Ipsen S.A. (IPN) Earnings Call Transcript

Hello, and welcome to Ipsen's conference call and webcast on H1 2024 results. I'll now hand you over to David Loew, Ipsen's CEO.

Thank you, operator. Good afternoon, or good morning, everyone. I'm delighted to welcome you to our latest results call. As you just heard, I'm David Loew, Chief Executive Officer of Ipsen, and it's a pleasure to take you through our performance in the first half of the year. Please note that our presentation is available on ipsen.com. Please turn to Slide 2. Before we begin, here is our safe harbor statement, which outlines the routine risks and uncertainties contained within this presentation. Also, any commentary on growth you'll hear today will be based on constant exchange rates unless stated otherwise. Please turn to Slide 3. I'm joined today by Christelle Huguet, Head of our Research & Development, who will provide an R&D update, while our CFO, Aymeric Le Chatelier, will take you through the financials. We'll then be happy to take your questions. Please turn to Slide 4. I want to begin with our business update. Please turn to Slide 5. Today's headlines illustrate real delivery and progress so far this year. Starting with the strong financial performance, total sales grew by 9.5% in the first half, accompanied by a core operating margin of 32.4%. We also generated free cash flow of EUR 394 million. Regulatory success came in the form of the FDA approvals of ONIVYDE in first-line pancreatic cancer and IQIRVO in second-line PBC, respectively. We also anticipate published opinions from the CHMP tomorrow in respect of both IQIRVO and odevixibat, the latter in Alagille syndrome. Finally, we made good progress with our pipeline and external innovation strategy. Today, we in-licensed ex U.S. rights to a late-stage asset, tovorafenib, in pediatric oncology. We also executed four early-stage transactions across Oncology and Neuroscience while we expanded our collaboration and license agreement for the development of CABOMETYX in advanced neuroendocrine tumors. Please turn to Slide 6. Turning to more details of our sales performance, the growth of 9.5% in H1 was mainly driven by the performance of CABOMETYX and Dysport as well as the contributions from Bylvay and ONIVYDE. Somatuline sales decline was limited to 1% as we benefited from generic lanreotide shortages in several countries in Europe. In North America, Somatuline sales fell by 6.3% with solid volume growth outweighed by adverse U.S. pricing. We anticipate a sharper decline from Somatuline in the U.S. in the second half based on increased generic penetration. Dysport sales were up by 12% with continued growth in the therapeutics and aesthetics market, partially offset by adverse phasing in the second quarter. CABOMETYX sales grew by 17%, though the capacity for sales growth was temporarily limited to 1%. The launch in first line contributed to the 25% growth in ONIVYDE sales while Bylvay delivered an excellent second quarter and is now annualizing at over EUR 100 million. I will now provide more details of our main launches this year. Please turn to Slide 7. ONIVYDE is on track to become a standard of care in the U.S. in first-line pancreatic cancer. Although it will take time to change long-term prescribing habits, we're clearly [indiscernible] the significant potential of ONIVYDE over time. 80% of relevant physicians can prescribe ONIVYDE in first line while 90% of payer lives have access. We're seeing updates in use in first line. And this is illustrated by a 17% increase in post-approval weekly demand. We're also delighted with the performance in the major centers as demonstrated by 34% demand growth in the top 10 accounts. Now let's turn to the launch of IQIRVO. Please turn to Slide 8. IQIRVO is having an encouraging early start. And I'm delighted that patients very quickly had access to our new, innovative option to treat their PBC. Following last month's PDUFA, IQIRVO became the first and only approved PPAR to come to market to treat PBC. The approval was based on the ELATIVE Phase III trial data that showed a rapid and sustained response lowering ALP and the level of bilirubin. The unmet need just in the uncontrolled population is extensive with only a minority of eligible patients receiving a second-line treatment today. The launch is fully on track. Patients were covered and on-treatment within the first week of launch. And we already recorded some sales in June. Feedback from physicians has been very good. 50% of health care providers surveyed 1 week post launch were likely to prescribe IQIRVO while there were early positive coverage determinations from commercial and government payer segments. I look forward to providing a further update on launch at our Q3 results. Please turn to Slide 9. Turning to our pipeline, as at the end of June, we have a nice mix of trials across the therapy areas and phases of clinical development. We also anticipate some of our preclinical assets entering Phase I in the coming months. I will now pick out some highlights from the pipeline. In Oncology, we have the opportunity with CABOMETYX in advanced neuroendocrine tumors, and we anticipate filing in due course. In Rare Disease, we look forward to the published CHMP opinions tomorrow in respect of IQIRVO and odevixibat while in Neuroscience, we are progressing nicely with dosing in the long-acting neurotoxin trials in aesthetics and therapeutics. When we next present this chart in October, it will also include tovorafenib, the exciting pediatric oncology asset in-licensed today. Please turn to Slide 10. Tovorafenib is an attractive addition to the pipeline. And this deal perfectly aligns with our strategy. This asset is already approved in the U.S. as a second-line treatment of the most common childhood brain tumor, pediatric low-grade glioma. We have obtained the rights outside the United States. Christelle will take you through the trial details in a moment both in second and first line. And I want to highlight several aspects here. Firstly, there is a high degree of unmet medical need with a limited number of options for patients. In the top 5 European markets, there is a significant level of incidence and prevalence, yet there is no clear standard of care in second line. The trial data were also compelling with tovorafenib the only targeted therapy to show efficacy in the broad BRAF-altered population. We plan to file next year. Tovorafenib will then slot well into our expanding portfolio, alongside our widening range of Oncology medicines. With that, I'll now hand over to Christelle. Please turn to Slide 11.

