Galderma Group AG (GALD) Earnings Call Transcript

Good day, and thank you for standing by. Welcome to Galderma's conference call. [Operator Instructions] Please be advised today's conference is being recorded. I'd now like to hand the conference over to Emil Ivanov, Head of Strategy, Investor Relations and ESG to introduce the call. Emil, please go ahead.

Thank you. Welcome to Galderma's Third Quarter 2026 Trading Update Call. The press release was published today at 7:00 a.m. Central European Time and can be consulted on our corporate website at any time. Today's presentation slides as well as a recording of the webcast will be made available on our website after the call. Please be advised that today's presentation contains forward-looking statements, which should be treated with the appropriate level of caution as detailed on the slide. Let's now introduce today's webcast Dr. Flemming Ornskov, CEO of Galderma Group; and Luigi La Corte, CFO, will provide performance updates for the first 9 months of the year and discuss the outlook for the full year. After the presentation, Flemming and Luigi will be available to answer questions from financial analysts before Flemming provides his final remarks to close the webcast. With this, I would like to invite Flemming to start with Galderma highlights for the third quarter of 2026. Flemming go to you.

Thank you, Emil. Good morning, good afternoon and welcome to Galderma's Third Quarter 2026 Trading Update webcast. It's a true pleasure to be here today to discuss Galderma's continued momentum across the business and the strength of our proven integrated dermatology strategy. As usual, none of this would be possible without the dedication of our teams around the world. With execution against our 3 strategic pillars, we are driving growth across the core portfolio, complemented by innovation and further increasing penetration in fast-growing markets. We also continue to take steps to expand our portfolio and further strengthen our dermatology platform. First, organically, with progress of our innovative pipeline, we're starting new indications for nemolizumab, progressing our biosimilar or clinical assets and developing new innovation for cetaphil and for elastin, just to name a few examples. Second, we continue to explore external innovation that would benefit from the globally scaled integrated dental platform that we have built. Our recently announced agreement to acquire ZO Skin Health is a prime exam. It represents a highly strategic and financially attractive addition to Galderma's business. As a leading science-based precision endorsed skin care brand ZO Skin Health, is a very strong strategic fit. Its portfolio and global presence complementary to Elastin would enable us to expand our dermatological skin care offering in the attractive, fast-growing position to spend skin care segment. CEO's daily regimen and targeted prevent and correct portfolio complements Elastin offering more focused on pure procedure skin care. CEO's broad commercial footprint also complements the last CEO covers a high breadth of accounts extending Galderma's existing reach for both elastin and injectable static. ZO also brings a strong leadership position in the U.S. and in international markets, including Canada, Japan, the U.K. and the Nordics. Galderma strategically positioned to unlock value with ZO. Our integrated dermatology platform provides complementary synergies and scale. We can leverage our proven tack record of supporting innovative science-led brands with research and development, skin care education, commercial capabilities and geographic expansion. It also represents an attractive financial profile. With appropriate growth investments, we aim to return ZO to a growth trajectory as of the second year. We intend to follow the successful blueprint of our Elastin acquisition protecting CEO's fundamentals while integrating it into our global dermatology platform. This represents a strong proof of our value creation capabilities. Luis will provide more details later. For the first 9 months of the year, Galderma delivered record net sales of USD 4.765 billion. Performance was particularly strong in therapeutic dermatology across both Nemluvio and the mature portfolio as well as in dermatological skin care and in neuromodulators Net sales year-on-year growth was 25.1% at constant currency with broad-based double-digit growth across the portfolio. We continue to outperform the market in each product category supported by resilient market conditions that were ahead of expectations. We continue to benefit from sustained consumer demand and preference, particularly through our premium positions in injectable aesthetics and in deontological skin care. We are raising full year guidance on net sales up to 22.5% to 23.5% growth year-on-year at constant currency. We are also confirming our core EBITDA margin guidance for the full year