we can move then into the specific areas of the -- of our core business, Haematology. So when you look at Haematology, what you see here is that, let's say, whilst Elocta has not shown that growth, at least on a quarter basis as much anymore, you see now Doptelet emerging. So on a Haematology level, actually, we see healthy growth also, thanks to the significant progresses with Alprolix at 33%.Now when you look at -- let's say, at Elocta in more detail, and maybe this is what we can do on the next page. These are now Q3 2020 compared to Q3 2019. And we used the sample size of EU5 because we have done the detailed analysis for the EU5 countries that represented 73% of our entire franchise. You see a significant growth from patients 19%, and let's say, you see a decline of patients or patient loss to competition of 3%, we lost really materially in terms of patient loss and patient consumption, where we have an effect of minus 12%. And the other factors are of minor importance, so what you see here is that actually the competitiveness of Elocta continues. And let's say, and I'm quite gratified that we can take this to the next level.So when you come -- when you think about now Haematology, the hope is that Doptelet will gain increasing materiality, Alprolix continue showing growth and we still hope that we can progress Elocta also moving into the future. And the patient growth in the last quarter-on-quarter was around 1% for Elocta. And let's say, we think that we can do better in Q4 because Q3 is always a difficult quarter for switching. And so I think we are, on the Haematology side, I think, in a pretty decent shape.Now switching gears to Immunology on the next page. There you can see, let's say, significant growth year-to-date of 25% for the quarter of 11%, held back really by Synagis where there has been -- we have not been able to build the same stocking levels in this quarter simply because we changed the distribution model to a special distribution chain. And let's say that basically affected us with around SEK 100 million in this quarter. Let's say, and one has to say that the season in terms of virology is a little bit slower, but there are various effects into this, maybe we can go into if you are interested in the Q&A session.But the product, as such, demand signals are positive. Gamifant, with 83% in the quarter, I touched base on a strong double-digit growth, obviously, with Kineret. So overall, actually, the -- let's say, the franchise really being in a good shape. I think with this having said is, so operationally strong, 5 strong assets. Economics strong, let's say -- based on, let's say, the gross margin as well as the EBITA margin.I'd now like to turn the page and move to Ravi, who will hopefully excite you with what we have in stock in our pipeline.

[Ravi Madduri Rao, Head of Research & Development]

