UCB SA (UCB) Earnings Call Transcript

Welcome to the UCB Conference Call. [Operator Instructions] Please note that this conference call will be recorded and that a replay of the webcast will be available later today on the UCB's website, under the Investors section. I am pleased now to present Ms. Antje Witte, Head of Investor Relations, who will be the moderator of this conference. Ms. Witte, the floor is yours.

Thank you very much, [ Qayyum ]. Good afternoon, and good morning also from my side. Thanks for joining us for our full year results 2019 conference call. Before I hand over to Jean-Christophe Tellier, our CEO, who will introduce to you also the speakers with him, I'd like to remind you that this presentation and Q&A session and the presentation slides are under our disclaimer and safe harbor statements, you find on Slide 2, which I kindly ask you to read carefully. And with that, I would like to hand over to Jean-Christophe, CEO of UCB.

Thank you, Antje. Good afternoon, good morning, everyone, and thank you for joining our full year results call. As you may have seen in the press release already this morning, we are pleased with our 2019 performance. This good progress on our strategic growth path strengthened our ability to deliver sustainable growth. As Antje mentioned, I would like to go through the agenda for this call. But before that, maybe mentioning that with this goal in mind, we are strengthening our operating model to ensure more agility and collaborations across the organization. And this evolution is reflected in the new composition of the Executive Committee that we also communicated this morning in the press release. Executive Committee, which became smaller with more transversal roles across businesses and regions, and you have some of the illustration of that in the agenda that is on the screen right now. So taking the floor after me, Emmanuel Caeymaex will comment about our immunology business. We have now included Evenity in our immunology pillar and in his new role, Emmanuel will be also in charge of the U.S., then Charl Van Zyl will talk about the neurology franchise, focusing on epilepsy. Charl was before, in charge of our operation and is now responsible of our neurology pillar as well as our European and international geographies. And finally, Detlef will lead you through the financials as usual. He will comment on the 2020 outlook and our midterm -- new midterm guidance. As you know, and as previously announced after a very successful tenure, Detlef will retire from UCB during the first half of 2020. And as you may have seen in the press release, we are continuing to look for a successor and confident that we can -- we will be able to do that before the end of the first half of this year. So as you know, our ambition for patients is to allow them to live the life that they want and not to have their life defined by a disease. This is the anchor of what we do, our main sense of purpose and the justification of our patient value strategy. We are strengthening constantly our sense of purpose in order to reflect commitment for a sustainable development, and this is the purpose of this slide. First and foremost, we want to focus on innovations in R&D, which means for us, and that's our patient value ambition. It means for us, bringing differentiated solution with unique outcome to help specific patient populations to achieve their goals. But also create for them the best possible individual experience. On top of that, it means also broadening access, and this is the second pillar that you see here on this slide. Access to the patients who may need the solutions we can propose to them in a way which is viable for them, for the community, the society and for UCB. But value for patients, and this is the third pillar, value for the patients means also offering to UCB employees the best environment for them to be at their best, and in particular, in terms of health, safety and well-being. And finally, we want to deliver this while minimizing our environmental footprint across the entire value chain. So building on this journey, where are we today? As you may remember, in 2019, we entered into our second phase of our strategic path, the accelerated expense phase. We wanted to accelerate on our cycle and develop agility. We wanted to expand in new patient populations, and we also wanted to leverage our strategic flexibility identifying and acting on potential opportunities. So what have we delivered in 2019. First, we have added 2 new products in our portfolio for new patient population. Evenity with our partner, Amgen, in osteoporosis, have been launched in U.S. and Japan and approved in South Korea, in Australia, Canada and in Europe. This is a first-in-class innovative bone builder therapy in osteoporosis. Second new product that we have added to our portfolio, Nazolam, we launched in December in the U.S., a nasal spray for seizure clusters. We have also -- and that's the second element that you see on the slide, we have also continued to accelerate and significantly strengthened our pipeline with already 3 positive Phase III clinical trials for bimekizumab in psoriasis. And 5 new Phase III programs in -- started in 2019: Bimekizumab in psoriatic arthritis and axial spondyloarthritis; padsevonil in refractory epilepsy; and rozanolixizumab in myasthenia gravis and immune thrombocytopenic purpura. And last but not least, we have also leveraged our strategic flexibility that we had in our priorities. Last October, we announced we had reached an agreement to acquire Ra Pharma. We wanted to join forces to improve our option for the treatment of people suffering of myasthenia gravis and other rare disease. Charl will comment about this later on. But as we shared with you, and we want to confirm that we are confident that we will be able to close this deal in Q1 2020. But acting on potential opportunities and connecting with different partners possible, it's also achieved through other elements and you have a few examples here. We have created a pioneering 5 years genomics R&D collaboration with the epilepsy society to better understand the disease, creating a new taxonomy and potentially better understand biomarkers and how to develop more appropriate treatment for patient population. With SeizeIT, we have granted a consortium project agreement to develop a discrete and personalized epilepsy seizure detecting device. And with King's College London, we have signed a 3-year R&D collaboration. So you can see that we are not only looking about external opportunity from an M&A perspective, but we are also strengthening our potential collaborations with other key stakeholders in the areas of our interest. So we are progressing well on our pathways, and we are building our future. But of course, we are able to do that, mainly because we are delivering on our key growth drivers, and it's because of the result of today, it's because of the performance of today that we can continue to strengthen a sustainable future. Building on the sixth consecutive year of growth, top and bottom line with a revenue CAGR of 8% and EBITDA CAGR of 19% over the period that you see on the slides, we have built a very strong platform for the future. So -- and you have here the main results per products in terms of growth and absolute numbers then Charl and Emmanuel will comment furthermore. That has guided us to and improve our midterm guidance. So we are pleased with the strong '19 performance. We are pleased that we have been able to continue to grow, that allow us to accelerate our pipeline, allow us to build and strengthening our future and delivering sustainable value for patients. So with that in mind, I would like to hand over now to Emmanuel.