of approximately 26% at constant currency. Let's now look at performance highlights for the third quarter by product category. In injectable aesthetics, we continue to build on our strong trajectory driving expansion across the portfolio while reinforcing our leadership in science, in education and in commercial execution. On the portfolio expansion front, we continue to strengthen our leading positions in neuromodulators with wealth ideas. In the first launch market, the majority of patients continue to be either new to the category or switching from competitors. We also further broadening our geographic footprint with regulatory filings ongoing in additional territories. In the U.S. following the FDA's complete response letter in June and a recent Type A meeting with them, we are now targeting a resubmission in the first quarter of 2027, subject to further regulatory feedback. We're strengthening our then augmentation offering with the launch of Reston Shape in Europe, together with new proprietary injection techniques. At the same time, we continue the geographic expansion of Sculptor with additional launches in Southeast Asia. Longside this expansion, we continue to execute with a strong focus on our leadership in both science and education. Positive Phase III data for recline volume in tempo hollowing support our plans to expand in China while further strengthening the clinical evidence behind the Restel portfolio. This year also marks 30 years of Restylane, providing an opportunity to reinforce its long-standing track record and its proven safety profile. And we continue to expand the evidence supporting our portfolio in skin quality aligned with World Mineola on October 18 we highlighted interim investigator-initiated trial results showing progressive improvements in hydration, skin barrier function and skin quality with Restylane skin booster and contra in menopausal win. In dermatological skincare, we significantly outperformed the market, driven by strong execution across our flagship brands. For Cedar fill, we maintain our focus on international markets and disciplined execution against 3 fundamentals: strong core brand equity anchored in superior signs for sensitive skin and dermatologist reclamation, prioritizing the core portfolio and driving locally relevant activation. The strength of our established portfolio remains a key driver of performance. While we continue to support innovation, more than 60% of Cedar Fuel's global growth in the first 9 months came from the core portfolio. This was supported by locally tailored campaigns with particularly strong activation in fast-growing international markets. With elastin, we remain focused on the attractive peri procedure opportunity. Where we are sold, the brand remains the #1 preferred option among physicians to spend Skin Care brands overall and for procedure period. In addition, brand familiarity among health care professionals grew 25% compared to last year. We also continue to innovate with the U.S. launch of restorative eye complex with THX technology. In Therapeutic Dermatology Nemluvia is approaching leadership in Perrigo Nodal in the U.S. and continue to ramp up in atopic dermatitis. In the U.S., Nemluvia shows healthy and growing underlying demand supported by increasing prescriber confidence and disciplined commercial execution. The majority of patients continue to be new to advance therapies across both indications. In Pericola our rolling 6-week market share is trending at approximately 45% of paid new patient starts and 37% of total paid prescriptions. In atopic dermatitis, we're trending at approximately 9% and 5%, respectively. We also continue to broaden Eluvia's global footprint with approvals across both indications in more than 40 countries and further reviews are ongoing. Alongside this strong commercial momentum, we continue to invest in Eluvia's future growth drivers. New 3-year Arcadia long-term extension data reinforced its durable efficacy and favorable tolerability profile in atopic dermatitis. Lemlumio is the first therapy to demonstrate freedom. Yes, freedom of itch, further reinforcing its recognized differentiation in Italy. The data also supports positioning of a strong skin clearance profile with sustained improvement through 3 years. Recently published patient reported outcomes from a Phase II study of nemolizumab in children aged 2 to 11 with moderate to severe atopic dermatitin show meaningful reductions in itch severity, showed better sleep and showed improved quality of life maintained for a year. Over the next month, we are planning to file a U.S. submission in pediatric dermatitis in the U.S. following clinically meaningful late-breaking data that we presented in the first quarter. In addition, we continue to explore opportunities across additional potential indications. With that, I'm pleased to hand over to Luigi to provide more details on our performance.