Thanks, Guido. If you can move the slides on, please. Let me just take a minute to introduce myself. I joined Sobi on the 1st of September Aeglea BioTherapeutics, where I've been the Chief Medical Officer. And prior to that, I held various positions in R&D at Roche, Genentech and then at GlaxoSmithKline.By background, I'm an academic rheumatologist. I was on faculty and seeing patients in Imperial College in London. And I'm really excited to be joining Sobi right now based on the heritage, the pipeline, the people and the vision for growth that Guido has outlined.Next slide, please. As we mentioned, the portfolio is diversifying both in terms of Immunology, Haematology and rare disease assets. And that's spread across various phases with a great deal of innovation. And I think it's, therefore, inevitable that some of the results will be a bit more unpredictable than perhaps we've seen historically.So I'll now turn to avatrombopag, if we can just move the slides on, please. And what we can see here is the study in chemotherapy-induced thrombocytopenia, which we announced a couple of weeks ago. And whilst we were disappointed that this study did not show a difference in clinical response between the active and placebo arms, and these figures are shown on the left-hand panel. We actually looked at the number of patients who required a reduction or delay in their chemotherapy or required a platelet transfusion as a result of reduced platelets in their chemotherapy cycle. And we actually saw very high response rates in both arms.That said, the avatrombopag arm did consistently have a rise in platelet counts and demonstrated a good safety profile. So we still feel there's an unmet need in these patients. And we're continuing to review the full data set and we'll conduct some post-hoc analyses. We're focusing on aspects of trial design and patient selection and we're working hard with the clinical community to define next steps that we need to take.So turning now to SEL-212. Next slide, please. We announced a licensing deal in the last quarter with Selecta Biosciences. And just a quick reminder that SEL-212 is a combination product, which consists of a yeast-derived uricase as well as tolerogenic nanoparticles containing rapamycin. The deal was based on some existing Phase I and Phase II data and we recently announced the data for the COMPARE study. This compared SEL-212 with pegloticase in patients with chronic refractory gout, in whom conventional therapy had failed. It was a 6-month study, and in months 3 and 6 of this study, patients had more intensive uric acid measurements. And the primary endpoint was defined as the number of patients who had a serum uric acid below 6 during both these intensive monitoring periods.I should point out in this study that months 4 and 6 were infected by the pandemic, and although there are a few patients who dropped out of the study, a larger number of patients had missing data as a result of missed visits due to that sort of disruption. And hence, we're showing both the per-protocol PP, and the intention to treat, ITT, population. In the middle panel, we see the primary endpoint. And there was a numerical trend in favor of 212. And this was more notable in the per-protocol population, which narrowly missed significance. In our exploratory analysis, however, significance was seen at month 3 with an improved response rate of SEL-212 compared to pegloticase.And on the right-hand side, if we look at serum uric acid reduction, we see a clear decrease in SEL-212 and pegloticase, which we've shown in the top panel. And in the bottom panel, you can see this difference is further marked in patients with tophaceous gout.Patients with tophaceous gout represent actually the more severe patients with this disease for whom conventional treatment does not always work. They have a worse prognosis, both for their gout as well as for other metabolic complications of this disease. So it's worth noting that they're showing a much better response to SEL-212 than to pegloticase.Next slide, please. SEL-212 has progressed into Phase III, which commenced last month and consists of 2 placebo-controlled studies, each of which has 105 patients looking at 2 doses of in total, and we expect data in the second half of 2022. This is the core development plan, but we do expect to be adding evidence-generating activities as we go through the next couple of years.Next slide, please. Let me move now to BIVV001, which is a development and commercialization collaboration with Sanofi. This is a novel fusion protein and its structurally shown on the left, has the addition of an Fc domain and XTEND molecules as well as different linkage to von Willebrand factor, and all of these modifications result in a prolonged half-life. And as mentioned, the results of the Phase I/II study were recently published in the New England Journal of Medicine. And the figure on the top right-hand side is adapted from that paper.What we see as a clear advantage of BIVV001, shown in the dark line compared to conventional recombinant Factor VIII, which is showed in the lighter line. And even by day 4, Factor VIII activity remains normal and is in target range still at day 7. This suggests that weekly dosing is feasible, and the XTEND-1 study commenced last year, and is a 1-year interventional study in 150 patients, examining both prophylactic and on-demand therapy.And our excitement about the potential for this molecule is shared by the clinical community. And the quote in the bottom left were taking from accompanying editorial for that paper from Professor Mannucci in the line.Next slide, please. So finally, let me turn to the next chapter for Gamifant, which we feel could have significant therapeutic benefit to prevent graft failure following hematopoietic stem cell transplantation. There are a large number of patients undergoing this procedure every year and primary graft failure or secondary graft failure is a major issue. And in fact, emapalumab recently received orphan drug designation for this indication from the FDA. There's very good preclinical and clinical evidence that both interferon gamma and its downstream mediator, CXCL9, are elevated and can predict the development of graft failure.The figure in the middle of the slide demonstrates that CXCL9 is elevated as early as 3 days following the graft and can be readily measured in the serum. So earlier diagnosis and intervention could be beneficial, allowing the prevention of graft failure in this hard-to-treat population. And we're planning 2 studies, both of which will start early in 2021, an observational study to validate CXCL9 as a biomarker and to better understand the natural history of patients following stem cell transplantation, and an interventional study to determine proof-of-concept for emapalumab.Next slide, please. So to develop a companion diagnostic is a bit of a first for Sobi in Immunology and is still rare in the Immunology field. So we've set up a collaboration with bioMérieux to use the VIDAS platform to do this. This approach actually received breakthrough designation earlier this year from the FDA.We like the VIDAS platform because it has a fast turnaround and is a hands-off from test to results. And the machines are already available in a number of centers that are performing stem cell transplantation. So CXCL9 could be a predictor for graft failure in HSCT but also could give us an indication of where Gamifant might be applicable in a number of other diseases.So as you can see, we've got some really exciting scientific innovation to bring to patients, and I look forward to keeping you updated over the coming months on this.And with that, I'll hand over to Henrik.