Thank you, Jean-Christophe, and thank you all for joining. I'm very pleased to comment on the performance and the progress of our 3 immunology assets, including Cimzia and its growth drivers, an update on progress and context for bimekizumab and also on the launch of Evenity. So let's start with Cimzia and the components of the strong 14% constant currency growth that you have seen and also how this is leading us to increase our peak sales guidance for the brand to EUR 2 billion. So the first point, it's important to note that the 2019 growth is entirely volume-driven. So there is no positive contribution of net price. All geographies have been contributing to this growth, as you can see, and in the U.S., both the lyophilized formulation as well as the [ PFS ] presentation have been growing. So as you know, lyo is for in-office injection, and we've had substantial market share gains there owing to very good first-line access. But also a very strong value proposition with a room temperature product that can be injected rapidly, compared to most infused products in the category. It's important to note also that use and coverage of the lyophilized formulation is not purely Medicare Part B. In fact, 40% of this formulation is covered through commercial insurers, and that is the fastest-growing part of the 2. What was great in 2019 is to see our prefilled syringe grow again, and that's been fueled by our launch in psoriasis as well as the early launch of nonradiographic axSpA. We've opened a lot of access for those patients. And I look forward to next year to see this fully translated into our sales growth. It's noteworthy also to see that Europe has been growing despite indirect competition of biosimilars, affecting both net price and volumes. That growth is really down to a few points. The first one is resilience and further increasing shares in the women of childbearing age segment, which is increasingly recognized as a segment of patients in need of specific solutions. And the second one is the early days of our psoriasis launch in Europe. Then international markets have been strong across, as you can see, we are very pleased with that, and it's for the same reasons as Europe. So if we now look on the right-hand side, you can see that the growth drivers in terms of patient populations besides women of childbearing age that I mentioned, and that cuts across our psoriasis with about 4 points, as a new entry. And then also, axSpA, which is both nonradiographic axSpA in the U.S., but also a general halo effect with the great data that we've been able to communicate -- generate and communicate last year across the world. So looking forward, we are confident that Cimzia will achieve or exceed EUR 2 billion peak sales. We consider that the multiple growth drivers will more than compensate for volume and price erosion linked to subcutaneous TNF-wide similar competition outside the U.S. and also for the new modes of actions entering the various indications. And so just to recap on Cimzia, we have psoriasis, where Europe and Japan will contribute to cash sales in the future. We have axSpA, where there's a lot of runway, a lot of unmet need and a lot of market shaping to do, especially in the U.S. Further gains and certainly, resilience in the women of childbearing age patient segment, where Cimzia is not readily substitutable, represents a third source of future growth, and I believe that the in-office injection segment in the U.S. also have room for further market share gains as well as our geographic expansion with a very promising start in China, which today is a small market, but a market of strategic importance longer term. So all of this is good preparation and a strong foundation for us to build on as we prepare for submitting and eventually, hopefully, marketing bimekizumab in both dermatology and rheumatology. So as you can see here, bimekizumab is now in 4 late-stage clinical development programs, totaling 10 studies across Phase III and IIIb. And we are adding hidradenitis suppurativa as a target indication for bimekizumab, and I'll come back to that a little later. But perhaps, first, as a reminder, bimekizumab is a monoclonal antibody, which importantly and selectively inhibits 2 cytokines: interleukin-17A and interleukin-17F. And so we know that in human IL-17 biology, both 17A and 17F have pro-inflammatory function and that they both synergize with other pro-inflammatory cytokines, such as TNF, for example. So blocking both A and F should lead to more patients achieving sustained, clinically adequate responses, achieving their goals. And this is what the Phase II study suggested, and that's what we aim to confirm with the ongoing Phase III studies. So psoriasis has been advancing very well with the 3 out of 3 in the fourth quarter last year. So we're very excited with this. And we are also very pleased to share with you that the detailed results for the first 2 studies, BE VIVID and BE READY, will be shared in late-breaking oral presentations at the American Academy of Dermatology on March 21 this year. And so this includes the superiority study versus Stelara as well as a placebo study evaluating dosing on the product. The full results of the third Phase III study BE SURE became available after the AED submission deadline, and so we plan to share these results in the second half of the year at a major dermatology medical conference. I can also reconfirm that we're expecting the results of the BE READY and superiority study versus Cosentyx by the end of the second quarter, which should be just before we submit bimekizumab with American and European regulators in the summer. The PsA and axSpA programs, which started last year, are recruiting to plan, and we're expecting top line results by the end of next year. We are pleased that the PsA Phase IIb results have been published earlier this month in The Lancet. It's available online already. It's clearly a high-profile and high-impact factor medical publication and this recognition of the potential of the clinical relevance of dual neutralization of 17A and 17F in psoriatic arthritis is very encouraging. So now a quick word about hidradenitis suppurativa. Let's call it HS. So it's an area of profound patient unmet need. And so we look forward to making a difference for these patients and their providers. It really is a debilitating chronic inflammatory skin disease of the hair follicle with painful lesions and often abscesses in the armpits, the genital area, the groin, buttocks and breasts. It actually is not uncommon. The global prevalence is estimated to be close to 1%. And so this disease typically starts in the early 20s, predominantly in women and it's associated with multiple comorbidities, including anxiety, depression, embarrassment as well as other inflammatory conditions. So patients are not well served by the health care system and also not pharmacologically, where only one drug is approved for this condition, and that is HUMIRA. So it really is an emerging area, but an area of really very high unmet need. And so the basis for our Phase III program is the successful Phase II proof-of-concept study, which we conducted with bimekizumab. The results were clearly positive. We shared them at the recent hidradenitis suppurativa meeting, the European HS Foundation meeting, early February. And based on these very encouraging results, we're starting 2 identical, 1-year placebo-controlled studies, as we speak. And we're testing 3 dose regimens of bimekizumab and to allow HUMIRA prior exposed patients to be included. So the question could be, of course, in a large, growing and competitive space, how might we assess bimekizumab's potential? And there's probably important factors that we should consider when selecting medicines for these patients across these diseases. So we invite you to look at 4 factors. The first one is that there's significant intersection and progression across diseases, certainly, between psoriasis and PsA, that's well recognized. But also between psoriatic arthritis and axSpA, there is intersection. And there's an emerging set of scientific articles that point to axSpA patients suffering from HS and vice versa, maybe not in large proportions, but certainly in the range of 10%. And that perhaps points to common pathobiology, which should be encouraging for a drug like bimekizumab with its axSpA Phase IIb results. So if the Phase III and IIIb data confirm our findings of Phase II, bimekizumab can be regarded as a very attractive option across the spectra of these diseases by health care professionals, but also by payers. So next to that, of course, and thinking about the first indication that will hopefully hit the market psoriasis, we're also looking at speed to meaningful response. So often for patients, it takes months before knowing whether the injections they're taking actually work. There's a depth of response as well. So can we fully eliminate the symptoms and enable patients to completely forget about their disease. And then the fourth criterion could be the durability of the desired clinical effect because there's a lot of anxiety of symptoms coming back, and that is certainly an area, which clinicians are constantly complaining about, is the loss of efficacy with many of the available agents. So this kind of rounds it up for bimekizumab. Let me perhaps briefly share a few points about Evenity, which you might also have heard in the Amgen call if you participated. So as Jean-Christophe said, Evenity is an innovative bone forming treatment for postmenopausal women with osteoporosis and at a high-risk of fracture. It affects 75 million people in the U.S., Europe and Japan, and 1 in 3 women over 50 will suffer a fracture. So despite this being common, only 20% of fracture patients currently receive any type of treatment post-fracture. So there's an enormous unmet need here. And the question, of course, is who's at the highest risk of a major osteoporotic fracture. And clearly, it's -- those women who have had a fracture that then have a 5 time higher likelihood of suffering a second fracture within the next year or 2. So that is quite an important marker. And that is also where we are positioning Evenity together with our partners, Amgen and Astellas. These fractures can be life-altering events. And so therefore, really demand action, not just in terms of treatment, but also in screening patients and making sure that patients get sent to the appropriate physicians. So with Evenity, it's more about getting patients identified and treated than about displacing other medicines. We think that with its fast and unprecedented bone building results and fracture risk reduction, Evenity can be seen as a 12-month treatment before then transitioning to chronic therapy, and we're very pleased with the December EMEA approval and with the success of the launch so far. Close to 55,000 patients have already been treated with Evenity in 2019 in Japan and in the U.S., and we've planned and are ready to launch Evenity in Germany in March with the support from Amgen and to gain access across Europe during the rest of this year. So to conclude on the immunology portfolio, we have strong growth with Cimzia. We look forward to further growth in the years to come based on multiple drivers. With bimekizumab, we have unique mode of action that is translating to attractive clinical results. And so we look forward to sharing the Phase III results and discovering the Phase III results as we go. And Evenity is off to a very strong start in underdeveloped markets. And so it's really an important long-term commitment that we have to these patients. And with this, I would like to hand over to my colleague, Charl.

