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Edited Transcript of AGY.L earnings conference call or presentation 25-Sep-19 8:30am GMT

Full Year 2019 Allergy Therapeutics PLC Earnings Call

Worthington, West Sussex Sep 30, 2019 (Thomson StreetEvents) -- Edited Transcript of Allergy Therapeutics PLC earnings conference call or presentation Wednesday, September 25, 2019 at 8:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Manuel Llobet

Allergy Therapeutics plc - CEO & Executive Director

* Nicolas Alexander Ulrich Wykeman

Allergy Therapeutics plc - CFO & Director

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Conference Call Participants

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* Christian Glennie

Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst

* Mark Andrew Brewer

finnCap Ltd, Research Division - Research Director of Life Sciences

* Michael Clive Mitchell

Panmure Gordon (UK) Limited, Research Division - Healthcare Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Allergy Therapeutics Company update conference call. (Operator Instructions) As a reminder, today's conference call is being recorded. (Operator Instructions)

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Manuel Llobet, Allergy Therapeutics plc - CEO & Executive Director [2]

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(technical difficulty)

today with me Nick Wykeman, and we'll share the year-end results.

So let's -- for those of you that are on the phone, we are starting straightforward into Page #5 of the presentation, the 3 pillars of growth. We've shown this slide sometimes. Sorry, yes, I said that it was well. So we've -- these are the 3 key areas of development of the company: developing the company in Europe, developing the pipeline and preparing for the U.S. entry.

If we go now to Page #7, we see how we have done in our first focus area, which is developing the company in Europe. It's been a good year. We have faced a more complex scenario this year, not only because of the Brexit preparations, we are the only competitor that have had to face that. But also, we have seen the recovery of our 2 main competitors and also the regulation in Germany forward. And all these factors have made that the company faced a more complex scenario. But in spite of that, we've been able to keep outperforming the market. We have increased our market share 0.5 percentage point in the markets that we participate. And I think an interesting aspect of this year is that it's a growth that isn't explained by a one-off big thing, it's very consistent across markets and across products. In terms of absolute growth, the main contributors have been Germany, Spain, and Austria. In terms of relative terms, we've got very good development in Canada, Netherlands and Czech-Slovak.

In terms of products, the main contributors in absolute terms have been Pollinex, Pollinex Quattro and Venomil. And in relative terms, we've got very good developments on Venomil, Acarovac and Pollinex. So it's been a consistent and robust growth, as I said, across markets and across products.

So if we go to the next page where we show the trend of revenues, you can see that we have consolidated another year of growth. We have, what now, 21 years growing almost double digit, which is reassuring and shows that our business model works and also shows that there is a preference in the market for our proposal, which is convenient products, short-course treatments.

If we review the pipeline, Page #9 and then we turn to Page #10, that's probably the most valuable aspect of the company. And you'll see here the range of projects in Phase III, Phase II, Phase I, preclinical in the U.S., in Europe, so it's either -- well balanced and a very nice pipeline that we are developing. And I'll give you some themes of the main projects.

So in Page #11, we have progressed well with the development of Pollinex Quattro Grass. We had a successful end of Phase II meetings with FDA and Paul-Ehrlich-Institut. So the protocol has been approved, and we are ready to start in autumn next year. That's the last study that we have to do. As you know, we did a Phase III study previously and that one will be a second Phase III with an enhanced dose. And if we get the output we expect, we will then complete the safety database and we will submit the BLA in the U.S.

Remember that we have 3 INDs opened in the U.S., so we have also ragweed in Phase III, 3 in the Phase II. And therefore, if we succeed with Grass, right after that, we'll go for completing the clinical development for the PQ Ragweed.

The Birch study, the B301, has been the big disappointing -- disappointment this year. We did not met the primary endpoint, and the group has gone through a thorough investigation of what had gone wrong. We are not talking publicly about the analysis of the causes. There are commercially sensitive aspects that the company prefers not to mention, but what I can tell you is that we have factored in all the learnings into the new clinical development programs, including the Pollinex Quattro Grass Phase III that we are starting next year.

So that study may be worth mentioning that from an immunological point of view, there was a highly statistical response in terms of IgG and IgG4, and that -- all these, as I said, all these learnings will be factored in for the next Birch study that will be conducted in due course.