[Henrik Stenqvist, Chief Financial Officer]

Thank you, Ravi, and good afternoon, everyone. So we go to the financial summary for the quarter and year-to-date through September. Revenues for Q3 amounted to SEK 2.970 billion, that corresponded to an increase of 6% at CER. Year-to-date, revenues amounted to SEK 10.680 billion, and that corresponded to 14% at CER.Our Haematology franchise consisting of Haemophilia and Doptelet, showed sales of SEK 2.147 billion, a growth of 16% at CER for the quarter. Eloctaa at SEK 1.115 billion, declined 1% at CER, whereas Alprolix reached SEK 435 million after a slower Q2 and increased by 33% at CER.For both products, we continue to have positive momentum in patient growth. Offsetting this growth is the negative impact of lower patient consumption, partly driven by COVID. Doptelet had a strong quarter with SEK 145 million in sales. In the U.S. market, the product grew by 29% in dollar terms compared to Q2.In Immunology, Q3 revenue increased to SEK 619 million and 11% at CER. Kineret sales of SEK 463 million increased by 20% in Q3, and we continue to see increased underlying demand across our regions. However, in Q3, with limited impact from sales related to COVID because of fewer patients in intensive care.Since the RSV season has not yet started in Q3, Synagis sales of SEK 46 million for the quarter reflects a lower preseason stocking than in Q3 '19, when stocking was quite high. This year, things have started to move in October instead. This is early days, and our Q4 sales result will be a better indicator of the expected performance in the 2021 season.Gamifant sales of SEK 110 million corresponding to a growth of 83% at CER, reflecting continued patient growth offset by lower price as we heard. The Specialty Care revenue for the quarter declined by 49% at CER to SEK 204 million, and this was mainly a result of the discontinuation of various partner products as we have reported earlier.As we move on from revenue, we saw a gross margin of 79% in Q3, continuing the positive trend coming from a favorable product mix and the royalty obligations. EBITA reached SEK 933 million for the quarter, corresponding to a margin of 31%. Q3 is, of course, a seasonally weak quarter and the margin year-to-date of 39% is in line with the same period of 2019 of 40%, despite our increased efforts this year, particularly in investments in launches.Looking now into cash flow and debt. We can see that the operating cash flow in the quarter bounced back to SEK 443 million. As expected, clearly lower than the levels we experienced in H1, which becomes evident when we look at the year-to-date number, which is SEK 4.356 billion. And this is the result of the seasonal weakness of Q3 and the need to build up working capital for the seasonally stronger Q4.In Q3, cash flow was also impacted by the acquisition of the license to SEL-212 of SEK 933 million and the settlement of the remaining balance of the liability, the Sanofi related to Alprolix of SEK 315 million. And as a consequence, net debt increased to SEK 12.7 billion from SEK 11.8 billion at the end of Q2.If we go to next slide, please. And this illustrates the net debt development over recent quarters and includes the increase to SEK 12.7 billion in Q3, that I just mentioned, but also the reduction from the peak of SEK 15.4 billion in Q4 '19, which resulted from the major acquisitions in 2019 of Synagis, Gamifant and Dova.The net debt of SEK 12.7 billion corresponds to a leverage, which is still below 2x EBITA on a pro forma basis, which is very comfortable. And we maintain available liquidity of more than SEK 6 billion, signaling a continued position of financial strength for the opportunities of Sobi going forward.And with that, I say thank you and back to Guido.

[Guido Oelkers, CEO & President]

Thank you, Henrik. And just to round it off, I think as everybody, I think, is painfully aware COVID-19 has not disappeared. So for us, obviously, it's a reality that we try to manage. For our employees, let's say, obviously, we try to manage supply and make sure that access to our treatment is available. And we know we have ongoing, obviously, trial activities with anakinra in COVID patients. We have now 900 patients enrolled in multiple trials. And it takes us very seriously, obviously, as we move forward.So when you think about the financial outlook on the next slide, I think it's important to note that we have not reduced our guidance, we have precised our guidance from SEK 15 billion to SEK 15.5 billion. Please also take note that the currencies are currently, as you can see, between the CER and actual rate are currently not in our favor. And we take note of this in the guidance and there's a currency effect of over SEK 200 million to be noted. And we can come in the Q&A session to this and then we have a couple of other thoughts here. There's also obviously a reflection of better knowledge. And in terms of EBITA guidance, we are between SEK 5.7 billion and SEK 6.2 billion corresponding year.So this gives you a view. We are remaining optimistic about our future. We see that our Hemophilia franchise is competitive. We have, as Ravi pointed out, 5 exciting assets in our stable. And we are investing, obviously, into our future. And we think that with the leverage below 2, that we have still more to do for us.On this note, I think I would like to hand back and maybe we can open the floor for questions and answers.