Thank you, Emmanuel. So first of all, good morning, good afternoon to everyone, and joining the call today. I'll make some quick opening remarks before I go into some more specific details. And first of all, I want to express my confidence around how we're building a very diversified neurology franchise in the short and midterm. And there are 3 important messages I want to just convey and 3 important building blocks for our neurology franchise. First of all, we are starting off with a very strong foundation in epilepsy, and we see the short-term to mid-term growth continue to be fueled by some of our core brands in our epilepsy franchise. Secondly, in the midterm, we see also a very nice expansion into neuroinflammation, which is an area of rare diseases, with a high degree of unmet need. And here, we have 2 very strong assets in this case, rozimab as well as our acquisition of Ra Pharma with 2 modalities that could give us some strong positions in rare diseases and a variety of unmet need areas for the future growth in this area in the midterm. And finally, in the long term, we have a very strong foundation in neurodegeneration. Clearly, we have a legacy in Neupro and a deep understanding of Parkinson's, but we also have a very strong scientific competency and understanding of this area, which leads us to some new treatments potentially here with the confirmatory study also for anti-tau in PSP. So over those 3 horizons, we see a very nicely balanced position in short-term as well as mid- and long-term growth, and I feel very confident that we are in a strong position over the next years in our neurology franchise. So if we go a little bit deeper into the discussion on epilepsy, and I just want to again here express my confidence around our position that we have in epilepsy, and we are really here seeing a very strong portfolio of choices for patients and for physicians to treat the different stages of epilepsy. We have a very strong position in the controlled area with brands like Vimpat, our legacy of Keppra and also strong emerging growth of Briviact. Then we have new launch, as Jean-Christophe had mentioned, in the area of seizure relapse with Nazolam in a very high unmet need area, and we see some very strong performance and early results there that give us confidence that we have a real winner in this particular area called seizure relapse. And then finally, during this year, first quarter 2020, we will also reveal more insights into padsevonil, which, we believe, will address an important area of refractory patients where there's a high unmet need as well. So when we think about our epilepsy position today, we have a strong portfolio that is generating for us options and solutions for many patients across a wide range spectrum. As well as a very strong position on a geographic level, which I will speak to in a little short while, where we also see the foundation of our growth across all our key geographies. And therefore, with this position we have, being a trusted leader, a very strong foundation that we have in legacy as well as in our future offerings, we are very confident that we are in a position to continue to fuel the growth in the short to mid-term from our epilepsy franchise. So if we spend a little bit of time just going into Vimpat, which is one of our key growth drivers, I want to express 3 reasons why I'm very confident that we can continue to see this nice growth path for Vimpat in the short term. First of all, the profile of Vimpat is very broad in terms of mono as well as add-on. It is really the trusted choice for many physicians today. They have a -- we see a broad prescription across a large number of physicians. So it's really their first go-to for the early-stage treatment, and it's really a trusted brand based on its very favorable tolerable profile. And clearly, of course, the efficacy that it provides as well. Second reason why we are confident is when we think about our engine across our different geographies, you see that on the right-hand side, we have a broad position of presence in all the geographies with our patient numbers illustrated there. And we see here, again, also very strong growth across all our regions, and we're very clear on how we deliver that growth with a very strong basis. Predominantly, our growth is driven by volume with some price, but we see that as being one of the foundations for continued growth. The fact that we can generate new growth through new volume and new patients with our offerings that we have today. And finally, the third reason for that continued growth is the life cycle management that we see expansion into new geographies, Japan, China and also new indications that we've listed there with regards to submissions that we will have in the first half of 2020. So I'm, therefore, very confident at this stage with what we have in our hands to be able to continue to see this growth going forward. And we are, therefore, very confident that we can increase the peak sales from EUR 1.4 billion to EUR 1.5 billion guidance based on our current evidence that we have. So if we then just conclude on epilepsy. And just to give you a very quick, again, conclusion we see that this is 50% today of our net sales of UCB. And we have a very strong track record of growth, as you see there, 14% or on a constant basis, 10%, and it's very much driven by our leading brands of Vimpat and also Briviact. And those 2 offerings are continuing to show very strong growth as we see them in the midterm. And we will continue to see the execution of each of those in all the geographies delivering that growth that we want in the short term of at least high single-digit to double-digit growth. But as you've heard from Emmanuel as well, today, we have 50% of our business in epilepsy, but we also see our position diversify in the midterm with, of course, the additional growth in Cimzia, the launch of Bimab, and also our position in neuroinflammation with the launches that are upcoming in rozimab and Ra Pharma so those 7 launches that you've heard Jean-Christophe talked about, will diversify our position very much in the midterm. But in the short term, we are very confident about the growth we can deliver and contribute from the epilepsy franchise. So with that, I'd like to make some remarks on rozimab. And again, here, as I mentioned in my introductory remarks, this is the new -- or let's say, the future vector of growth for us in neuroinflammation. It is a clear asset that we see as a potential to address a large number of patient populations. We have started development in 3 of those, as you see there. And -- but we believe there's potential for additional patient populations that could be addressed with rozimab based on a broad platform that we have of IgG-mediated diseases. And complementing that is our second modality, which is Ra Pharma acquisition that will give us a different molecule, not a monoclonal antibody, but a peptide that will have a different mode of delivery and also a different mode of action in complementing inhibition. And when you put those 2 together, we feel very confident when we look at our platform that we have on rozimab as well as Ra Pharma that we can diversify our neurology footprint and our position into rare diseases in areas of high unmet need and also where there's lower competition. And just to give you a sense of rozimab, clearly, we are focused on developing in a broad range of patients. But we see, certainly, in the market of plasmapheresis, which is today, an area where most patients are receiving their treatment that there is high unmet need there. Patient preferences for alternative ways to deliver potentially subcutaneous at the place where they choose, and we see rozimab living up to their promise and being able to address that market, which is today estimated around EUR 11 billion in plasmapheresis. So a strong potential opportunity for us in the future there. And then finally, I would like to conclude on Ra Pharma, just to say some words on Ra Pharma. As you would have heard from us before when we signed the deal, we see a very strong rationale for this acquisition. It feels important components for us in our long-term growth in urology. First of all, it fills a very clear gap in giving us the potential to lead in myasthenia gravis with an option that allows patients to be treated in a more maintenance phase or a controlled phase with zilucoplan, and we see that very nicely then complemented also with rozimab in stages where patient needs are more in a refractory stage, where they need more intermittent treatment. And we see those 2 options really providing many solutions for patients to be able to treat myasthenia gravis in the most effective way going forward. Secondly, with, as I mentioned previously, the rozimab franchise and platform together with Ra Pharma, gives us 2 modalities in rare diseases and really gives us the opportunity to expand into new patient populations that we have not been able to treat before. And the third important component of this deal is that it provides us a very strong scientific platform. We are very pleased with the scientific foundation of Ra Pharma and really the ability of the macrocyclic peptide platform to be a potential discovery engine for us, will be an important element of this deal as well. And finally, it allows us a stronger strategic footprint in our Boston Healthcare space, which is an important ambition that we have as well to be present in that important space in the U.S. So before I hand over to Detlef, I will just again conclude and leave you with the 3 important messages of why we're very confident around our neurology franchise: firstly, epilepsy remains a very strong foundational growth. We are very confident around our trusted leadership position there across many geographies to be able to deliver the sustained growth in the near term; secondly, neuroinflammation with rozimab and also the Ra Pharma acquisition give us a very strong position to broaden our patient populations into rare diseases; and finally, our longer-term position with our strong scientific base in neurodegeneration and with the tau -- anti-tau molecule going into confirmatory stage, we believe, we also have a strong position in neurodegeneration in the mid- to long term. So with that, I'm going to hand over to Detlef to take us through some of the financial positions.

