PolyPeptide Group AG (PPGN) Earnings Call Transcript

Ladies and gentlemen, welcome to the PolyPeptide's Half Year 2026 Results Presentation and Business Update Conference Call and Live Webcast. I am Sandra, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand over to Lauren Starr, Head of Corporate Communications. Please go ahead, madam.

Good morning, everyone, and welcome to PolyPeptide's half year 2026 results presentation. I'm Lauren Starr, Head of Corporate Communications, and I'll be moderating today's session. Thank you for joining us, and I hope you're all having a good summer. Before we begin, I would like to remind everyone that today's discussion may contain forward-looking statements. Please refer to the disclaimer included in today's presentation. Following the presentation, we will open the line for Q&A. Questions can be submitted either via the conference call or through the webcast chat. Today's presentation will be led by our CEO, Juan Jose Gonzalez, who will provide a business update, followed by our Interim CFO, Tim Brandl, who will review the financial results. Juan Jose will then return to discuss our updated guidance and provide an update regarding Samsung Biologics' offer to acquire PolyPeptide. And with that, it is my pleasure to hand over to our CEO, Juan Jose Gonzalez.

Thank you, Lauren, and good morning, everyone. Thank you for joining us this morning. Let's just start with the key messages for today. So first of all, we post in the first half of 2026 a strong growth in revenues and profitability. Our revenues increased 41.6% versus the first half of 2025 across both commercial and development. And this growth was driven by metabolics, which actually grew 72.6%. Our EBITDA margin improved from 2.7% in the first half of 2025 to 20.7% in the first half of 2026, and this reflects the benefit from the strong revenue growth of the company. Now -- we also benefit by one-time net favorable impact from exceptional items. From a financial flexibility point of view, we also finished the first half of the year in a stronger position. This is driven by our operating cash flow with a solid operating performance and further net inflow from customer prepayments and the expansion of our revolving credit facility. Our capacity expansion across our global manufacturing network is on track, is now Braine that we discussed before already operating at target capacity, but our capacity expansions across Malmo, Strasbourg and Ambernath are on track. More importantly, we have further expanded our rich pipeline. The number of Phase III projects increased from 30 at the end of 2025 to 37 at the end of the first half of 2026. Just to give you a sense, just to put this into context, globally, the number of synthetic peptide drugs in development in Phase III is about 70. That basically means that about half of all Phase III development activity is going through PolyPeptide. On the back of a strong performance in the first half of 2026, we are upgrading our 2026 full year guidance and confirming our midterm outlook. Now with that as context, let's look at where we are from a market point of view. Now peptide is one of the most attractive markets for CDMOs. On the left-hand side, you have a projection of the global therapeutic peptide market from 2023 to 2025 to 2031. And what you can see is that the market is expected to quadruple from 2023 to 2031, and the growth is mainly driven by metabolics. Now when you look at the number of peptide drugs in clinical development, if you include early-stage activity, you have about 1,600 programs. Of those ones, you already have 591 in clinical development. And the clinical development is across multiple therapeutic areas. There is activity in metabolics, of course, but also oncology, neurology, cardiovascular, infectious diseases and others. Actually, metabolic and oncology account for 40% of our clinical development activity. And the most important thing is that we are seeing a next wave of innovation in metabolics, which is the main growth engine for peptides. We are seeing indications expansion, whether it is MASH, cardiovascular, sleep apnea, osteoarthritis. We are seeing extended dosing intervals like monthly injections. We are seeing higher efficacy, better side effects profile. We are seeing alternative delivery routes like orals. And basically, what this is doing is enhancing the value proposition of metabolic peptide offerings, which will ensure that the strong demand that we are observing today continue for the foreseeable future. So this is in terms of the market. Now let's talk about how PolyPeptide is positioned within this attractive market. And basically, there are 2 things which are important. One is PolyPeptide has a deep peptide scientific expertise with over 70 years of experience and a strong track record having developed and produced over 1,000 therapeutic peptides. And the second thing is that we have a multisite network. We have infrastructure for development and manufacturing in the U.S., in Europe and Asia. And this gives us significant flexibility to make sure that we can put offerings that are in line with customer supply chain strategy. It give us flexibility given the geopolitical environment and it gives us customer proximity, which is also one of the reasons why we have such a rich pipeline. So this is about the market, where are we positioned. Let's talk about the strategy for the company. And basically, the company is focused on having a very strong foundation. This is around our operational and quality excellence, our industrial scale capabilities, our talent and sustainability credentials like the EcoVadis Gold rating we just got. And then with those fundamentals, we work on 3 competitive advantages. Number one, proprietary technology, significant infrastructure and expertise in development. So as peptide becomes more complex, it's clear that PolyPeptide is the strongest partner to bring them to market and then our modularity expertise for capacity expansion. And our view is that as we work on these competitive advantages, we fulfill our vision of being the most innovative peptide CDMO, which we believe is the strongest position to make sure that you maximize the potential in this market. Now let's see how this strategy is translating into results. So on the left-hand side, you have the revenue by therapeutic area. In the first half of 2021, when the company went public, company was EUR 135 million, out of which metabolics accounted for 25% of our revenues. And what you can see is that in the first half of 2026, excluding COVID, the company has been growing at a CAGR of 18%. But more importantly, metabolics now accounts for close to 70% of the total revenues of the company, growing at a CAGR of 35%. It's important to note that this rapid growth in metabolics is going to continue going forward on the back of the exposure we have with metabolics. I mean, we have over 30 programs across commercial and development in metabolics working with multiple metabolic players. Now if you look at our revenue by business segment, you can see that the growth is being driven by both our development activities as well as our commercial activities. And as mentioned before, we are not only growing very rapidly, but we continue to strengthen our pipeline, which is an important indicator in terms of future growth. With 37 programs in Phase III and working in terms of the commercialization, we are going to be able to continue our accelerated growth trajectory. Now let's talk about capacity expansion. And in terms of capacity expansion, I think we have shared before the successful ramp-up in Braine, where we are not only operating at target utilization, but actually, we have been able to improve on our yield. We are also on track in Strasbourg, which is starting the ramp-up in the second half of 2026, and Malmo continues to be on track for the ramp-up in 2027. More importantly, in addition to that, we are also pursuing expansions in Ambernath and downstream expansion in Torrance. So this capacity expansion programs, given where we are today is significantly derisked and we are confident it's going to help to support the growth of the company towards our midterm guidance in 2028. Now of all these capacity expansions, the Malmo modular expansion is the most important one, not just because of the value of the investment, which is around EUR 100 million, largely funded by a large pharmaceutical player in metabolics. But more importantly, because this is our first modular concept being implemented. And basically, our experience today is confirming the significant benefits in terms of modularity, a lower execution risk, a much accelerated time to construction and then providing customers with more flexibility because once you build the module, then you can build the next module relatively quickly. And as you can see in the time line, we started construction in 2024. By September 2025, all the modules were basically delivered on the site. By July 2026, all the construction has been completed, and we are undergoing commissioning. And we are on track to start ramp-up in 2027. That basically means that from starting construction to the time this is completed, it's 2.5 years. And it's important to note that once you have done one module, the next modules are actually even faster. So that we consider is a very important differentiator and one that resonates very well with customers. So that's in terms of the update on the market, the company, our evolution, where are we with our capacity expansion programs. So let me pass it to Tim that will talk about our financial results.