[Operator]

[Operator Instructions] And our first question comes from Yang from Jefferies.

[Eun Kyung Yang, MD & Senior Equity Research Analyst]

I have few questions. A couple of them are really quick. So on Gamifant, for primary HLH in the U.S., do you think that you're kind of fully penetrated in terms of number of patients?And another question on the Gamifant is, you are planning to meet with the FDA for juvenile pediatric secondary HLH indication. So can you talk about the time line and what you would expect from the meeting?And the last question is on Eloctaa, you mentioned that you see continued share gain, but there was a reduction in consumption for patients because of the pandemic. So can you explain why the pandemic would lead to decrease the consumption for patients?

[Guido Oelkers, CEO & President]

Yes. Yes, absolutely. I mean, maybe I'll start with the first 2 parts, and then Ravi can talk about what we -- because he's driving this process with regard to FDA interaction.On the Gamifant side, I mean, we are currently having around -- I mean you never catch all patients because it's a difficult, let's say, sometimes diagnoses, and until you -- until the patient is then transferred to the centers that then diagnose primary HLH, it can take a while or maybe too late even. But I would think that we have now in the primary stricter sense, we are quite well penetrated probably beyond 80%, let's say.So what basically the growth opportunity now is for us to collect data via registry, what we are doing, via different means and have opened up the discussion because we know that, obviously, the infectious-related patients, which are currently termed as secondary, in the -- if you basically say, do they have a genetic disorder? Actually, their studies are suggesting, so -- and when we have discussed this that prompted the natural group to talk -- to write about it. And this discussion is still ongoing. We have not progressed as much as we would have liked, but it is still our goal, obviously, because when you're looking at a patient potential, which is tenfold. So that basically is the immediate one. And maybe then later, we can talk about, let's say, our efforts with regard to sJIA MAS.On the Elocta side, what basically happens here with the volume reduction, let's say, is the following, is the pandemic has been -- has aggravated this, this effect because patients actually stayed at home, are less active as a consequence reduced consumption or in some cases, we know that they actually did not go to the clinic at all and missed dosing, so that basically affected consumption. There's another effect that is part of this, and this is the titration in certain jurisdictions, patients are dosed higher at the beginning and then they are tighter down. And there's an effect in a couple of countries, but this has been exacerbated by COVID.And with regard to the FDA interaction and the promise, I'd like to refer to Ravi and what is in stock.

[Ravi Madduri Rao, Head of Research & Development]

Yes. Thanks, Guido. Thanks, Yang. Yes. We're meeting with the FDA later on this year, and we'll talk about secondary HLH in children. We've got data on 14 patients.I think we'll get an idea from the FDA as they've given feedback historically on how to collect that data, the number of patients, the extent of response, et cetera. And that dialogue has so far been quite productive.Once we lock the database and write the CSR, then we'll hopefully be able to submit those data, all being well, but we'll be able to provide more guidance following that meeting in a few weeks' time.

[Operator]

Our next question comes from Emily Field from Barclays.

[Emily Field, Research Analyst]

I just had a question on the quarter-over-quarter patient growth on Elocta. I believe you said that the net growth was 1% sequentially. I was just wondering if you could give a little bit more granularity in terms of patients gained and patients lost that sum to that?And then also, if you could just comment on share developments in the key EU countries, the U.K., Germany and the dynamics versus Hemlibra and also kind of the dynamics in France, Italy and Spain, where that product -- competitor product was launched more recently?