Then in Page #13, we have the house dust mite new product. We have 2 products currently for house dust mite and all version with this native allergen called TyroMILBE. And then we have Oralvac House Dust Mite 2. But this is a new project, it's a modified allergen adjuvanted with MPL. It's a state-of-the-art product that represents the short version of what you can find in the market now with 40% less injections. So again, it's going to be a friendly product. In terms of compliance, it will be easier to complete the treatment that those ones that you have in the market now. We are -- the target product profile is to get about 8 injections over the course of 3 years. The Phase I that we completed this year showed us that the product was safe and well tolerated, and therefore, we are ready to progress to Phase II that is anticipated to start in 2020.

It's a very interesting market, I think we have mentioned that before, especially in areas -- in hot areas, the closer to the equator where big populations are living there, and this is a very relevant allergen. For example, in China, there are -- there is so far only house dust mite allergy vaccines. And it's a product that can have a very nice development once we make it a global brand if we go all the way down for the clinical development with success.

In Page 14, we show here also we had progress with the preclinical work that's been a long and almost tedious process. We have scaled up the prototype vaccine into an industrial model that has been also a GMP, and that has taken more than 1 year. But finally, we've got a product. We've got a good final product, and we have already produced the first batches, industrial batches of 100 liters that will go into -- that have gone already into stability programs. So that will allow us to go into humans. We are expecting to have the first human study next year. And we expect to see, again, well, the Phase I will be basically a safety study. But as we progress, we expect to replicate what we saw in the animal model that we conducted.

We have not shown the results of that study because we were building IP, but now this has been completed. And we have completed also the paper that has gone to a publication. And once it has been published, we'll share with all of you some more data. But as we anticipated, the results were very encouraging, full protection for the [more wins] that were vaccinated. And probably most importantly, no safety signals during the vaccination process.

The next slide is just talking a little bit more about the technology. We have shared all this work with -- to European authorities with American and Paul-Ehrlich-Institut. The feedback we've got is very encouraging, and they have encouraged us to move forward and give us -- given us tips to design the Phase I study. But as I said, the first one will be conducted next year.

So if we go to Page #17. In terms of the third focus area, which is the U.S., I said before that we have progressed with the end of Phase II meetings. The protocol has been accepted. We are incorporating all the lessons learned from Birch. And maybe here, only to mention that, well, what you can see here that we have shown also before -- the before and after once we launch the product. But in the middle, the column in the middle probably is the most important to mention now where the dynamics of the market really are driving towards pharma-grade products. There was a new pharmacopeia that was published in June and will go live in December this year. And this pharmacopeia, it's named Chapter 797, and it's basically about more better-qualified people, better as to really the conditions, much more documentation during the process of mixing and compounding. So all in all, it makes the compounding process in the practice much more complex and probably more costly. And therefore, that is in the line of also favoring already made products like the Pollinex Quattro franchise.

Finally, from my side, in Page 18. Just to remind you, there are no registered injectable products. The tablets are not taking off in the U.S. market. So that could be probably the best fit to provide with a solution to the American market. And also to remind you that our ambition is to complete the portfolio. We have, as I said before, 3 INDs open, but we also would like to incorporate new course, the house dust mite vaccine and the peanut vaccine, so we would complete a 5-product portfolio for the U.S.

And now I'll hand over to Nick.

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Nicolas Alexander Ulrich Wykeman, Allergy Therapeutics plc - CFO & Director [3]

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Thank you very much, Manuel. Moving on to Slide 20, it shows the P&L for the financial year ending 30th of June 2019. As Manuel mentioned, we had good growth in revenue, up 8%, that's GBP 73.7 million. Gross profit of GBP 55.3 million, that's 75% margin, pretty much in line with last year. Overheads, 5%, we had a reasonable cost increase, but we've kept the cost growth under control. And research and development, and as you'd expect, we haven't had -- we have the finishing of the Birch and some other work. But overall, we haven't spent as much this year on research and development.

As we stated previously in our trading update and so on, we had a settlement. We had a financial lawsuit against a CRO, which settled successfully just before the year-end. We had a settlement -- cash settlement of GBP 6 million, which has gone through in the P&L of this year. And you will have seen in our announcements as well, we're going to recover cost of GBP 3.2 million, and that will come through in the 2020 financial year.

We have other income of GBP 0.6 million, that's the R&D tax credit. So that left us with an operating profit of GBP 4.3 million.

As you well know, one of the measures that we use to look at our business is all about the operating profit pre-R&D. That shows how well our trading performance is doing. And we finished the year with an operating profit pre-R&D of GBP 11.3 million, that was up 22% on the prior year. And that continues to show that leverage we're achieving by growing the revenue, but growing the cost by less to improve our financial position.

We have slightly high level of tax reflected from the profit we incurred this year or made this year, should I say, so that left us with a profit after tax of GBP 3.5 million.