Thank you, David, and hello, everyone. I'm delighted to provide you with an update on Ipsen's R&D program. Please turn to Slide 13 (sic) [ 12 ]. I want to start by reminding you of our focused strategy on innovation, which is guided by science first and unmet medical need. We have seen that the best innovation takes place in the academic and biotech ecosystem, where deep biology and pathway understanding is built through years of research. That's exactly why we have a successful external innovation model. What we do best at Ipsen is making a medicine out of a molecule from the pharmaceutical development to the commercialized medicine, all the way to strong lifecycle opportunities. And through our clinical know-how and deep regulatory expertise, we design the most effective clinical and registry path to demonstrate and bring the value of a potential new therapy to patients with unmet medical need. We do this right across Oncology, Rare Disease and Neuroscience. Let's look at this approach in action. Turn to Slide 13, please. In the first half of this year, we made strong additions to our preclinical Oncology pipeline with both T cell engagers and antibody drug conjugates. Bispecifics are antibodies that have been engineered to target two separate molecules that can be circulating or present on the surface of cells. T cell engagers target specific T cell markers, on one hand, and often use the other hand of the molecule to activate the T cell. With the Marengo STAR platform, we can target a specific subset of V beta subset of T cells, thus limiting wide immune system activation and also precisely activate that specific V beta subset to kill solid tumor cells. The TriSTAR platform operates in the same manner, though it has three hands, hence, trispecific. It recognizes a specific T cell subset. It activates that asset. And it recognizes cold tumors that normally escape the immune system, bringing the T cell to kill the tumor cell. Last April, we successfully selected the first clinical candidate from our ongoing collaboration with the Marengo STAR platform that focus on hot tumors. We then added a second program in collaboration with Marengo using their novel TriSTAR platform, where we reevaluate the potential of selective T cell engagers to reactivate, mobilize and target T cell subset to boost antitumor activity in cold tumors. Ipsen also secured two antibody drug conjugate assets this year with potential in solid tumors. The majority of ADCs have been directed at liquid tumors in large indications of hem-oncology. We have been evaluating the ADC landscape for some time. And in staying true to our strategy, we have selected platforms that offer highly selective targeting to niche biomarker-driven and difficult-to-treat tumor type. IPN60290 targets ROR-1 and IPN60300 targets a novel tumor antigen. We look forward to completing the final stages of the preclinical development for both programs to then move them into Phase I. Please turn to Slide 14. Earlier this month, we announced the expansion of our collaboration with Exelixis to include CABOMETYX in advance pancreatic neuroendocrine and advanced extrapancreatic neuroendocrine tumors. This decision was based on the positive outcome from the CABINET Phase III trial that is led by the Alliance for Clinical Trials in Oncology and sponsored by the National Cancer Institute. An independent Data and Safety Monitoring Board recommended to stop enrollment and unblind the study and allow crossover from placebo to CABOMETYX due to the early efficacy demonstrated at an interim analysis in both of the trial's cohort with clinically meaningful improvements in progression-free survival, which amounted to 11.4 months in pancreatic NET versus 3 months for placebo and 8.3 months in extrapancreatic NET versus 3.2 months for placebo. We have now engaged with regulatory agencies and will submit on the basis of this data. Please turn to Slide 15. Looking now at the newest addition to our late-stage pipeline, tovorafenib is an overall once-weekly type II pan-RAF inhibitor approved with orphan drug designation under accelerated approval by the FDA in April. The pivotal Phase II FIREFLY-1 trial delivered strong data with the best overall response rate of 51% as evaluated by an independent radiology review committee using the RAPNO-LGG criteria specifically designed for pediatric low-grade glioma. We are focusing on regulatory submissions outside of the U.S. now that the deal is done. We also await the results of the Phase III FIREFLY-2 trial evaluating tovorafenib as a monotherapy for newly diagnosed children and young adults with rough outset low-grade glioma requiring first-line systemic therapy. Please turn to Slide 16. Now turning to our rare liver disease, we continue to explore the full potential of IQIRVO to ensure every eligible patient can benefit from this important new treatment. I want to draw your attention to ELSPIRE, a Phase III randomized parallel group, double-blind, placebo-controlled, global multicenter study enrolling PBC patients with ALP levels between 1 and 1.65, the upper limit of normal. In this population, which is typically classified as having an adequate response to standard-of-care UCDA, there remains a negative outcome of death or liver transplant at 10 years comparable to patients with higher ALP levels. Therefore, the goal for patients with PBC is to shift towards ALP normalization. ELSPIRE data is expected in 2026 and the trial is part of Ipsen's strong set of clinical programs in rare liver diseases listed here on the right. Please turn to Slide 17. And let's conclude with a summary of the major forthcoming milestones. We expect regulatory decisions for IQIRVO and odevixibat in the EU soon. Next year, we look forward to a potential EU decision for CABOMETYX in advanced neuroendocrine tumors as well as pivotal trial data for our ALK2 inhibitor, fidrisertib, in FOP. Finally, in 2026, a number of Phase III trials are expected to read out, including Bylvay in biliary atresia, Dysport in both chronic and episodic migraine as well as the combination of TAZVERIK and R2 in second-line follicular lymphoma. With this update, I'll hand you over to Aymeric now. Please turn to Slide 18.