[Guido Oelkers, CEO & President]

Yes. Maybe we have -- when you look at this, I mean we don't do on a -- I think net patient gain is really what we are guiding on, let's say, we don't typically go beyond this. Let's say, you get a sense that the overall magnitude of the losses by the chart that is in the slide is, I think, within reason, so we are still gaining. But obviously, our ability in Q3 to gain has been impaired while, obviously, there was progress on -- with our main competitor.And that basically is just the case that when you are coming with a new product, there are certain patients reserved for you and then you're getting them. And let's say, whilst, obviously, when you are coming with an established product in the holiday season, this is more difficult.We have gained share, particularly strong share gain in Germany. Let's say, we are on a very high level and defending position well in France. We are now expanding in the U.K. because of the change of our status there. And let's say, and we are gaining share in Italy and in Spain. So the competitiveness in those key markets is actually quite good, but we don't comment on market shares by country.

[Operator]

Our next question comes from Christopher Uhde from SEB.

[Christopher Winston Uhde, Analyst]

So I have a few questions. I think I'll start on the high level here. So you've previously talked about midterm guidance of double-digit revenue growth. Does that continue to hold do you think?And then, I guess, if you could potentially clarify a little bit. You've stated publicly a few times that you still have the same peak sales forecast for Doptelet. Now I guess, previously, you said that CIT was about half of it. And so I guess since some -- there are people who are asking if a write-down coming. Can you just clarify how you arrive there? I mean, how much -- I mean, are you still excluding CIT? Were you just being conservative before? And are you still being conservative now, if so?

[Guido Oelkers, CEO & President]

Yes. I mean let's start with Doptelet. I mean we -- basically, we have been quite conservative on Doptelet, and the SEK 500 million that we guided on did not include CIT. Because if you would have included CIT, the guidance would have had to be much larger, and we gave these examples on the 70,000 patients. There's a high unmet medical need, as Ravi pointed out.And basically, we think that there's a very significant potential. I mean, the market, as we understand it, is globally a $2 billion event. And we think that we can be one of the significant players in this field and taking, obviously, the product now internationally, Q1, Europe. And then bringing it also to China and Japan, and we think that we can have -- sorry, in China, Doptelet has already launched now with Fosun and can make some significant inroads there.So we -- so that's really what it is. And that's the reason why we don't have to change guidance simply because we didn't account for it. I mean we were excited about it, and we are also disappointed that it didn't come, but we didn't have to adjust guidance.Sorry, there was another angle to your question. It just escape me, so can you just remind me?

[Christopher Winston Uhde, Analyst]

No, that answered that question very well. And then the other question was on the midterm guidance for sales being...

[Guido Oelkers, CEO & President]

Yes. I think I mean, obviously, we're dealing here with uncertainty. And clearly, this volume reduction was not really part of our original plan. But I think, at this stage, it would be premature to, let's say, that we are not having the ambition to grow on a Haematology product sales level and also on the Immunology level, let's say, the ambition of double-digit because as we are launching now Doptelet and as we basically hopefully can unlock more opportunities with Gamifant, and we see, obviously, a significant growth opportunity with Kineret still moving forward, that basically is still our ambition.

[Christopher Winston Uhde, Analyst]

Great. Great. And then the last high-level question would be, so obviously, I think you've had a fair amount of bad luck on a couple of recent events. But are there any lessons that can be learned from BD so far? Or...

[Guido Oelkers, CEO & President]

Yes. I mean, that's the reason why I said, it's about -- in an earlier discussion, I mentioned it's obviously much easier, more comfortable to be the Monday morning quarterback, yes? And let's say, so basically, here, we looked at this, and we ask -- I mean, it's clear that we can be better.With Doptelet, for instance, now in particular, could we have seen this? Could we have -- not sure, to be honest. We are still holding horses because we're doing the analysis. For us, it's -- if you make mistakes, you will admit them and you say, "Hey, we made a mistake."At this juncture, I can't really see this. We are managing the uncertainty with FDA advising us on the design. We had 2 of the early thought leaders in the field being a week prior to readout absolutely optimistic that we have a positive readout and being equally disappointed like us.So not totally sure. But I mean, we will look into this. I mean we clearly have to become better. I mean -- but that's notwithstanding any of the recent events. And so we will sharpen this. I mean, obviously, to be honest, Ravi is here also for a reason, yes? So we think that we can, overall, on the R&D management get better, and then basically, can we be a bit better in the evaluation? Sure.But frankly, when I look at the data points we have done, the Doptelet transaction was the data that we had at the time. Again, absolutely. Because what we knew at the time about the product pointed us into a winner. And yet, let's say, when you think all the top line guidance over the purchase price that we paid, it will be still a very good deal because everything that is below 2x peak sales is, in my books, still a good deal.So I mean, we will be self-critical and we will self-reflect, and we'll try to improve. But I'm not yet at the point that I can point we had a systemic issue. I mean, unfortunately, when you have a couple of misses and you think, okay, you could've left this out, but I think our conclusion is that we need a more short-term goal. We need to get better in managing them and better in selecting them, and that accounts for probably most companies. And we have some ideas, but I don't think it would -- those events, we can exclude completely. I think this is part -- and part of our business model that you will have -- you will gain some and you will lose some.

