Ipsen S.A. (IPN) Earnings Call Transcript

Hello, and welcome to Ipsen's Year-to-Date Sales Conference Call and Webcast. The host for today is David Loew, Chief Executive of Ipsen. [Operator Instructions] With that, I will hand you over to David. Please go ahead.

Thank you, operator. Good afternoon or good morning, everyone. I'm delighted to welcome you to our year-to-date sales update. I'm David Loew, Chief Executive Officer of Ipsen, and it's great to have the opportunity today to run through our performance in the first 9 months of the year with you. Please note that this presentation is available on ipsen.com as we have just been signaled that there might be a small technical issue with the webcast. Please turn to Slide 2. This is our safe harbor statement, which outlines the routine risks and uncertainties contained within this presentation. Also any commentary on growth, you will hear today, will be based on constant exchange rates. Please turn to Slide 3. I will take you through our brief presentation, after which I will be joined for the question-and-answer session by our CFO, Aymeric Le Chatelier. Please turn to Slide 4. The headlines today illustrates the strategic progress we are making. Sales in the first 9 months of the year increased by 9.5% to EUR 2.2 billion, while in the third quarter, we delivered sales growth of 7.6% to EUR 775 million. I'm particularly delighted by the success of our growth platform, about which I'll talk more in a moment. Turning to the pipeline. While we look forward to Phase III oncology data readouts before the end of the year for Cabometyx and Onivyde, we have noted the recent postponement of the FDAs Advisory Committee meeting on palovarotene in FOP. We made further progress this summer with our external innovation strategy, closing the agreement to acquire Epizyme in August, while signing a strategic partnership with Marengo Therapeutics to advance 2 IO candidates into the clinic. Finally, we have today confirmed our guidance for the year with total sales growth anticipated to exceed 7% at constant exchange rates and a core operating margin above 36%. Please turn to Slide 5. As I mentioned a moment ago, sales in the first 9 months of the year increased by 9.5%, while in the third quarter, we delivered sales growth of 7.6%. Looking specifically at our growth platforms of Dysport, Decapeptyl, Cabometyx and Onivyde, they grew by 20.8% in the year-to-date and by 23.2% in the third quarter. Importantly, they continue to more than compensate for the decline in Somatuline sales. I'll now take you through the drivers of this performance. Please turn to Slide 6. We delivered a strong Dysport performance this year across both therapeutics and aesthetics. The market continues to be in robust growth and the 24.8% increase in sales was in line with the performance last year. Our sales growth in the first half of 2022, particularly in aesthetics, was limited somewhat from the measures to further increase our manufacturing capacity. We began to see the benefit of that improvement in Q3 with an underlying strong market growth and a supply catch-up from the first half, resulting in sales growth of 43.3%. The increase in Decapeptyl sales in the year-to-date was mainly driven by continued volume growth across all countries, while the recent relaxation of COVID lockdown rules in China boosted our performance in the third quarter. The growth in Cabometyx sales in the year-to-date was driven by the second-line monotherapy setting in renal cell carcinoma. The region in strongest growth was Rest of the World, where sales were up by 74.2% as we continue to launch and gain reimbursement in more markets. Our overall Cabometyx performance has been supported this year by the growing contribution from the first-line combination with nivolumab, including in France and Germany. The growth of Onivyde sales reflected a solid performance in the second-line pancreatic indication in the United States, while there were increased sales to our ex U.S. partner. As you know, our guidance this year assumes an increased level of competitive activity for Somatuline. Sales of Somatuline declined by 2.8% in the year-to-date and by around 10% in the third quarter, in line with this guidance. In North America, sales of Somatuline declined by 3.6% in the first 9 months of the year. I'm pleased that we grew our volumes and maintained overall market share. Pricing, however, has been adversely affected by the level of commercial rebates, and we have experienced some favorable movements in channel mix driven by the increased effect of 340B. We have also been impacted by lower wholesaler inventories this year. In Europe, the impact from generic competition has increased. This has most keenly been felt in the third quarter in Germany, France and Spain, and this trend in Europe is set to continue. Depending on the country, the impact has been on volume or pricing or a combination thereof, but we have seen solid volume growth in other markets this year, including in the U.K. and Italy. The Somatuline performance in the Rest of the World has been excellent, with strong volumes and sales growth in a number of markets, including Japan and Brazil. Please turn to Slide 8. Turning to the major elements of our pipeline, this familiar chart is building quite nicely, thanks to the progress of our external innovation strategy. Since we acquired Epizyme in August, we have added a number of trials across the 3 phases of clinical development. IPN60210, our oral SETD2 inhibitor, is in Phase I development in relapsed/refractory multiple myeloma and diffuse large B-cell lymphoma, while Tazverik in various combinations is in Phase II and Phase III development across a number of indications, including second-line follicular lymphoma. We have also had a number of near-term milestones for the pipeline, which I'll address on the next slide. Please turn to Slide 9. There are 2 major milestones for the pipeline before the year end. We anticipate the Phase III data readout for Cabometyx in combination with atezolizumab in second-line non-small cell lung cancer as well as a Phase III data readout for the Onivyde [indiscernible] in first-line pancreatic ductal adenocarcinoma. While the EMA decision on palovarotene's FOP is anticipated in the first half of next year, we note the recent postponement of the FDAs Advisory Committee meeting. Depending on the position of the FDA, a potential regulatory decision on palovarotene in the U.S. may occur in first half 2023. In addition to the Phase IIb data realized for mesdopetam in levodopa-induced dyskinesia, we expect to finish the first half of 2023 with a Phase III data readout for elafibranor in second-line primary biliary cholangitis. Please turn to Slide 10. Based on our strong performance in the year-to-date, we have confirmed our full year guidance that was upgraded at our last set of results. We continue to anticipate total sales growth at constant exchange rates to exceed 7% this year. The core operating margin is expected to be greater than 36% of total sales, including the impact from the Epizyme integration. We expect a slightly more favorable impact from currencies of around 6 percentage points based on the average level of exchange rates in September, meaning that we anticipate growing our top line by more than 13% in 2022. Please turn to Slide 11. I'd like to conclude our presentation with 4 key takeaways. We've delivered another strong sales performance in the period with our growth platforms, increasing double digits and more than compensating for the decline of Somatuline. The size of our pipeline is growing nicely, and we have a number of near-term milestones, including several Phase III clinical readouts. Our external innovation strategy is progressing well illustrated by the recent Epizyme and Marengo transactions, while our financial guidance for 2022 has been confirmed today. Please turn to Slide 12. Thanks for listening to our presentation. We now have time for your questions. Operator, over to you.