Moving on to Slide 21. For the sales for the year, I think the first thing to comment on here is usually I have to explain quite a lot about the currency, but for once, the currency is between 2 years on average as, obviously, there's been a fair amount of fluctuation in the euro rate over the last few months. But on average, between the 2 years, we've had very similar currency levels. So they are quite very comparative for 2 years.

As Manuel talked about, we've had good consistent growth across the whole portfolio and across the whole -- across different countries, but particularly good growth in Spain, Austria, Germany and The Netherlands. And good growth, particularly in the products Venomil, Acarovac Plus, Pollinex and Pollinex Quattro.

Moving on to Slide 22, which shows you the balance sheet at the 30th of June 2019. First comment, you'll see that the property, plant and equipment has increased by GBP 1.4 million. Usually, it stays relatively stable. In other words, we're spending as much as we're charging in depreciation. But this year, we've been investing quite heavily as you will have heard in facilities for Brexit. We've extended the cold storage in Spain at our Alcalá facility, and we've installed a whole series of instruments to increase the size of our testing facility in Madrid as well. So there's been quite a lot of investment there.

Moving on to other items that moved quite a lot. The inventory is GBP 0.6 million higher. It was already relatively high at the end of 2018, but that again is planning for Brexit. We shipped a significant amount of product. We manufactured and shipped a significant amount of product out to our Alcalá facility in preparation for if there is a hard Brexit at the end of October so that we can ship out from Madrid to our Continental European hubs.

Our trade and other receivables were up GBP 3.2 million. We usually keep a very tight rein on our working capital position, but that was due to the fact that we haven't fully received the full settlement. So we received the settlement of GBP 6 million, part of that was used -- that was paid to our lawyers, and not all of it has been received by, so we had a debt of GBP 3.2 million at the year-end that was paid shortly after the year-end.

So we finished the year with a cash balance of GBP 27.4 million, which is a good strong position for the cash.

We have debt in the year of GBP 2.4 million. That continues to fall from the prior year as we pay off some of our debt that we inherited when we purchased the Spanish subsidiary.

Moving on to Slide 23, which is the cash flow. As you would expect, our net cash generated by operations was positive GBP 5.7 million, and that obviously reflects on the strong trading as well as the settlement in relation to the legal case. On top of that, obviously, in this last financial year in July 2018, we had a share issue. So we had net proceeds of GBP 10.2 million. So I think, overall, as I mentioned, we finished the year with a good, strong cash position. And what we stated before is that cash will be enough to pay for our Phase III Grass trial that Manuel has already talked about earlier.

So moving on to Slide 25, which gives you the summary and outlook for the year. To summarize, and as Manuel has described before, we're delivering on all 3 parts of the strategy. We've got a strong trading performance. We continue to move forward with the pipeline. Obviously, we were disappointed by the Birch results, but we have lots of learnings from the Birch results, which will flow into our Grass trial. And very excitingly, we have the first trial of the peanut, which comes in the next summer, summer of 2020, where we have the first in human, where we'll be doing skin prick tests and potentially some subcutaneous work on patients. So it'll be the first time we got peanut into human, so it'd be very exciting point. We have to start the preparations for the Grass Phase III trial, which will start in the autumn of 2020. And we're looking forward to further development and growth of the business.

There are, obviously, a couple of things on the horizon, which we need to keep an eye on. One, obviously, I've talked about already, which is Brexit. We're really not quite sure where it's going to end up. We've been working very hard to prepare for that, as I mentioned, with work of getting these facilities in Alcalá plus moving stock out to there.

And the second area is the regulatory area. And there, we're seeing there's quite a lot of turbulence in the market, particularly in Germany and some, but that affects the whole market not just us, but all our competitors. But as you can see, focusing on our strategy has been very successful and the performance this year has been good.

And then finally, moving on to Slide 26, that just gives you the key milestones. I think really the ones to focus on will be, as I said, in the summer of next year, which is really when we really see peanut for the first time in human, which will be a big step forward for us, and the preparations for the Grass Phase III trial, which we're very much looking forward to.

Okay. Thank you very much.

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Manuel Llobet, Allergy Therapeutics plc - CEO & Executive Director [4]

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Thank you, Nick. So we'll be very happy to take questions from the room first and then from the phones, if any.

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Questions and Answers

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Manuel Llobet, Allergy Therapeutics plc - CEO & Executive Director [1]

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Mike?