[Operator]

Our next question comes from Peter Sehested from Handelsbanken.

[Peter Sehested, Research Analyst]

I just have a couple. The first one with respect to your reexamination of Gamifant at the EMA. Have you submitted additional data to sort of support or improve your chances?And secondly, in terms of head count, how much have you -- I mean, you cited the current numbers in your report, that's okay. But how much have you increased it in order to build up Russia, Japan and China?And furthermore, could you give us an indication of how much further we should expect your head count to increase in 2021?

[Guido Oelkers, CEO & President]

Thank you, Peter. We -- let's say, we have resubmitted, let's say, with regard to Gamifant, and we were not able to provide new evidence, but repetitioned the evidence that the main arguments become clearer. I think I will refer in a few moments to Ravi, and he can tell you about his own assessment of how we're going. But the way this typically works is when you resubmit, you have a co-repertoire and the repertoire, one who is in favor and one is who is more conservative, and that's what happened to us here. And then the question is, your -- what is the opportunity, and I'm going to let Ravi talked to this.The -- regarding the FTE situation, the buildup in the emerging markets at this stage because these are, in a way, preoperational activities is below a 40 head count. So it is not the main driver yet. As these companies obviously get closer to the launch, and then we will build up. But the good news is, like the first launch in Q1 will be Elocta in Russia.And there the situation is that luckily we don't need to have hundreds of key account managers. It's a more, I would say, incremental buildup that we have. And with regard to the full launch program next year as well as the further indication development, I think we would provide you with some ideas at a later stage. I think we would like to explain a little bit more the opportunity related to our products during the Capital Markets Day in December. And then obviously, at Q1 -- sorry, when we, let's say, disclose Q4 and our guidance, we will then talk about, let's say, our assumptions on head count and also on sales and earnings.Ravi, maybe you can talk about the opportunities that you see in at -- with EMA and how you view this.

[Ravi Madduri Rao, Head of Research & Development]

So we -- as Guido mentioned, I mean, the reexamination process does not permit you to submit any new data, but really to reposition some of your arguments. And there were 4 or 5 fundamental areas that the original application was declined, and we've tried to address those as best we can. And we think we've done a good job based on the little that we have.The process is ongoing now. We've been allocated repertoire and a co-repertoire. We're beginning to go into the -- gather reports from them. The calendar has us on the CHMP week of commencing the 9th, 10th of November. So we would expect the committee to be discussing this reexamination then. Between now and then, we have an opportunity to have a discussion with external experts on these scientific value of Gamifant, which we, of course, still believe represents a significant intervention for patients who fail conventional therapy in Europe.So that's the status. And we should have something of an update in the next few weeks. But I'll remind you that, obviously, the original procedure had a very negative vote against approval. So we are trying to address some really fundamental concerns that the CHMP put in front of us. And we'll try our best to kind of reverse some of those considerations.

[Guido Oelkers, CEO & President]

Yes. So also, I mean -- Yes. I mean the reason why we said negative -- sorry, just to add, was that basically, they didn't look at as much at the utility of the product as some of the formalities that we did -- that were not complied with under Novimmune. And that basically was drawn as a main argument. But the hope, obviously, we can -- we've opened the discussion at least. But it's an uncertain outcome. Yes.Sorry, Peter.

[Peter Sehested, Research Analyst]

Okay. And just before I hop back into the queue, whether Henrik could just add some flavor on the comment in the report about ceased royalty applications that positively impacts the gross margin? Is that the plan, the reduction in -- from 17% to 12% to Biogen?

[Henrik Stenqvist, Chief Financial Officer]

You mean the improvement in gross margin? Was that the question?

[Peter Sehested, Research Analyst]

Yes. Yes, it is.