Thank you, Charl. I have to say that the financials are very good despite that a bit boring when you compare it to what Charl and Emmanuel were able to display in terms of what we are doing at the moment, but what we can do also in the future. Let me lead you to -- through the main topics here, just for completeness. We achieved revenues of more than EUR 4.9 billion, as promised earlier this year, which is 6% growth, 7% on a constant base. So very nice and mainly driven by core products. And when you saw the presentations, I think, you got a sense of this and got a sense of the strong growth that we have been experiencing and that also have led to a very strong year finish. When you look at the operating expenses, it is not a surprise in the situation that we are in with launching, with preparing launches but also having a broad pipeline in Phase III, that our expenses are going up. We have 10% more R&D expenses within our guidance. We have 15% increase in marketing and selling, which makes sense in terms of what you've heard of the launches and also the impact that these launches had. And we have taken the opportunity of a good year also to invest in all the growth pockets that we could see to really take advantage of our strong offerings. That has left us still with a very positive rEBITDA, recurring EBITDA, of 29.1%, which is slightly above the corridor and slightly above what we have guided. And it is over proportionally on the constant rate, which is the more telling variable here. When you look to profit, one thing that might have surprised you a bit was the tax rate. This is also very easy to explain. We have been talking to you about our tech strategy and being prepared to take advantage of the different patent boxes, R&D credits and with a bit of luck of tax reforms like they happened in the U.K. and Switzerland this year. And that is exactly what has happened. And with more profit, more opportunities of these tax opportunities come in. That is why, as these incentives were given also by the different countries to spur innovation. Core earnings per share then are more or less a result of that, over proportional growth, same like profits, with EUR 5.2 per share. I'd like to bridge to really 2020 with 2 slides. The first one is about the growth that we have been experiencing consistently over the years, and Jean-Christophe has referred to it, so I will make only one point on that. We have been telling you that we will have to invest more. We have invested more, but we have also managed well, and therefore, have been able, despite increasing R&D and despite increasing sales and marketing, to still keep the -- our rEBITDA percentages high. The next slide is more about investing in through the right things. And what we have been trying to tell you is that we are very conscious about that we have to reallocate the moneys to the right things. And when you look to the left side of the graph, then you see that cost of goods have been going down. R&D has been going down until 2 years ago, when we start into the preparation of our acceleration and expand phase with this broad pipeline that you see today and marketing and selling is more or less 1 year later where we are taking advantage of these products now coming to market. And you have seen the launches in that year. So when you see G&A, we see no peaks there because we are getting more and more efficient and with more sales, this can also be achieved. So we want to leave you with this impression, I hope that you anyway have, that we are managing towards impact, and this is a good investment for the future. On the right side of the graph, it is something to be celebrated, at least, internally. We have reached net cash this year after long, long years of being in net debt position. We'll change that quickly with the expected Ra acquisition, a substantial part of that firepower that is created out of that is going away, but there is a bit of firepower left that can be used for the right things. Also here, investment into the right things and preparing yourself so that you can do that by real good reallocation. Leaves me with the midterm guidance and the 2020 guidance. Let's start with 2020. Before we forget that this does not include the Ra Pharma acquisition, as we have not closed on it, this would not be opportune. So the revenue that we are foreseeing is EUR 5.05 billion to EUR 5.15 billion. It has continued strong core product growth, which you might not feel all the time when you look to the number, but there is more than these core products. There's established brands, there's supply in terms of manufacturing for the divested products, there's divested products, and there's also Keppra that is starting to erode more. So don't let yourself be tricked into -- this would not be ambitious. This is a good guidance with the parameters that I just offered. In terms of our rEBITDA, we're expecting 28% to 29% of revenue. When you have in mind that we are close to 26% today, in 2019, we're now thinking that it will be 28%, plus/minus 1% for R&D in the coming year, which already explains to you that we are making still good progress on the reallocation and keeping the profitability. Core EPS is a resulting number more or less out of this, and we are expecting EUR 4.80 to EUR 5.20. The tax ratio should be staying somewhat around the mid-teens for next year. And I would also encourage you to see this as a good number, a good range for your mid-term models, there will be fluctuations up and down. But when you want to model, this would be not bad to do, which brings me to the midterm guidance. rEBITDA revenue ratio of 31% will be 2021. Don't forget, we said it will move to 2022 when Ra will be closed, but we have given these numbers without Ra. Therefore, we are also moving back for this time. Peak sales will be more or less the same for Briviact and Neupro, and Charl and Emmanuel were already talking about Cimzia being at the level of more than EUR 2 billion and Vimpat at the level of more than EUR 1.5 billion as peak sales. With that, I would like to conclude, leave you with the feeling and hopefully, also your impression that these are very strong numbers and that we have delivered in the different things that we did want to deliver and hand over back to Jean-Christophe.