Thank you, Flemming, and good morning, good afternoon, everyone. It's truly a pleasure to have the opportunity to comment and I should say, celebrate what was a very strong set of results in the third quarter and also a number of important milestones that the group achieved Among these, of course, the inclusion in the Swiss SMI index and the upgrade of our credit rating by Standard & Poor's to BBB+ with a stable outlook, which they've reiterated recently and which clearly recognizes our ever stronger financial profile. With regards to our trading performance, momentum clearly remained very strong for the first 9 months. Revenue growth of 25.1% at constant currency which continue to be predominantly driven by volume, complemented by favorable mix but nice to continue to see also net year-on-year price being positive, excluding, of course, the expected gross to net erosion on Nuvo which continues, however, to be below expectations. Growth was broad-based with double-digit growth across all product categories and in most of our top 10 markets. International, as you see from the slide, grew 18% at constant currency, with double-digit growth in all areas. U.S. up 34.7%, clearly driven by the continued strong ramp-up of Neo but with positive sales growth across all categories and above 10% also excluding Eluvia. Q3 year-on-year net sales growth of 26% was supported by continued outperformance of our portfolio across all categories and resilient market conditions that were ahead of expectations. Looking at each of the categories in a bit more detail, starting with injectable aesthetics, Net sales were up 13.2%. We continue to outpace the market across geographies in both neuromodulators and fillers and by stimulators. As we had anticipated a already of Q2 revenue growth for Neuromod laters was particularly strong in the third quarter, benefiting also from the unwind of phasing effects from Q2 and offsetting somewhat lower growth in the quarter for fillers and by stimulators which reflects for this category, a high base in the second half of 2025. Overall, in the first 9 months of the year, neuromodulators delivered sales growth of 16.9%, with this for continuing to grow double digits across all key markets, including those where we've launched relies which continues to ramp up very nicely and is now approved across 37 markets. Further on biostimulators achieved growth in the first 9 months of 8.5%. And despite continuing to see some softness in some geographies. Sculptra, meanwhile, continued to grow double digits, both in U.S. and international despite a growing comparable base in the second half of 2025. Dermatological skin care was up -- sales were up 16.2% at constant currency. We continue to maintain our strong growth momentum in driven by our flagship brands and continue to outpace the market. In both the U.S. and international consumer demand remains supportive with interest in the dermatological skin care really providing resilience to the category, which remains underpenetrated relative to other parts of the broader skin care market in most key geographies. E-commerce remains the fastest-growing channel globally and represents the large majority of our revenue in Asia, supporting very strong growth of Cetaphil in that region and across the international markets. Alaskan delivered double-digit growth in both geographies with continued penetration in the U.S. and continued geographic expansion. And we really see the product continue to benefit from strong growth of the physician dispense market. And finally, on Therapeutic Dermatology. Sales were up 64.4% at constant currency, obviously reflecting the very, very strong growth of emoluvial. The movie sales were USD 735 million in the first 9 months and just over $300 million in Q3 with a quarter-on-quarter increase of 22%. And with atopic dermatitis contributing more than Perrigo nodularis. We continue to make progress in penetrating both the commercial and Medicare parts of the market while maintaining disciplined execution and our ongoing negotiations with payers in Medicare plans. And of course, while the U.S. continues to represent the majority of the sales for Nenovio, it does continue to ramp up ahead of expectations also in our international markets, and we are preparing for the launch of the product in Brazil. Mature therapeutic dermatology portfolio was up 9.2% and did continue to show positive growth in the third quarter with lower-than-expected impact from generic countries. And also showing good growth of deferring globally and especially in the U.S., which was driven by the strong launch performance of the product post the OTCs, which earlier this year. So overall, very strong momentum across all of the categories. And thanks to that stronger-than-anticipated trajectory