[Henrik Stenqvist, Chief Financial Officer]

No, that is not related to the Sanofi royalties. What we referred to in the report is that we have now settled the final debt to Sanofi for Alprolix. Elocta was settled before. However, that doesn't impact the gross margin. It impacts only the cash flow.So then your next question would be, what do we mean by the ceased royalty obligation? And that relates mainly to Kineret.

[Operator]

Our next question comes from Peter Östling from Pareto Securities.

[Peter Östling, Life Science Analyst of Equity Research]

Okay. A couple of ones. First, on Orfadin. You mentioned for one of the reasons for the decline price pressure from generics, but I don't know if I -- isn't there only one approved generic currently in the market? And with that, the price pressure usually isn't that large. Could you just comment on that, please?

[Guido Oelkers, CEO & President]

Yes. We have now substituted. We have 3 in the U.S. from what I understand. And one of them is at least substitutional, so that basically has now accelerated price pressure. But the main driver of what we call Specialty Care of the decline is just the fact that we just don't have certain products anymore.And the Orfadin story is obviously declining, let's say, but it is not the main event. Let's say, it is declining below that 45% at CER. So -- but it is price-driven. We have -- we are holding on quite well -- so it's round 30%. We are holding on quite well in terms of patients and units because we want to defend our position there, but there is a primary price pressure because of this.

[Peter Östling, Life Science Analyst of Equity Research]

Okay. So these 2 additional generics, did they enter the market just recently, the recent week? Because when looking at official data, there is only one generic approved.

[Guido Oelkers, CEO & President]

No, let's say, from what I understand, actually, they have been on the market for a while. Peter, we will provide you with the details. I want to make -- yes, I think we'll come back to you later today.

[Peter Östling, Life Science Analyst of Equity Research]

Okay. The next thing is looking at the gross margin, which was very good and high in the quarter. And you mentioned it was due to product mix. Since the Haematology business performed much better than the Immunology business, there it implies that there are significantly lower gross margin for the Immunology products. Can you just describe the dynamics in gross margin between the 2 franchises, please?

[Guido Oelkers, CEO & President]

Obviously, it depends -- sorry, Henrik, why don't you start it off, yes?

[Henrik Stenqvist, Chief Financial Officer]

It's not like all Haematology products or all Immunology products have the same gross margin. So there are differences between the category, but there is also one other important element here, and that is the much lower sales of the Specialty Care business, which then impacts gross margin positive -- impacts the mix positively.

[Peter Östling, Life Science Analyst of Equity Research]

Okay. Even if that is only just a small portion of the total sale, it impacts that much anyway, a couple of percentage points?

[Henrik Stenqvist, Chief Financial Officer]

But the drop is significant, as you can see in the quarter.

[Peter Östling, Life Science Analyst of Equity Research]

Yes, yes. Okay, okay. And then 2 quick ones. Other operating expenses, minus 5 -- SEK 54 million, what is that?

[Henrik Stenqvist, Chief Financial Officer]

It is operating FX differences from payables and receivables.

[Peter Östling, Life Science Analyst of Equity Research]

Okay. Great. And then my last, manufacturing revenue, it's the third quarter in a row with relatively high revenues. Is this a new normal? Or is it just a phase of high deliveries and the expected significant drop in Q4 and Q1. Could you just comment on that?

[Henrik Stenqvist, Chief Financial Officer]

This is mainly a phasing question. But it's -- we are not the underlying performer here. That is Pfizer.

[Peter Östling, Life Science Analyst of Equity Research]

Yes. But they have to give you something in order to plan for them to actually...

[Henrik Stenqvist, Chief Financial Officer]

Yes. Yes, but we are not expecting any continued growth when it comes to ReFacto.

[Operator]

And our final question comes from the line of Viktor Sundberg from ABG.

[Viktor Sundberg, Research Analyst]

So first, I'm a bit confused on the big discrepancy in growth year-over-year on Elocta and Alprolix. Before they kind of moved hand-in-hand with regards to growth, even in the last quarter, Elocta also affected factor consumption. But in this quarter, Alprolix is back to a more normal growth trajectory, as I can see, but Elocta is still having a negative growth. So why is that? I mean why has COVID affected Elocta but not Alprolix in the same way? Can you just elaborate on that?