So thanks, Christelle, and hello, everyone. I will now take you through the details of our financial performance in the first half of this year as well as our upgraded guidance for 2024. Please turn to Slide 19. We delivered another set of strong financial results in the first half across sales, core operating income and cash flow. Our total sales, over EUR 1.6 billion, grew by 9.5% at constant exchange rates, our core operating income grew by 2.8% to EUR 538 million while our free cash flow increased by 5.9% to EUR 394 million. Given our high level of EBITDA and this solid cash flow generation, we keep a very strong balance sheet with no debt and have, at the end of June, EUR 2 billion of firepower available for external innovation. Let's go now in the details of those financials in the following slide. Please turn to Slide 20. Starting with the core P&L, the growth in total sales of 9.5% at constant exchange rates translated into 8% at current rates, given the adverse currency movements from emerging markets. Gross margin decreased as planned by 1.6 points, driven by an unfavorable sales mix and the higher level of royalties paid. R&D costs increased by 11% to reach 19.5% of total sales, driven mainly by the continued investment in our pipeline, including IQIRVO studies and Dysport migraine programs. SG&A costs increased only by 4% with a ratio to sales at 34.6%, improving by 1.4 points. It reflects our commercial investment to support the launches but also the impact of our efficiency programs, including the synergies post Albireo and Epizyme acquisitions. As a consequence, as you can see, our core operating income increased by 2.6% with a core operating margin standing at 32.4%, declining by 1.6 points. Please turn to Slide 21. Turning to consolidated net profit. I wanted to highlight several movements. Firstly, the amortization of intangible assets increased by 36% to EUR 123 million, mainly related to Bylvay and SOHONOS. Restructuring and other operating expenses amounted to EUR 97 million, a decline of 22%, reflecting integration costs last year related to the acquisition of Albireo. And as a consequence and with lower financial and tax expenses, IFRS consolidated profit increased by 19% to EUR 232 million. Please turn to Slide 22. Finally, on cash flow, we continue to generate strong free cash flow in the first half of the year and have a healthy balance sheet with no debt at the end of June. EBITDA grew by 2.6%, very close to the core operating income increase. Free cash flow increased even more by 5.9% to EUR 394 million. Net investment in the first half included the payment of the ONIVYDE milestone following the FDA approval of the first-line indication as well as the upfront payment related to the external innovation transaction including Sutro and Skyhawk. With almost no debt at the end of June and based on 2x EBITDA, we have now an available firepower for external innovation above EUR 2 billion. I would like now to conclude my financial section with our guidance for 2024. Please turn to Slide 23. Based on the solid momentum and the strong performance of this first half, we are very pleased to upgrade our full year guidance. As you can see, we now expect total sales to grow by more than 7% at constant exchange rates as compared to our previous guidance of growth above 6%. This assumes an accelerated erosion of Somatuline based on an increased generic competition, notably in the U.S., and also higher contribution for our launches, including ONIVYDE and IQIRVO. On core operating margin, we anticipate now a level of more than 30% of total sales. It assumes a lower anticipated profitability in the second half of the year as a result of our continuous investment for our launches and in our pipeline but also a higher seasonality of costs in H2 versus H1 and a lower level of milestone ONIVYDE in H2 versus H1. With all of that, I will now hand back to David for the conclusion. Please turn to Slide 24.