when we look at the full year outlook, and thanks to that, the strong momentum, particularly on therapeutic dermatology, dermatological cancer and neuromodulators. We now expect year-on-year net sales growth of Flemming said 22% to 23.5% at constant currency for full year 2026, up from 19% to 21% previously. Growth rate in the fourth quarter clearly is expected to reflect a significant step-up in the movie run rate in the fourth quarter as well as transition to structurally lower channel inventory levels in Brazil, our third largest market, driven by the expected implementation of tax reform in the country as of January 2027. In injectable aesthetics, we continue to expect full year growth of 12% to 13% at constant currency, likely in the upper half of that range, assuming a continued supportive market environment, and within this category, fillers and biosimulators growth for the full year is expected to be broadly in line with year-to-date rate, potentially slightly below, again, depending on market conditions. In Dermatological Skin care momentum remained strong and performance continues to be ahead of expectations. Although as already set out at the start of the year, we expect some moderation in the fourth quarter against the high comparative base. Therapeutic Dermatology and Neluvioclearly is well on track to break into blockbuster territory in terms of global net sales for the full year. While we expect the mature portfolio to show mid-single-digit growth at constant currency, thanks to the slower erosion that we've seen in the first part of the year, particularly in international markets. On profitability, we clearly confirm our core EBITDA margin guidance of approximately 26% at constant currency. As we continue to invest behind the very significant growth opportunities that we see ahead. And clearly, our guidance excludes any potential contribution from the acquisition of ZO Skin Health which is expected to close in the fourth quarter of '26 or early '27 subject to regulatory clearance. And of course, as usual, you will find our highlights in terms of foreign exchange exposure impact on revenue and EBITDA in the appendix. A few words from me on the rosin Health acquisition. Clearly, as Flemming has said, from a strategic and financial point of view, a great opportunity for Galderma, we expect, as I said, for this to close in Q4 of the year, early next. The transaction will be financed through existing cash reserves of approximately USD 700 million and bank financing of USD 800 million. In terms of financial profile, as you know, the business reported net sales of approximately USD 330 million in the last 12 months as of June 26. We do plan to increase commercial investment to strengthen the foundation for renewed growth as of 2028 on profitability, we expect the acquisition to be slightly dilutive to core EBITDA margin in '26 -- '27 sorry, and achieve broadly margins comparable with the group average already as of 2028 onwards and is expected to be core EPS neutral in 2027. We estimate approximately USD 50 million to USD 60 million of one-off and integration costs over the first 2 years of the acquisition. But most importantly, beyond the terms of the transaction, what we're really excited about is that acquiring a great asset like TheraSkin Health creates an additional long-term growth driver for Galderma Group whilst maintaining financial discipline. And on that, we thought important following this acquisition to confirm that our capital allocation priorities remain unchanged. With disciplined investment in growth at the core. Our first priority continues to be investing behind organic growth, including our commercial capabilities, R&D and manufacturing capacity to support the significant growth opportunities we see across the portfolio. We will, alongside this, continue to explore selective licensing and business development opportunities. Across all 3 product categories, looking for opportunities that can broaden our portfolio and further strengthen our long-term growth profile. And we will, together with this, continue to further drive shareholder returns through progressive dividends, on which our policy remains unchanged and where appropriate, we'll also consider share repurchases. We will do this -- all this with discipline in our investment decisions and maintain a strong balance sheet. And maintain and reiterate our commitment to maintaining a solid investment credit rating. Finally, before closing, we remain confident in our ability to continue to drive broad-based growth and outpace the market across all product categories. This underpins our mid-term ambition with extended midterm guidance to be communicated early next year, as already mentioned at the time of our 2026 full year financial results call.