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Michael Clive Mitchell, Panmure Gordon (UK) Limited, Research Division - Healthcare Analyst [2]

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Mike Mitchell, Panmure Gordon. On peanuts, the work that you're doing and the commentary in today's segments speaks very much to the sort of European focus in terms of regulatory steps. I just wondered could you give any more color or indication about the -- likely a shape and profile of these initial trials. And given what's happening in the U.S. what we've seen over recent days with the progress with Aimmune and the FDA Advisory Committee on AR101, how does the current shape of the trial plans then fits with future U.S. plans?

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Manuel Llobet, Allergy Therapeutics plc - CEO & Executive Director [3]

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Yes. I think peanut is quite different from nonfood allergens and the main factor is recruiting because it's very hard to recruit young people and children for the studies, and therefore, it will take a while. We don't know if we can achieve breakthrough designation or the kind of fast track, how this can shorten the development. But I would say not before 2024, probably to complete the programs.

But we see this news from, as you mentioned, Aimmune and the AV, pretty good news because this is a first generation of products that will start building the market. And if we are successful when we launch Polyvac, we'll get already a market with we expect a much better product.

Maybe also worth mentioning that we are -- we see VLP more as a platform as we did for PQ than one-only product. So we are already planning to incorporate different allergens into this structure in a way that we can open the portfolio to other different allergens and use this VLP knowledge as a platform to generate new vaccines. Sorry?

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Unidentified Analyst, [4]

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So exactly the same as vaccine.

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Manuel Llobet, Allergy Therapeutics plc - CEO & Executive Director [5]

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Yes?

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Unidentified Analyst, [6]

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(inaudible) sorry. (inaudible) Quick question, (inaudible) dust mile product and your planned 40% reduction, do we know -- that's a big reduction. But given the 15 -- 12 to 15 injections are normally required, do we know what the compliance rate for vaccines at least 12 to 15 injections is? In fact, you think 8 injections, do you think that will overcome a compliance issue? Do you think it's meaningful to reduce it by 40%?

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Manuel Llobet, Allergy Therapeutics plc - CEO & Executive Director [7]

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We don't have data from compliance. We know that the longer the treatment, the poorer the compliance. And I can tell you that each visit that you save to go to the doctor is very meaningful because going to a doctor (inaudible), you have to go there, wait to check in, get the injection, going for about half an hour, 45 minutes, then check out and go home or go anywhere else. It's kind of a -- any visit you can avoid or save, it's quite meaningful. And I say because I experienced that, so...

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Christian Glennie, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [8]

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Christian Glennie with Stifel. On the Birch study, there's a couple of things that lead from that. I get the point that you're saying it's potentially competitive reasons that you don't disclose necessarily the learnings from that, that inform us, but it's hard for us to then assess what the implications, therefore, are of that failed trial and what gives us confidence around further success either in Birch and/or Grass. So I don't know if you can share anything else more on that in terms of your learnings. And then the second part of it, what are the -- what is -- you've mentioned I think in the statement, ongoing discussions with German regulator on the data. Is there any particular update in terms of their view, how they're seeing the outcome of that study?

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Manuel Llobet, Allergy Therapeutics plc - CEO & Executive Director [9]

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Well, the implications clearly are that we will not be able to use this study as a pivotal study for marketing authorization. We'll have to repeat the study, and that's already been agreed with the agency.

In terms of assessing the probabilities of success, I mean, basically, the only thing I've -- we can tell you is that if we were not confident that we have addressed the issues, we would not go ahead with the PQ Grass study. So as long as we go ahead with the PQ Grass study, because we feel confident that we have addressed the problems we found in the Birch study.

And regarding the regulation, it's just kind of information. We've been informing for many years that there is a new European legislation that is asking all the manufacturers to register the products, and the NPP model will be -- will disappear in few years. And therefore, all the industry is going through registration processes. This -- the first step was showing and demonstrating state-of-the-art CMC last year, and now we are -- all the players in the market running the studies. And as I said -- we've said sometimes before, when this process started in Germany, that was the first country to tackle this European directive. There were around 140 submissions and this number, now it's reduced by around 50%. So that means that almost all of our competitors have lost applications during the process. And we've probably been the only company, I'm not totally sure, but we submitted 10 and we still have the 10 in the market. But that does not mean that, eventually, we can lose also one of the applications. So that's -- as the TAV is progressing and maturing, that could happen and -- not only for us, it has been happening for some of our competitors, and therefore, we are just creating awareness of that.

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Unidentified Analyst, [10]

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Maybe a couple on Christian's question then. If we look at the learnings from the Birch study, I know you said it's commercially sensitive, but the learnings are going to be applied to the Grass study, that means there's nothing fundamental. It's relatively straightforward things that you're learning. Is that fair?