Thank you, Detlef. So we are now at the end of this presentation. I hope you have seen through the different presentations from Charl, Emmanuel and Detlef, the strong results in '19, and also the confidence in the future. The future starts tomorrow, and you see here for 2020, the different trigger points that we have. It will be a rich year in terms of continuation of acceleration of the pipeline, with the various step for rozanolixizumab, bimekizumab and padsevonil. You see also here the closing of Ra Pharma at Q1, the submission of bimekizumab in psoriasis at the midyear, as Emmanuel mentioned. And also, another Phase III starting in lupus with dapirolizumab in first half of the year. And our anti-tau UCB0107 Phase III that will start in Q2 that we have not mentioned yet. So you see strong year, good performance delivered, confidence in the future. This year, a continuation of the acceleration of the pipeline and important trigger point as we continue to strengthen our future. You know that our plan is to launch up to 7 products by 2025. This notion of 6 or 7 is, of course, linked also to the acquisition and the closing of Ra Pharma, that's the reason of the 6. We have already 2 launches done with Evenity and Nazolam. This will help us to fulfill our missions to deliver sustainable patient value for the patient that you can see here as an example, [ Anikere ], Christophe, Wendy, Victoria, Lloyd and Kelly and so many others, who aspire to live the life that they want, which is also our aspiration to be able to deliver that for them. And with that, this closes the session, and I would like to open now for the -- for your questions. And just before opening to the questions, I would like to let you know that Iris have also joined us and will be available to answer your questions.

