U.S. Markets closed

Edited Transcript of GALNA.S earnings conference call or presentation 8-Aug-19 12:00pm GMT

Half Year 2019 Vifor Pharma AG Earnings Call

Bern Aug 17, 2019 (Thomson StreetEvents) -- Edited Transcript of Vifor Pharma AG earnings conference call or presentation Thursday, August 8, 2019 at 12:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Colin Bond

Vifor Pharma AG - CFO

* Etienne Jornod

Vifor Pharma AG - Executive Chairman of the Board

* Stefan Schulze

Vifor Pharma AG - President of the Executive Committee & COO

================================================================================

Conference Call Participants

================================================================================

* Christian Glennie

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

* Christoph Gretler

Crédit Suisse AG, Research Division - MD in Equity Research

* Hae Won Na

Goldman Sachs Group Inc., Research Division - Associate

* Holger Blum

Patinex Management AG - Analyst

* James Daniel Gordon

JP Morgan Chase & Co, Research Division - Senior Analyst

* Laura Pfeifer-Rossi

Octavian AG, Research Division - Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Colin Bond, Vifor Pharma AG - CFO [1]

--------------------------------------------------------------------------------

(technical difficulty)

here, Vifor Pharma. And I would like to welcome everyone to the 2019 half year results of the company.

The format for the next hour is as follows; Etienne Jornod, our Executive Chairman, will provide a short update on the Vifor Pharma strategy and our ambitions up to 2025. Stefan Schulze, the President of the Executive Committee, will then give a business update for the first half of 2019 and an outlook of all relevant news flow expected for the remainder of 2019. I will end the presentation with a short update on the half year results and our financial guidance for 2019. We will then open it up to questions on the call.

So with that, it's my pleasure to hand over to Etienne.

--------------------------------------------------------------------------------

Etienne Jornod, Vifor Pharma AG - Executive Chairman of the Board [2]

--------------------------------------------------------------------------------

Thank you, Colin. Ladies and gentlemen, I also welcome you to this call. I will be very brief in reporting our first half 2019 figures. We are overall absolutely on track and even better than forecasted. All the goals that we have set are more than achieved. We will update our guidance for all year 2019, and we are very confident to deliver our plan, Milestone '20.

It is once again the results of the strategy initiated in 1995 and the shift to quicken the steps, steps taken to create a pure-play pharmaceutical company. With our own product benefit in Ferinject, we built the IV iron market and became global leader with a market share above 70% today. In a few days or weeks, Ferinject will even reach the CHF 1 billion in market sales.

With the creation of the joint company with FMC in 2010 and the subsequent expansion of our nephrology portfolio, we established a leadership position in nephrology. We became the partner of choice for development in the space of biotechnology companies in this field. As an example, Mircera as a Roche in-license product is even now our [best] product overall.

Finally, with the acquisition of Relypsa in 2016, we entered the cardio-renal disease area with Veltassa. And now we are -- we have our own organization, our own financial presence in the United States at our disposal. These critical achievements are the core elements of the value of Vifor Pharma today and should also allow us to reach our Milestone 2020 milestone.

It is in our corporate culture to set ambitious targets. In March 2017, after the acquisition of Relypsa and at the time of the IPO of getting Galencia Sante, we even decided to provide for that specific time a mid-term guidance to 2020. In 2017 and 2018, and as we did over the previous 24 years, we have not only achieved but exceeded our guidance.

With the net sales increase of 22.2% and EBITDA increase of 32.6% in the first 6 months of this year, we are very well positioned to reach our revised guidance for the full year 2019, but much importantly, this will put us in the best position to deliver on our Milestone 2020 objectives. And I am very confident that we will achieve this ambitious target as well.

But this is not the end of the story. From now to 2025, we are going to build on the portfolio developed over the past 25 years by primarily focusing on our 3 key strategic growth drivers. First, we want to fully exploit the potential of Ferinject by expanding geographically and within key therapy areas as chronic heart failure and [DDI]. We will also work towards preserving the value of Ferinject in the long-term by generating evidence of uniqueness of nanomedicines.

Second, in the nephrology space, with the upcoming readout of Phase III studies on our pipeline products, we need to keep a [route] for multiple filings and launches over the next year. I'm confident that the expertise gained in this area in the past will help us to succeed on this crucial element of our business meds. This does not mean that we are there yet, but we are on the right way toward optimal launch capabilities when this product will be approved.

Finally, we will drive the growth of Veltassa in order to realize its blockbuster potential. The DIAMOND study initiated in May will definitely be key for the uptake in cardiology, but we will not wait for the results. We will leverage the evidence already generated in order to raise awareness in both nephrology and cardiology. This would include ongoing medical education.

Ladies and gentlemen, my final words are to address our plan, Objective 2025. In addition to our existing growth drivers, we will also explore other options to expand our business outside of our 3 key growth drivers.

They can be divided in 3 additional areas: first, leveraging the existing infrastructure, such as our commercial force in the United States; second, expanding inorganically with acquisitions, licensing and other strategic partnerships; and third, using new technologies in adjacent therapy areas to enhance and broaden our field of activities. We are actively working on different projects, and we hope to be able to provide more detail on these opportunities in the future.

Ladies and gentlemen, our goal is to be able to say that, since we launched the present strategy -- the present group transformation strategy in 1995, we always, always reported an increase in net profit before minorities. Until now, if I include the 2019 results, we are delivering this performance for 25 consecutive years without, without any exception.

Our goal now is to continue this trend until 2025. 25 years is already unique and 30 years is absolutely fantastic, a fantastic challenge for all of us. This is our way to demonstrate the strength of our team.

I now hand over to Stefan. Thank you for your attention.