Thanks, Aymeric. Please turn to Slide 25. To conclude, there are four key messages to take away from the results today that illustrate the delivery on our ambition. Firstly, we achieved another strong combination of total sales growth, core operating margin and cash generation. We're making good progress on the pipeline, including regulatory success and the addition of a number of promising assets. And our launches of ONIVYDE and IQIRVO are on track. Finally, our commercial and pipeline performance is being driven by continual improvements in our execution, centered on our focus on patients. Please turn to Slide 26. Thanks for listening to our presentation. Christelle, Aymeric and I now have the time for your questions. Operator, over to you.

[Operator Instructions] And your first question comes from the line of John Priestner from JPMorgan.

John Priestner from JPMorgan. So two if I may. The first is on Somatuline. So in the first half, we saw Somatuline erosion of only about 1%. So can you help us understand how that might develop in the second half, what some of the push and pulls are around that and how much Somatuline erosion is baked into the 2024 guidance? It seems like there would have to be quite a big drop-off to even reach a kind of double-digit decline in 2024 at this stage. And then the second question would be on IQIRVO. So there's potential that the current standard of care in second-line PBC, OCALIVA, might be removed from the market following a negative EU CHMP recommendation. And I believe there's also a U.S. FDA Ad Comm expected before mid-October. So how are you really thinking about this opportunity and how it might impact the IQIRVO uptake? And is this at all factored into your 2024 guidance?

Thank you, John. So on your first question on the Somatuline erosion for the second half, you're right, we have, as we have said already at the beginning of the year, guided that we assume an acceleration of the erosion, given the appearance of the generic. So it has been indeed put into our guidance. Now the push and pull, of course, are going to be how much is the supply is going to recover. So it's hard for us to tell that, but we have assumed that the supply is going to recover in Europe and that we will see a stronger erosion in the second half of this year also in the United States. Regarding your second question on IQIRVO, the OCALIVA removal, we will really have to see what happens exactly. In Europe, it's not clear if they are going to put in place a compassionate use program or not for the patients that have been on OCALIVA and what is going to happen with the U.S. Ad Comm, something similar might happen there like in Europe. So we have, in any case, already an assumption of IQIRVO cannibalizing OCALIVA even without the withdrawal. If the withdrawal is not going to be supported by a compassionate use and if it's going to happen also in the United States, there is indeed a potential upside. So it's going to perhaps then accelerate this penetration curve a bit more on patients who are on OCALIVA right now.