Thank you, Luigi. Thank you for Flemming for the introductory remarks. This concludes the first section of our webcast. Before final remarks by Flemming, I would like to hand back to the operator today, Sara to open the call for analyst questions. [Operator Instructions] With that, over to you, if you could please open the line.

[Operator Instructions] We will now start with our first question. This is from James Gordon from Barclays.

James Gordon from Barclays. I'll limit it to one, which is about Eluvia, so now let Q3 performance was a bit stronger than I might have expected the market have expected. If we just looked at the IQVIA data, which looks quite flat, and it looks like there's some share loss to lease Edlis, if he looks at the new-to-brand prescriptions. But the sales are up about 20% sequentially. So what we not really get right. Was it just that the channels are purely capturing with IQVIA where you're actually growing more quickly, and that's what we missed -- or is there some net price benefit? It looks like maybe there have to be a sequential teams price benefit? And could there be anything to do with 340B changes, which I noted a number of other derma products for other companies this quarter. Or is it starting to ramp? So is the progression from Q2 to Q3 a clean number we could extrapolate to Q4 as well. And you could still do it $1 billion just in the U.S. this year?

Well thanks a lot, James. Yes, IQVIA is a great source of data, but not perfect. It does not cover all the channels. And there are pockets of channels where we are very strong that they don't seem to cover. There's also facts about that our prescription paid prescriptions. There are also various programs that, for instance, Apis has that record nonpaid prescriptions. So there are a number of things to take into account. I think the numbers we're giving you are the real numbers, and we continue to perform strongly, but it is true. That Amplus is particularly putting a lot of resources into DCC. They're performing well. But I think if I look both at our commercial plan, performance and I look at our Medicare performance even though we had less coverage than many others, we continue to perform very well. And I think being a one in 6 or 7 entrant I think we've broken many records, and we'll see whether we hit USD 1 billion in the U.S., we certainly will hit USD 1 billion globally.

Thank you. We will now move to our next question. This is from Matthew Weston from UBS.

My question is about the ZO skin acquisition. So if I think back to when you acquired Alastin, I think you've doubled revenue in either 3 or 4 years with that franchise. I realize that ZO skin franchise is significantly great bigger in terms of total revenue at the beginning. But I was interested whether or not you felt it was also possible to drive a similar amount of growth over a similar time frame with that brand, and that's how we should think about modeling the deal in the midterm.

Yes. I will let Luigi also add. But I was intimately involved in the elastin acquisition and the integration. It does take, unfortunately, a bit of time. we will, first of all, have the deal to close. Secondly, we will need to align the 2 field forces. We will look at accounts. We'll look at the portfolio. It is quite clear that it's super complementary. We have refocused elastin where we have both more or less rebranded it. We reformulated with at plus, and we position it to a strong preference in per procedural care. And I think we have grown to, I think, #4 in that category in the U.S. with phenomenal growth. I think we more than doubled. I almost would say tripled the business, but don't set your expectation that we will be able to do the same with USD 330 million in a very short period of time. It will take some time. the brand could need some more investment. There are other things we want to change. So once the deal is closed, we'll sit down with the team, we'll figure out where it is, what we can do, what the opportunities are. we wouldn't have bought it if we were not confident that it will be a growth contributor to us, but it may take some time. And I think realistically, 2027 will be bit of a year of a reset. And hopefully, in 2028, we can start seeing some of those benefits Luigi, anything you want to add?

No, I'll just add. We really are excited and also because of the complementary of the portfolio. The only thing I would add is that this is a very complementary and synergistic with a asset in terms of both channel and geographies. So we expect that -- and the reason we're excited about the acquisition is that not only do we will expect to grow the business, but we expect this acquisition to potentially help us continue to sustain elastin growth in the future as well, thanks to that complementarity.

Can I just have a quick follow-up, if I can. So -- if I think of the outperformance of NiMo into '27, that would probably some of that would be falling through to the bottom line. You obviously now commented around an investment year behind ZO skin, should we think of that as being a drag on '27 margins versus consensus? Or we should think of the outperformance of base Galderma funding the reinvestment in skin.

Well, I think in terms of margin for next year, of course, we'll provide guidance in early 2027. We remain committed to that sort of midterm target that we had set out that implied the level of margin accretion for next year. I think we've said and of course, yes, the business is growing at a very healthy rate, and that momentum will continue. We do have to also bear in mind, as we said, one, a little bit of dilutive effect from the acquisition subject obviously to we close as we do intend to invest behind it. And two, there are new tariffs coming in, right, since September Section 232 tariffs are now relevant for imruvio. I mean we do have inventory cover to middle of next year. There will be a little bit of headwind from that. It's manageable. We're working through the guidance, which has been provided most recently. Again, we will provide specific comments we will deliver the -- we are still aiming to deliver on that margin accretion target that we set out. But those are the pluses and minuses, Matthew.