Thank you very much, Jean-Christophe. [ Qayyum ], if you can start the question-and-answer session, please.

[Operator Instructions] We already have a question from Peter Verdult from Citi.

Peter Verdult, Citi. Three questions, please. For Detlef or Emmanuel, just on understanding the profitability flow-through to UCB on Evenity, especially in light of the drug sales ramp far exceeding expectations. You booked roughly about $10 million of other operating income on $150 million-odd of sales. So look, just the drug is on track to do more than $500 million. I mean, our back of the envelope calculations implies that that could flow through to at least $100 million of other operating income coming through. I realize you're not going to talk exact numbers, but anything you're willing to share and help us just better understand sort of the flow-through on profitability there would be very helpful. Moving to the pipeline for Charl, JC or Iris, padsevonil data coming out next month, I believe. I think historically, this drug has been positioned as treatment-refractory epilepsy. When we speak to the docs, the profile that sort of was hinted at, as the Phase IIa comes through without any big issues with cognitive disorder. The message we're getting is that this could be a sort of add-on of choice or second add-on of choice. So I just want to understand from a UCB positioning, is padsevonil a sort of Briviact sort of niche product? Or could this blue sky be a sort of [ impact ] replacement? And then lastly, Detlef, it's sad to think this might be the last time we hear your dulcet tones on the conference call, you've built a good reputation over the years guiding conservatively at the start of the year and always coming up with higher EBITDA and a tax rate way below guidance by the end of the year. Is it safe to assume with your successor yet to be announced that the spirit in which you've approached giving the guidance for 2020 is particularly conservative this year?

Peter, Emmanuel here. I'll start with answering the Evenity question and invite Detlef to jump in. So our partnership with Amgen is a 50-50 profit split partnership. And we have a partner in Japan, namely, Astellas, and so the costs and the rewards that go to Astellas for the piece of work they do is subtracted from the profit pool before we share it. So that's what I can tell you at this point. And in terms of future, of course, it will depend on the ramp-up as well. And the price point for this agent is different than for biologics in autoimmune, for example. So relatively, the COGS is a little higher than you would see with biologics. Detlef, anything to add here?

No, I think you made it perfectly clear.

So on padsevonil, maybe...

I can start and...

You can start and then...

Yes. So thank you, Peter, for your questions as well. The inclusion of criteria for padsevonil is really in refractory today. And we see, as I showed in my slides, 25% to 30% of patients are in this refractory segment where there's a high unmet need. So that will be our core initial positioning. I think we will learn more as we understand the data over the next months, if there is a potential broader usage. But certainly, today, we see it strongly in the refractory space where there is a very high unmet need. So Iris please add, if you would like as well?

No, there's not much to add. Peter, as you remember, padsevonil combines 2 of the most potent mechanisms of action in epilepsy, synaptic vesicle blockage plus a GABA-A receptor interaction. So it's only natural that we have selected those patients who are in most need for the initial treatment opportunity with padsevonil. You might also remember that the International League Against Epilepsy defines patients who have tried more than 2 antiepileptics and have no satisfactory treatment response as drug resistant, and we are enrolling in our clinical studies patients who have tried at a minimum 4 antiepileptic medicines and still are not controlled. So we are really, in the clinical trial, studying a highly drug refractory patient population. And that, in combination with a very potent mechanism of action, should give us unique outcomes that have not been demonstrated before. We will see results before the end of this quarter, and that will give us a basis for a discussion in a data-driven way, and that's the next big step.

Thank you, Iris. And Peter, if I may say, you have asked your questions about the spirit of the guidance in a very elegant way. And so Detlef, I will be curious to hear what is your perspective on it.