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Manuel Llobet, Allergy Therapeutics plc - CEO & Executive Director [11]

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Well, there is one special thing that we believe that is the one that had the most impact. But also, we took the opportunity to review all the aspects and will be incorporated many other things. That -- I mean the e-diaries, for example, completion, the questionnaires, the placebo effect, the -- there are -- I think there is one main thing that we believe impacted, and it's responsible for the result. But we took this as an opportunity to improve many other aspects and tried to reassure that next time with Grass, we'll be successful.

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Mark Andrew Brewer, finnCap Ltd, Research Division - Research Director of Life Sciences [12]

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Mark Brewer, finnCap. In terms of the Grass study and the discussions that you've had with the FDA and PEI, can you give us some greater clarity on the protocol that you have agreed with the agencies in terms of patient numbers as well as also the -- your intentions with regards to safety database that you have to build that's included within your assumptions. And also in terms of biomarker data, I guess, they are still secondary endpoints, but is there any sort of greater weighting being attributed to those markers by the agencies?

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Manuel Llobet, Allergy Therapeutics plc - CEO & Executive Director [13]

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I don't know if we have talked about the design of the study...

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Nicolas Alexander Ulrich Wykeman, Allergy Therapeutics plc - CFO & Director [14]

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No.

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Manuel Llobet, Allergy Therapeutics plc - CEO & Executive Director [15]

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Okay, okay.

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Nicolas Alexander Ulrich Wykeman, Allergy Therapeutics plc - CFO & Director [16]

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Yes. I think what we need to be clear on is, obviously, we've had the end Phase II discussions on the Grass trial. We've got the learnings on Birch. We integrated into that, so we will have to have a further discussion with the regulators in order to clear the final protocol before we start on the Grass trial. So as far as the -- as far as what we've publicly said about the trial, we have agreed a level of safety database with the FDA. And as well as that, we have a basic outline of the type of trial. But as I said, we cannot feed in some further learnings with Birch in order to -- as Manuel said, we've got some very, very concrete and [specific things] that we want to do in relation to the trial and the way we approach it.

Coming on to your question about the primary endpoint. I think at this stage, we are looking into the possibility in the maybe mid- to long term of whether or not we can move to position where maybe we start to move away from the total symptom score. But at the moment, that is the way that it's measured in these field studies. So we'll continue to be the primary endpoint. However, we are doing quite a lot of work on biomarkers because we feel that will be the future. To get to something that's a more objective and well-defined score will be an ideal way to go as far as trials are concerned. But at this stage, it's not accepted by the authorities. And obviously, in order to make the authorities consider that more seriously, we need to provide more data on what's happening with that. So we'll continue to use that as one of our secondary endpoint, and we're also doing further research in that area as we move forward because, obviously, it tells -- not only is this an ideal thing to move forward as one of the endpoints, but on the other hand, it tells all sorts of information about our patients.

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Christian Glennie, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [17]

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Just a follow-up on the market share gains, and I think you mentioned earlier around competitors coming back in and things like that, slightly more competitive environment. Is that the key reason maybe why -- I mean a couple of years ago, you laid out a 20 by 20 target in terms of 20% share by 2020. Obviously, there's somewhere to go in terms of the current rate. But is that -- is it a really competitive environment? Is there anything else to particularly comment on in terms of those gains in the market. Clearly, you are growing above market rate, but what are some of the dynamics there?

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Manuel Llobet, Allergy Therapeutics plc - CEO & Executive Director [18]

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Yes. I think well, that was a very aspirational goal. In our thinking at that moment, we thought that the regulatory environment would move quicker, and therefore, we factored in, in those assumptions, that may be more competitors would not be able. But because of the processes being delayed, the market keeps crowded. And therefore, the market share gains have slowed down in some way.

In terms of the 2 main competitors coming back, as you know, both of them have faced significant issues in terms of supply and portfolio restructuring, and that came to an end at the end of last year. And now of course, the competitive pressure is higher, but we are pretty confident that we can keep taking share -- market share and -- but it's a fact, the market is more complex now than 2 years ago.

Thank you very much. Are there any questions from the phone attendants? No?

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Operator [19]

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(Operator Instructions)

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Manuel Llobet, Allergy Therapeutics plc - CEO & Executive Director [20]

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Okay. Thank you very much for attending this year-end results, and we'll keep posted of any news from the company. Thank you very much. Thank you.

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Nicolas Alexander Ulrich Wykeman, Allergy Therapeutics plc - CFO & Director [21]

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Thank you.

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Operator [22]

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That does conclude the conference for today. Thank you for participating. You may all disconnect. Have a nice day.