[Operator Instructions] And your questions comes from the line of Elizabeth Walton from Credit Suisse.

I have 2 topics. The first is palovarotene and given the unexpected delay of the advisory committee that we were expecting on Monday. Perhaps you can clarify what the additional clinical data is that the FDA has requested. Did any of your conversations with the agency ahead of the AdCom suggest that they required any additional data? Are these any different efficacy questions than those previously raised by the agency? And lastly, how long do you think it will take to supply that information to the FDA? And then the second topic I wanted to touch on was Somatuline. We're seeing that ADVANZ is continuing to launch in new geographies without any apparent supply issues. And we understand that ADVANZ is now taking a larger market share in Germany. Can you clarify if there are any additional markets you expect ADVANZ to enter either in 4Q or into 2023 and how we should think about the trajectory of European sales for Somatuline into 2023? And in the U.S., if we look at the recent IQVIA data, we see Cipla is continuing to gain market share. Can you help us think about how much of the decline we saw in the U.S. was due to Cipla's share taking versus the pricing pressures and the inventory changes you pointed towards?

Thank you, Elizabeth. So on your first question on palovarotene, so as the discussions with the FDA are, in fact, still ongoing, we can't really elaborate at this moment on the additional data requests. We are going to have another telephone conference with the FDA in the coming days. Was it anticipated? No, it was not anticipated, and it was also not previously raised. How long this is going to take will depend really on the data request. What we have understood so far, we think we can respond relatively quickly. But I don't want to run ahead of this because we still need to wait now for the next telephone conference that we're going to have with FDA to understand better the impact. On Somatuline, in terms of additional launches that you are going to see in Q4, we can see that Italy is launching now, ADVANZ. So they have entered in 2 sub-regions. And they -- this was anticipated. So we will see gradual launches. We hear that they're also thinking about submitting in the U.K. and Sweden, for example. So this is kind of what we have anticipated. So on the trajectory for Europe, we will, of course, see continued gradual erosion, which is a mix of volume and price. Please remember, the Rest of the World countries are developing very well. So it suggests the fact that they have not launched everywhere around the world, that, in fact, there is still a certain supply constraint. So I would just want to correct that perception because logically, they would have launched since a long time in many, many more markets. So I think they are just ramping up gradually their production. In the U.S., Cipla is gaining some market share. It's modest. You have seen also their estimation that they have communicated that they expect by quarter 1 next year to achieve about 10%. So far, they are around 4%. We are continuing to gain market share also on Sandostatin. So we actually see volume growth for Somatuline in the U.S. However, the decrease in the sales that you have seen is stemming from more commercial rebates and also from the mix effect of 340B.

And your next question comes from the line of Richard Vosser, JPMorgan.

A couple on Dysport, please, and maybe one on Decapeptyl. So on Dysport, just could you give us a little bit more color on the extent of the boost in Q3 that was related to the sort of the extra inventory going into the channel when the new manufacturing was started? And then also just an idea of the underlying demand. I think we had an idea of double-digit underlying demand growth, I suppose, across both types of indication for Dysport. But if you could give us an idea of that and whether you're seeing any impact on the aesthetic side of the business, due to cost of living pressures, et cetera, at this point and how we should think about that going into '23. And then I suppose just one more on Dysport. Just thinking about the supply into Russia and how -- the proportion of sales that are Russian and how those are developing as well. And maybe I should probably stop there because that's 3 on Dysport.