Peter, thank you very much for your perspective. I appreciate that. I have approached the guidance more or less, as always. So not a lot of change. As you know, we are giving, in this guidance, the benefit of taking the risk on FX rates. We are taking the risk on very volatile interest rates and therefore, we are approaching it with what we believe [ in this guidance ] can be delivered. For sure, and our track record shows that, the company has always delivered. And I would expect also that we will deliver this guidance. And if things are a good one as well as we saw that in 2019, which was a bit better than we were expecting, otherwise, we would not have had to do the financial guidance update, then possibilities. However, we are in an investment phase. And that also means that -- I mentioned that before that we try to take any opportunity that we have throughout the year also to reinvest. So in that regard, I feel, to date, very comfortable that this is a guidance that we can achieve as we have achieved the others. And that our product portfolio is strong, therefore, we hope to have a bit of opportunity to reallocate in opportunities when they are coming. I mentioned before, just -- perhaps it might have been lost, that the top line, I read in some of your comments and it's very understandable, from [Audio Gap] looks a bit cautious. But when you think that we probably have to see each for Keppra established brands, the other revenues, royalty lines and divestments, an impact of roughly, let's say, around 1%, then I think [ that's what I ] mentioned. Then you are -- I think it was quoted 2.5% to 4.5% is moving up to something that looks much more in line with what you would expect from our core products. So in that regard, no, I'm very happy to also leave a guidance that can be achieved, but that is also not one that isn't given under oath.

We have another question from Richard Parkes from Deutsche Bank.

Let me have a few questions. And I'd also like to say best of luck to Detlef and I certainly don't remember you missing the guidance in 13, 14 years, I've been following the stock. It's been very helpful. So my question, firstly on Evenity performance. I'm just wondering if you could talk about to what degree we're seeing a bolus of sales in the most severe patients. Can you talk about how new patient starts have continued to evolve since the launch? So that's the first one. Secondly, on the anti-tau antibody. Obviously, there's other drugs that have failed in PSP. I wondered if you could talk about how your compound compares and what evidence you have on brain penetration and target engagement based on the data you've seen so far? And I know you were looking at partnering in Alzheimer's disease and just wondered if that was still ongoing. Third question is on bimekizumab. Obviously, we'll see the Phase III data at AAD, but -- and you've outlined where you see the points of differentiation. But could you talk about, based on the data you've seen internally, does that continue to support your optimism of demonstrating superiority to Cosentyx on PASI 100?

So Richard, Emmanuel here. I'll take your 2 questions, and my answers might be a bit disappointing. But on the first one, Evenity, I'll have to guide you to Amgen. We've agreed with them that the commentary on the markets that they are [ territory leasing ] is going to be for them to make. And obviously, you're right to ask the question. It's a 12-month treatment. So we will need to renew the patients very regularly, and that's why we're investing across the world in ensuring that more patients are seen and are treated. In terms of bimekizumab, I'm afraid we have to wait for the AAD detailed results.

Richard, this is Iris, and I would like to respond to you to your question regarding our tau antibody and our confidence for efficacy in PSP. And you mentioned the failures of competitor developmental assets. So as you know, the pathology in PSP are tau-tangles and we have designed our tau antibody in biological experiments with human material. And we have learned from these experiments that addressing a central epitope results in different efficacy in terms of preventing the spread than when you address peripheral epitopes. And the 2 molecules that you mentioned that just announced phased clinical studies are addressing peripheral epitopes, while our antibody is addressing a central epitope. So if you talk to our researchers, it was expected to see that failure in other molecules, and it's kind of a validation of our approach. Of course, we still have to demonstrate that the blockage of the central epitope will be efficacious. You also asked about target engagement, and please rest assured that we have almost complete target engagement at the doses that we are taking into our confirmatory study. And I think while we all agree, this is, of course, a high-risk program, we have confidence in our data that has led us to go from Phase I directly into a single confirmatory trial. So based on everything that we have seen so far, we believe we have an antibody that holds high potential of being efficacious in this patient population who are very desperate and actually confronted with a death verdict when they get their diagnosis. I would like to leave the question on Alzheimer's partnering to Charl, if I may.

Yes. Thank you, Iris. And actually, yes, we will continue to look at partnering in Alzheimer's. But our primary focus, as Iris had stated also, is in really the development in PSP where we see the primary value of this asset. And that's where we will focus. However, broadening the opportunity with a partnership would be something that we continue to talk to different possible interested parties as well. Okay?

Next question comes from Trung Huynh from Crédit Suisse.

I have 2 product ones and one modeling question. So firstly, on padsevonil, can you clarify the definition of refractory on Slide 16. In that chart, you show 25% of people living with epilepsy are refractory. Is this segment of patients that have failed 4-plus antiepileptics? And when it comes to labeling, will you try and get a label for refractory patients or given both your late-stage trials are in 4-plus failures, would this be the population? Secondly, I might be reading too much into this, but the zilucoplan myasthenia gravis data, that's posted as 1H '21, you previously said the data should be expected early '21. Is there a slight delay there? And then finally, to Detlef, thank you very much for your help over the years. I appreciate you're leaving, but can you help me one last time on your midterm cost levers, given we're 1 year closer to your 31% margin target. So on COGS, is there any opportunity for gross margin improvement here? You did 80% to 82% in 2 years. Does 82% represent a ceiling before your patent expiries? On SG&A, can you help with the growth of your marketing spend as you launch Evenity and [ bime ]? And then finally, on R&D. Thanks for the 28% ratio for 2020. But as we move forward, you're going to have higher marketing. What sort of R&D growth should we see, given you expect to have margin leverage going forward?

Okay. So thank you for your question. On -- so I'll start with padsevonil. So as Iris had mentioned earlier on the call, refractory definition is really failure on 2 antiepileptic drugs. In this case, for padsevonil, we are setting a very high hurdle of efficacy with inclusion criteria for patients that have failed on 4 antiepileptic drugs. So clearly, our label today and our intended label will be very much focused on refractory. We see that as essentially 1/3 of the market, of patients that are still -- have a high unmet need. And so our focus there will be to position padsevonil on the initial label to treat these refractory population. And then I think your second question on Ra Pharma and the timing. This is consistent with what Ra Pharma has publicly stated. So we have not changed that position in terms of readout of zilucoplan.