Thank you, Juan Jose. Let me now take you through our H1 2026 financials, starting with revenue on this slide. In the first half of 2026, we generated EUR 236.6 million in revenue. That is an increase of 41.6% versus the same period last year or 43.7% at constant currency rates. Growth was once again driven mainly by metabolic therapeutics, as Juan Jose said. Importantly, though, both parts of our business contributed. Commercial revenue was up 35.8%, reflecting the high level of utilization developed in our new large-scale capacity in Braine, together with favorable market trends across our broad portfolio. Development revenue grew even faster, up 52.3% as strong demand from our late-stage clinical pipeline came through. To give you a sense of the mix, revenue from metabolic therapeutics grew 73% year-on-year and now represents around 68% of total revenue. At the same time, we continue to maintain a diversified pipeline of active custom projects with strong exposure to metabolics, including GLP-1 receptor agonists as well as oncology and neurology. That diversity underpins the quality and resilience of our growth. So in short, large programs are driving strong broad-based growth across both development and commercial. Moving on to profitability, where the improvement is even more striking. EBITDA reached EUR 49.1 million compared with just EUR 4.4 million in H1 2025. That takes our EBITDA margin to 20.7%, up from 2.7% last year. Let me just bridge that for you. The main driver was, of course, higher sales from increased production output, contributing around EUR 45 million. This was partially offset by investments in our people ahead of the second half growth of around EUR 4.8 million compared to H1 2025. On exceptional items, we recorded a one-time favorable impact of EUR 9.2 million from the sale of intangible assets, which was partially offset by EUR 4.8 million of continued ERP-related investment. Even excluding that onetime net gain, the underlying EBITDA margin was a healthy 18.9%. So the key message here is that the step-up is structural, driven by high utilization of our large-scale SPPS asset in Braine and strong operational execution across the network. And then finally, let me move to the cash flow and our balance sheet. Net cash flow from operating activities, excluding changes in net working capital, reached EUR 44.7 million. Within net working capital, the year-on-year movement mainly reflects higher receivables balances due to revenue phasing, which was partially offset by the continued net inflow of additional customer prepayments received, underlining the strength of our commercial relationships. Net cash flow from investing activities was EUR 45.8 million, mainly related to the finalization of our Strasbourg and Malmo modular expansion projects. As Juan Jose mentioned, both projects continue to be progressing well and are expected to contribute to the growth of the group soon. On liquidity, at the end of June, we had drawn EUR 100 million of our committed EUR 200 million revolving credit facility, which we expanded in March. Cash and cash equivalents stood at EUR 59 million at the end of H1. Taken together, this gives us the financial flexibility to keep funding our capacity expansions while supporting the growth ahead. And with that, I will hand back to Juan Jose to discuss our guidance and the Samsung Biologics' offer.