So on the extent of the boost from the inventory, it's relatively difficult to reconcile it very precisely because, as you know, sales are going into therapeutics, which is growing very nicely, but also into aesthetics, which is also growing very nicely. Both markets are having a strong underlying growth. You talked about double-digit growth. So we are assuming about 28% in aesthetics, roughly 15% in therapeutics. So then to reconcile it is difficult because you don't have IQVIA data, for example, on aesthetics and a lot of sales are coming also from emerging markets where you have less details. So it's a little bit hard, but I think overall, we are in line year-to-date with 25% growth rate we had last year. So I think we anticipate further growth in both markets. Now of course, your first question, which is the cost of living, could it impact in 2023, for example, on the aesthetics market, which is probably more likely one to impact if there are -- people have, for example, less money in a recession. Too early to really speculate about this. We have seen that beauty market is very important for people. We see an expansion of younger and younger people, they seek treatments, women and men. So clearly, the market is having a strong underlying growth. And we don't anticipate that this is going to come to a strong deceleration even in a recession. Then on the currency that you were asking, we don't give sales split by currency, as you know, but we see strong growth basically in all markets in both, in therapeutics and in aesthetics, yes.

And your next question comes from the line of Simon Baker of Redburn.

Two, if I may. Just firstly, returning to palovarotene and the delay. I'm slightly confused here because on the one hand, if the FDA is asking for data a week before the event, that would suggest it's fairly peripheral. It's not a core issue that they're looking for, and therefore, it should be relatively more at fix. And then on the other hand, David, you said you were in discussions with the FDA. So is that reflective of not the size of the request, but the clarity of the request. I appreciate it's difficult for you to comment on this, but anything you could say to square that circle would be helpful. And then secondly, a slightly broader question. Now that another quarter has passed with Epizyme, I just wonder if you could give us an update on any potential changes to your expectations, be it for the commercial pace or pipeline assets within Epizyme, how that picture's evolved now that you have closed the deal.

Okay. Thank you, Simon, for your questions. Yes, of course, it's a bit unusual that the FDA postpones an advisory committee 1 week before, but you have seen that they did the same thing just yesterday announced on Perrigo. So I think we need to really see what they are going to come back with. I don't want to speculate further on this because these discussions are ongoing. And so we really have to wait and have the telephone conference with them. On your second question on Epizyme. So it's very early days still on the integration. Remember that we closed the deal beginning of August. Of course, there was also the summer break. So on Tazverik, as this drug has been launched more than a year ago, you know how it is when you take over a launch, which perhaps has not been fully leveraged because they didn't have all the resources that they needed to have. So we have started to deploy our field force and our MSLs on the territory since the end of August. So it's very early days. We have seen that many hematologists were not aware at all of Tazverik. So there is, of course, quite a bit of work to be done in terms of relaunching that drug and perhaps also making sure it's correctly positioned. On your second question on the pipeline, we are still assessing the pipeline, so far, so good. I think they have several preclinical compounds also being based on that platform, which are potentially interesting to us. And we are going to communicate more towards probably the year-end results communication because we want to really go through it and rely assess all the science around it.

Your next question comes from the line of Michael Leuchten from UBS.

Two questions, please. So just going back to palovarotene, last time, this did spill over into Europe as well and sort of triggered a delay because the agencies obviously talk to each other. Is there anything you can say on that for now? I presume not that other callers have asked. And then just going back to Dysport. If it's hard to really grasp what's in the inventories and what isn't, how did the first half represent itself where you said you weren't quite able to deliver to the demand? Were customers actually not able to get product even though they ordered it? Or is there just sort of an assessment that the market was growing a little bit quicker than the stock-out that you had or products that you had shipped from your facilities?

On your first question -- thank you, Michael, on palo, and is there a potential impact on Europe? We have not had any further questions from Europe. So, so far, Europe doesn't seem to be changed. We expect the CHMP opinion in December. So that has not changed. On Dysport, so to try to reconcile the sales, what we have seen is that when you take the underlying market growth, and you have seen our sales performance in Q1 and Q2, which were with a growth of roughly 16%, you can, in fact, say that we were not able to deliver to all the customers the quantities that they would have liked to have. So of course, there was a bit of a depletion of inventories in the distribution pipeline. And there is, of course, then part of this effect kicking in, in Q3. But you also need to remember that the market itself is growing. So any inventory needs that the distribution channel is going to have is actually, while the market is growing, also going to increase because typically, they keep days on hand, depending on the sales trend. And so they are going to increase also the days on hand that they want to keep because they know that the sales are growing because the market is growing very nicely. So that's why, when you look on a year-by-year, last year, growing 25%, this year growing 25%, we can say that probably a piece of this first half was indeed that we could not fully satisfy the demand in the market, and they have to eat into their stock. There were very, very few places with very short stock-out period, but -- so the major markets, we were generally able to deliver. So it's more of kind of an inventory effect.

Your next question comes from the line of Richard Parkes from BNP Paribas.