So then back to the modeling. I think you got it right, both on the cost of goods and G&A, we have still a little bit to go, which it's just also the composition of the portfolio. However, I have to say, and it's not a surprise that our R&D expenses in the next 1 to 2 years will still go up, which leaves us then also, leaves us also understanding why we shifted the year from '21 to '22 because this potentially additional, let's say, 2% to 3% in R&D that is coming on top of what we need for our own late-stage pipeline could not be compensated. And that would then also bring it down a bit in the years in between. However, the marketing and selling, there is a ramp-up that is crystal clear that we are seeing -- have seen already now. We will see that going into the next 1 to 2 years for the key products. But we are also starting to see some opportunity with the overall product portfolio to reallocate. And that will take some of the edge-out of this. So we are comfortable on the 31%, whether it's '21 or '22, depending on without or with Ra Pharma. And I think I have the feeling, we'll make it again. By the way, for the ones that already did that, thanks all the very kind words. I will keep them with me and have them in mind, always a pleasure.

Our next question comes from Wimal Kapadia from Bernstein.

Wimal Kapadia from Bernstein. Just following up again on padsevonil. How much importance should we actually place on the Phase II data ahead of the Phase III next year, just given that the trial design size actually looks quite similar. Is there any possibility of filing on Phase IIb data just given the high unmet medical need? And just tied to that, you're clearly going after refractory population. Is it fair to assume high share, high price, because I think it's around 10% of epilepsy patients actually have failed for antiepileptics. So could we assume a relatively high share in that population? And my second question is just on the upcoming -- well, in 2 years' time the Vimpat genericization. Just to get a sense of whether we should really be using Keppra as a good benchmark. Given that it was a true gold standard at a larger installed base, was approved across multiple indications, so is it actually a good benchmark for how to model Vimpat genericizations? Or should we expect the decline to be somewhat faster?

Yes. Thank you very much. I'll start with your padsevonil, and you're absolutely right. But the Phase IIb study that will read out towards the end of this quarter is a very substantial study, 500 patients across different doses of padsevonil versus placebo. And the study is indeed quite similar to the Phase III study, similar patient population, fewer doses that we are testing in that study. So it's 2 adequate and well-controlled clinical trials. It is very clear that regulatory authority will insist on 2 of these studies to accept submission. Our very early proof-of-concept study, you might remember, was very small, just 50 patients, so that would not qualify in the eyes of the regulators as an adequate and well controlled study. And so we are very clear that we will need both studies for an acceptable filing to the regulators. I have a lot of empathy for your statement that the unmet medical need might lead us to believe differently, but we know very clear from agency feedback that that's not the case.

Perfect. And just to follow on to that. At this point, I think it's a little early to comment on price until we learn more about the profile, which we will certainly evaluate over the next months as we go forward. Then onto your second question on the, how would you model the LOE of Vimpat? There is obviously some differences. Keppra had a lower competition at the stage of when it went off patent. Today, we see with Vimpat and the environment that we face with increased cost containment that you would probably see a slightly higher erosion of Vimpat than of Keppra. So that's how we would give you that guidance at this point.

We have another question from Richard Vosser from JPMorgan.

A few questions, please. Firstly, just thinking about your 31% guidance in 2021, which is the same as last year. You have upgraded the Cimzia guidance, and the Vimpat guidance since then has clearly more sales. I obviously understand that there is things to invest in, but they sound relatively limited in terms of R&D, and you'll be finishing some trials. So just a question why that 31% margin, why the need to clarify Ra Pharma into 2022, why that hasn't actually gone up? So that's the first question. Second question, and apologies if this has already been batted back. But I think I heard that Evenity in Europe, where you will be in charge of the marketing, you might be able to comment on. So perhaps you could give us an idea of the opportunity you think there for 2020 and also a few years out. And then the final question is on hedging losses within the sales line. Just could you give us an idea of the hedging, maybe plans for 2020 and how to think about it. Clearly, there's not much of a currency benefit in 2020 at current rates. So we should be expecting lower losses, perhaps. So just some thoughts there and more detailed thoughts there.

I can take the 2 questions that are more financial in nature. There is this trick. When you look at absolute numbers, and they are rising and you keep the percentage equal that you are tricked into believing the absolute number is also equal but this is rising with it. So that is the first part of it. But the more important part is, it's a very fair point to say it is this overall going up, there should be more money and that is coming down. On the other hand, we also know much more than before in terms of what we have to do. We have additional clinical studies that we are starting that might not have been involved before. But we are feeling that we can compensate that by the improving top line and the profits that are coming by that. So it has not gotten easier due to the success of the portfolio but we are compensating by what I would believe good management and increasing top line. On the FX, I think you're absolutely right. The FX at this moment is a little better than what we saw end of the year and what we saw throughout 2019. So at this point in time, from a hedging perspective, we are running slightly ahead of the game. However, this will be very marginal when -- if it would stay this way. So I would not focus on that. We'll take that throughout the year, seeing what fluctuations will be there and if there's something that can be added, we will add it, as usual.

And Richard, on Evenity in Europe. As you know, access and pricing and reimbursement needs to be obtained in Europe. And so for 2020, the only sizable market to which we will have full access to is Germany. Now Germany is also the most underdeveloped bone builder market in Europe. So my guidance would say that contribution this year will be rather incremental in comparison with Japan and the U.S. and over time, of course, Evenity has significant potential in Europe, but it is something that will take a number of years to play out to an extent that would be really significant in light of a much more developed Japanese market and a U.S. market with different characteristics.