Thank you, Tim. So let's talk about our guidance for 2026. First of all, our priorities for the remaining of the year are unchanged. We are focused on meeting the increasing demand, especially metabolics. We are focused on executing our capacity expansions across multiple sites, and we continue to advance negotiations for large commercial agreements to support our growth beyond 2028. Now on the back of the strong performance in the first half of the year, we are upgrading our guidance. Our revenue growth is increasing from 20% to 25% to 25% to 30%. Our EBITDA margin is increasing from mid to high teens to high teens and our CapEx remain unchanged. It will continue to be forecasted at 15% to 20% of revenues. Now this performance again reflects a strong not just financial performance at the end of H1, but also the strong momentum that the company has. Now let's talk about our midterm outlook. And with this performance, we are in a comfortable position to hit our midterm outlook. We believe that, again, our strategy around being the most innovative peptide, our focus of innovation on pipeline development, on capacity expansion, the execution of this strategy is allowing us to continue the accelerated transformation of the company. So we confirm our target of doubling 2023 revenues by 2028, an EBITDA margin approaching 25% by then and capital expenditure for the period of around 15% to 20%. We believe that this midterm outlook reflects adequately the strong performance of the company. Now let me just talk about the Samsung Biologics' offer to acquire PolyPeptide. And as we communicated on the 20th of July, PolyPeptide Group and Samsung Biologics announced they have entered into a transaction agreement under which Samsung Biologics agreed to make an all-cash public tender offer to acquire all publicly held shares of PolyPeptide for CHF 44.31 per share. This transaction aims to provide PolyPeptide with the resources, investment capacity and a strategic platform to pursue the next phase of its growth and innovation. The combination of PolyPeptide deep scientific expertise, rich pipeline with Samsung Biologics industrial scale, resources and capabilities will create a transformational player to drive the growth in the overall peptide market. Our anchor shareholder supported the process and agreed to tender all of its shares, accounting for 55.65% based on total shares outstanding. And the Board of Directors, acting through its independent and nonconflicted members unanimously recommended that PolyPeptide shareholders accept the offer, a recommendation supported by an independent fairness opinion. This offer is a 40% premium over the undisturbed price before the market rumors of a potential transaction became public and it is a 60% premium on the VWAP on the 60-day volume-weighted average stock price, again before the news regarding a potential transaction became public. And with that, let's go into the Q&A.

[Operator Instructions] Our first question comes from Charles Weston from RBC Capital Markets.

Three, please, on the market. First of all, can you give us some color on how you've seen the competitive landscape develop? Clearly, we've had results from WuXi AppTec, whose peptide revenues have been very impressive in terms of the growth backend and obviously yourselves. So if you can just give us a sense of your view on how that competitive landscape is developing and in particular, also how pharma companies may also be looking to invest in their own capacity? My second question is on consumer peptides. There's been a lot of news, obviously, in the U.S. about those becoming perhaps more available. And I don't think that the main pharma CDMOs, such as yourselves, are involved in those. But perhaps you could speculate as to whether that might change in the future? And lastly, in terms of generic semaglutide, could you provide us some color on how you see that landscape evolving and in particular, also who are the key manufacturers?