Will now take our next question. This is from Benjamin Jackson from Jefferies.

Great. Thank you for the question. Firstly, I just wanted to ask on the level of confidence heading into the Alfonse submission post this meeting with the FDA. I appreciate you've not had the written comments, but yet. But are you coming away feeling better about around the analytical methods, which perhaps is the stickier part of the conversation. And I guess this time last year, you were very much talking about 1 big issue that had to be fixed but you still need to work on? Where are you relative to that? Is this somewhere where you're much more confident heading into this cycle?

Yes. Of course, as the Scandinavian I love to spend time in Scandinavia. So also with Luigi, we've had trip to Okala, which is particularly beautiful in summer. I would say we'll now see how beautiful it is in winter because it probably will warrant a few more trips. Yes, we are very busy. I'm incredibly proud of the team. First of all, they keep adding countries where they have been approved for relief. So they really know how to manufacture and we've had no stock-outs or anything. So I'm really proud of the team. The U.S. has set a very high bar, I think that we have really worked very hard on the CMC issue. So it's down to I would say 1 or 2. We are still waiting for the written comments by the FDA, but I think the team has provided good solutions. Of course, they will be subject to review. And then on the getting a up to the level that the FDA is inspecting so that we can sustain another pre-license inspection, which is probably more likely. I think the team also with external support, also people that know what the FDA is looking for is doing a really good job. I wish I could guarantee there is no guarantees. I think we have a very serious competitor that also seems to have some of the similar questions. I can only state the team has done a phenomenal job. They have reduced a number of open topics. We have a very productive Type A meeting with the FDA. We're waiting for written feedback. And I think I've seen that firsthand the significant upgrading including some new buildings that is going up in Upsolesa, we can meet the highest standards. So I feel optimistic. But of course, there's no guarantees. We're working really hard. We said it will probably be in the first quarter of next year. We know every week, every month count. But we're very busy. As you know, we also are trying to file the pediatric data for Nebluvia before year-end, and we have a few other highlights that we need to get done. So I feel confident also that the regulatory team will meet that guideline.

We will now take our next question. This is from Shyam Kotadia from Goldman Sachs.

My question is on the Ipsen arbitration that you called out in the press release. So I just wanted to get some clarity on that. So is this all to do with the commercial rights for IPN 200 or other elements you're seeking arbitration on as well? And what does this therefore mean in terms of a potential partnership for the toxin in the event you are successful, the commercial partnership on set and Stern in the contract. Or is this something you will need to negotiate with Ipsen following the outcome? And how long do you anticipate this could take?

Yes. First of all, I imagine I couldn't recall the number you were saying, but it's commonly known as the land, the long-acting neurotoxin. But I just wanted to say that this is just pertaining to the commercial part of this because we have and it does not pertain to any other products, while sides, Dysport and others. We have exclusive rights to commercialization in quite a number of countries around the world for the aesthetic indications for those, and that's what we continue to reinforce it may feel a little bit strength from the outside. But the issue is that the way these many agreements were written, if the 2 parties have issues of discussion, they have to go to arbitration. It also means you have to have a lot of patients. I think the average time is 2 years, maybe 2-plus years. So I think we have a team that will take care of that. We'll see what the outcome is, but it does not affect our commercialization of any of the existing marketing product. This is about the long-acting neurotoxin.

And maybe I'll just add along, at the same time, we continue to drive the full portfolio. I think I've mentioned already in my remarks that we're very excited that modular portfolio is growing strongly. We continue to see double-digit growth of Dysport all territories where alpines is launched and of course, very happy with the continued ramp-up of Reline as well.