Your next question comes from the line of Lucy Codrington from Jefferies.

Correct me if I'm wrong, but Dysport aesthetic seemed a little weak in the U.S. during the second quarter. I wonder if there's anything specific behind this and, just more generally, if you're seeing any sign of a slowdown in the injectable aesthetics market, given some of the commentary we've had from consumer names over the kind of broader beauty market. Secondly, I believe you previously mentioned that Bylvay can be a bit lumpy due to weight-based dosing. Is there anything to suggest that we shouldn't consider the 2Q trend as a good guide going forward? And then finally, just probably maybe still a bit early to say, but I wonder if you could give us an indication of your confidence in your SOHONOS peak sales, given what you're seeing to date regarding, I believe, a preference for physicians to try the clinical trials rather than necessarily using SOHONOS.

Thank you, Lucy. On Dysport aesthetics, the market in the U.S. is a little bit softer, but you also need to keep in mind that we're selling to Galderma and that there are some shipment phasing. So I will have Aymeric elaborate a bit more on the shipment phasing on the Dysport.

Yes. So thank you, David. So maybe to make sure the numbers on Dysport, especially if you look at them on quarter-by-quarter, you may have a big impact, given the phasing between the supply and the resale, between the sell-in and the sellout. Specifically, and we see that especially on the European performance this year, specifically in the U.S., if you look at our numbers, the numbers are very good and very strong. We benefited in Q1 on some of the lower inventory in Q4 of last year. So as a consequence, by definition, the Q2 was slightly lower. But overall, if you look at the performance of the first half, we have a very strong performance for a 36% growth. So clearly, and I think it's better to listen to Galderma, my understanding is that they are delivering very strong performance, in line with what we see in the in-market demand. With the U.S. market, not maybe at the same level of growth as it used to be but still a very strong market share uptake from Galderma. And we're confident that this is going to continue going into the second half of the year.

On your second question, Lucy, on Bylvay and the Q1 and the Q2 trend that we have seen, it is correct that sometimes, for example, in PFIC, if you have a batch of more adult patients, the sales can go up a bit more and then it can be a bit less. But overall, mid-, long term, we absolutely assume continued nice growth, which is going to come from further expansion of the penetration in PFIC but also in Alagille. And the CHMP opinion, by the way, for odevixibat is coming tomorrow. So we will see what that decision is, but we are optimistic. And then we're also expanding still in more markets where we're going to launch. So we will see a strong continued Bylvay growth. Regarding your question on SOHONOS, it is correct that there are currently four trials ongoing, so many of the patients can actually include this in those trials, including, by the way, fidrisertib that Christelle talked about that we're going to have to read out next year. So it's too early to say what's going to happen to peak sales. Because once these trials come to an end, then we will see what happens with the different drugs. But clearly, we see FOP as a nice opportunity, and we are also excited to see the results then soon on fidrisertib.

Your next question comes from the line of Xian Deng from UBS.

So two, please, if I may, both in elafibranor. So the first one is just wondering if there's any color that you could give us in terms of payer discussion you're having on elafibranor. I'm just wondering, do you have any sort of assumptions of possibly a clear preference for elafibranor versus seladelpar once that's approved. So that's the first question. Second one is, I mean, I fully understand you probably can't comment on your expectation for seladelpar label, given the upcoming PDUFA. But just wondering if you could comment on whether your expectations for elafibranor would change, whether seladelpar has pruritus on the label or not. So is there any sort of scenarios regarding seladelpar label that would significantly change your expectation for elafibranor?

Thank you, Xian. On your first question on IQIRVO and payer discussions, so there is currently absolutely no discussion on any preference status. We do not see currently any problems on reimbursement. So we get patients reimbursed. It's not an issue. We would expect that once seladelpar would launch, that there might be some of those discussions happening. But it's not totally obvious because, for example, on Bylvay, we have not experienced that neither. Yet of course, there are different galenical formulations, et cetera. So we have to see what's going to happen there. We do assume in our assumptions that there will be some payer discussion which is going to start. That's our base assumption. On the seladelpar label, you really have to ask Gilead. What I can say what we have assumed in our guidance is indeed that they potentially would get a pruritus label. So that's baked in already into our guidance.