[Guido Oelkers, CEO & President]

Yes, sure. The Alprolix number is not affected as much because when you think about it, Alprolix is dosed once a week or once every other week. And that means that the patient would not necessarily saved whilst Elocta is dosed 3x to 2x times a week. And therefore, you -- let's say, patients, then sometimes think that they can economize, yes, and that is the main drivers.

[Viktor Sundberg, Research Analyst]

Yes. Okay. And regarding Elocta, you also show that you're gaining 19% in new patients in EU5, but still consumption is down, as you write there. I'm just speculating here. But what do you consider to be, for example, a switch to Hemlibra and the other competing products?I mean, many doctors probably could recommend Hemlibra when you don't do any activities, and maybe recommend Elocta when you're going to play football or running and so on. So maybe if you could explain the dynamics here a bit?

[Guido Oelkers, CEO & President]

Yes, I mean, basically, the -- actually, Hemlibra, when you look at this now, Q3 this year versus Q3 last year has not really been the main driver or effect on our economic performance. Obviously, we now see in effect that Hemlibra has taken patients, but we still have gained many more patients. And therefore, the convenience, obviously, of a, let's say, up to subcutaneous once a month or once a week is a factor, yes? But there are also patients who want to have -- they want to take 1 product as opposed to 2 and want to have an active life, or the data for younger kids clearly speaks for Elocta and also in days for -- like this, for compromised patients, we think that there's a clear place for product like Elocta.So we think there is a -- the market is going to break out. There was a recent survey at the, let's say, at the EAHAD conference with the KOLs. And there, basically, there was a clear vote on for EHL products as a first-line therapy.But I'm notwithstanding this. I mean, we have to acknowledge that obviously Roche has made significant progress and has taken share. But in patients, at least, we can say that we have not lost shares. I mean the this consumption topic is obviously an inconvenience, yes. I mean I wish we wouldn't have it, but it is not a question of the competitiveness. That -- I think this was my point.

[Viktor Sundberg, Research Analyst]

Okay. And then do you foresee this negative effect on patient consumption to continue here into Q4? And how should you think, given that pandemic is on an upward trend in Europe?And also, if you look maybe into 2021, are you still confident that we will see patient growth and growth in revenues for Elocta going forward here, given the increased competition?

[Guido Oelkers, CEO & President]

Yes, I think it will be -- we are -- I mean, our assumption is that we see patient growth in Q4 with Elocta, and basically, the -- and we think that we are -- we can be confident about this.Then now moving into next year, I think this guidance, we would rather give you at a later stage. But we have good opportunities to expand in markets where we are underpenetrated and now the launch then in Russia.I mean, we should be -- obviously, competition is more rampant now. You have more EHRs. You have, let's say, you have, obviously, a new bispecific agent now. So we have to be more vigilant and we are ready for this. So let's say that -- so I think we can make still proper progress on a patient basis. And I think the consumption topic should wash out over time, yes.

[Viktor Sundberg, Research Analyst]

And just a final question here. You noted that in Germany, you see price cuts. Could you elaborate a bit more on the dynamics behind that?

[Guido Oelkers, CEO & President]

Yes. I think, to be honest, there are currently discussions ongoing with the sick funds, let's say, i.e., it is a little bit premature. I mean, let's say, to speculate what effect it will have.In Germany, we have made significant progress this year in terms of volume growth. If there is an adjustment, there will be an offset, let's say, to -- for a product like Elocta to gain more share. So I think it is still -- there's still an open debate, and we can update you let's say, on this a little bit because there are 2 different steps of discussion still ongoing.So while the expectation is that prices are not increasing, we can also now not make a huge warning. I mean, I just wanted to give you a view here. Our German business is a little bit less than 20% of our total business. So yes, and then there is an offset mechanism in volume. So to what degree this will have now a major effect on Elocta, I think will -- I think it will have to be seen, yes. So it's -- I think it's actually inconceivable that it will be the main driver, but it could obviously have a singular effect here.Thank you. And I think we like to thank you for your interest. And what I would propose is I'm sure there are maybe one or the other question, that you book maybe with Paula, let's say, some schedule that we can have individual sessions thereafter.Thank you so much for your interest here.

[Operator]

Thank you. This now concludes our presentation. Thank you all for attending. You may now disconnect your lines.