Thank you very much, Charles. Listen, in terms of the competitive landscape, we haven't seen much change. First of all, I think in the case of WuXi AppTec, it's important to know that what they report is their production of tetramer, which is a raw material used by other CDMOs in the production of tirzepatide fragments, then the production of fragments itself, later production of peptides, plus oligos. So it's difficult to know really out of everything that report how much is really peptides. But in any case, the concerns around biosecurity makes that, when we look at Western customers, in most of the commercial negotiations that we discussed, we are only competing against other Western players. We do not compete against Chinese players. Now at the same token, when there is a tender for China, we do not participate, and it is mainly Chinese CDMO players participating. But basically, I would say the concerns around intellectual property continues to be a barrier for Chinese CDMOs to participate more actively in the Western side. And of course, it's a benefit for companies like PolyPeptide. Now in the case of consumer peptides, yes, I mean, we are following this development with interest. It could be an opportunity, but I have to say the demand from branded pharmaceutical and biotech players is so large that we, as a company, are very much focused on -- we are very much focused on bringing all these new products to market and supporting their commercialization. And generics is more or less the same. We do not really engage in terms of generic production. We believe most of the production is being done by Chinese and Indian players. But again, I mean, going back to what I discussed in terms of the level of innovation and development in terms of metabolic peptide drugs, we think that there are many differentiated offerings coming to market and the branded side of the market will continue to grow very rapidly.

That's really helpful. I don't suppose you could share key names of the players you see as key manufacturers of generics in India and China, please?

No. I mean, we -- there are -- first of all, there are many, many players. It's difficult also to know what they report. In some cases, they say semaglutide, when it is actually a raw material. In some cases, they are producing non-GMP versus GMP. But I think if you do some search, you will be able to find the players which are advertising that they can do semaglutide. But I can confirm that this is mainly coming from China and India.

Congratulations on the Samsung deal.

The next question comes from Charles Pitman-King from Barclays.

Charles Pitman-King from Barclays. Three for me as well, please. Just in terms of the EBITDA one-offs, just trying to make sure I fully appreciate the moving parts here. So you mentioned the one-off of the sale of intangibles and the ERP-related investments. But in the appendix, there's a EUR 7.3 million related to a onetime impairment due to previously capitalized projects being terminated as well. So just wondering if you can confirm the actual underlying EBITDA comes in closer to EUR 37.4 million. And just wondering what -- whether you could provide detail on what drove the project termination? And secondly, on Malmo, you kind of mention that this is the first modular experience and you're on track to ramp-up in 2027. But can you just confirm when you're talking about bringing different modules online, this is the first module that's set to ramp up over '27? And when should we expect the last module to come online? So what's the cadence to achieving full utilization? And then just maybe, thirdly, if you're able to provide any thoughts on Samsung's potential to help fund your expansion into the U.S. market?

Yes. Thank you, Charles. Listen, let me start with -- why don't we start in with the profitability question, just to clarify that?

Sure, sure. Thanks, Charles. So the write-down that you noticed in the back is below EBITDA. So it's included in EBIT, and it's a noncash impact. So it's in the depreciation line as well. And in the P&L, you'll see it in the G&A. So it's below EBITDA, but within EBIT. But if you want to adjust the EBIT for that -- the EBITDA for that, it's a noncash D&A impact, I wouldn't adjust.

Right. In terms of the module in Malmo, basically, we use that term module to describe the entire capacity expansion. And what we are saying is that everything is coming online to support this EUR 100 million contract in 2027. In 2027, we start the ramp-up of the program, and we expect to finish the year at target utilization. Now in the case of Samsung, I cannot comment on this that we are still going through the process. But if you look at the way that Samsung Biologics's CEO have referred to this transaction, it is mainly to diversify geographically and to accelerate the growth of the company. And we believe this is actually a recognition to the significant progress over the last 3 years of PolyPeptide and the potential it has to be able to scale up with such a rich pipeline and expertise.

The next question comes from Estelle Betrisey from Berenberg.

Congratulations also on my side on the results today. Maybe just a brief one on your ongoing CapEx program in Strasbourg. If you could just -- I mean, you expect to start the ramp-up in second half. Should we already expect some of those revenue contribution this year already? Or yes, if you could just give me a bit more color on this?

Yes. I mean we will start the ramp-up. So there will be some level of invoicing, but it's going to be very small. We expect most of the benefit to come in 2027.