--------------------------------------------------------------------------------

Stefan Schulze, Vifor Pharma AG - President of the Executive Committee & COO [3]

--------------------------------------------------------------------------------

Thank you, Etienne. Welcome to everyone on this call. It's great to have you with us today. I will provide more details on our achievements in the first half of 2019, especially with regards to our 3 strategic growth drivers.

Let me start by saying that I'm very proud of what has been accomplished so far this year, and that we are absolutely confident that we will reach our objectives for 2019 and beyond. I would like to take this opportunity also to thank our over 2,700 employees and dozens of partners for the excellent work which led to the strong success in the first half of 2019.

I'm on Slide 9 now. There were many positive developments during the first 6 months related to our product portfolio. Let me shortly highlight some of them.

In April, we expanded our in-licensing agreement with Akebia Therapeutics for vadadustat. Our rights now include certain third-party dialysis organizations in the United States in addition to the Fresenius Kidney Care clinics. This provides us commercial rights related to about 60% of the U.S. dialysis patients. There's clearly some great excitement on our side about this product, and we're looking forward to the Phase III clinical data next year and to get this important new option to treat anemia to dialysis patients approved by the U.S. FDA.

In May, we presented positive results of the AMBER study. These results are very encouraging. They fully support our decision to initiate the DIAMOND study.

In June, Cara Therapeutics published the results of the KALM-1 study for CR845. All primary and secondary endpoints were met. We are now awaiting the results of the global KALM-2 study later this year.

Finally, we are very proud that VIT-2763, our ferroportin inhibitor, was granted orphan drug designation by the U.S. FDA and EMA. Following the positive results of the Phase I study earlier this year, we are now working on initiating the Phase I -- Phase II program. Coming to more details around the recent developments of our strategic growth drivers, I will move to Slide #11.

Our first strategic growth driver, Ferinject, reported net sales of CHF 273.4 million, an increase of CHF 44.4 million or 19.4%. The growth was negatively impacted by 1.4% due to foreign exchange rates and positively by 0.4% due to phasing and timing differences in the ordering pattern of our wholesale customers.

In Europe, the growth was 10.9% and 17% for the top-5 European countries, mostly driven by the uptick in cardiology and patient blood management or PBM. In the U.S., the strong growth of 23.7% was mainly driven by gastroenterology, oncology and PBM. The average sales price for Injectafer remained fairly stable.

In addition, Ferinject been approved in Japan earlier this year. The pricing and reimbursement negotiations are ongoing, and Zeria, our Japanese partner, is preparing the market for launch.

We estimate the number of patients suffering from iron deficiency anemia to be about 5 million in Japan. More than half of them are not being treated at all and less than 10% are currently being treated with intravenous iron. It's important for me to stress that there remains a huge unmet medical need in treating iron deficiency and iron deficiency anemia worldwide, so it's not a surprise that we keep observing growth in volume of more than 25% in underpenetrated therapy areas, such as cardiology and PBM in Europe, oncology and gastroenterology in the U.S. With demand currently observed across all geographies, we are confident to achieve the growth in reported net sales of approximately 20% for the full year of 2019.

Coming to Slide #12. The latest IQVIA data as of March 2019 shows that the global moving annual total in-market sales for Ferinject has reached CHF 946 million. This corresponds to an increase of 27% versus the prior year period compared to an increase of 18% of all intravenous iron products together during the same period. As a consequence, Ferinject's overall IV iron market share and value increased from 45.8% to 49.3% in this period. In the top-10 markets, the market share even reached 55%, or if you include Venofer, even 79%.

The in-market sales in the U.S. continues its impressive growth, showing a 35.8% growth to CHF 436.5 million, surpassing the Ferinject in-market sales in Europe. Given the strong performance, we are convinced that in-market sales will reach CHF 1 billion by the end of 2019 or even within a few weeks, as Etienne already mentioned. With this, we will reach blockbuster status a year earlier than initially planned.

Moving to Slide #13, our second strategic growth driver, the joint company Vifor Fresenius Medical Care Renal Pharma. First, I would like to highlight the very strong performance of Velphoro with a net sales increase of 126.6% to CHF 81.1 million in the first 6 months. This growth was mainly driven by the U.S., where reported net sales nearly tripled to CHF 68.1 million. This is a great achievement, even though I would like to remind you that the net sales in the first half of 2018 were negatively affected by a customer inventory decrease of CHF 10.5 million.

The driving force behind the strong growth of Velphoro net sales is the combination of strong new evidence regarding the efficacy of Velphoro and the KDIGO update of the bone and mineral disease guidelines in 2017. These guidelines recommend the use of noncalcium-based phosphate binders. Together, this leads to a strong adoption of Velphoro by physicians in the U.S.

Global moving annual total in-market sales for Velphoro reached CHF 254 million for the 12-month period ending March 2019. This is an increase of 46% versus the prior year period and corresponds to reaching a global phosphate binder market share of 15% in value. We expect the growth of Velphoro to normalize in the second half and to meet more than 50% for the full year 2019.

The next slide is on the net sales for our ESA portfolio. Net sales of Mircera increased by 29% in the first half of 2019 to CHF 276.2 million. The strong growth is due to the conversion of ESA patients throughout 2018 primarily within midsized and independent dialysis organizations in the U.S.

Retacrit net sales amounted to CHF 2.9 million in the first half of 2019. Net sales were impacted by stocking effect following the first shipment by the end of 2018. We do see, however, challenges to drive market shares for Retacrit due to the lack of a multidose vial. Dialysis clinics would need to implement substantial changes to the way they provide treatment if they would switch from the current standard of therapy multidose vials to single-dose vials. Multidose vials also help to reduce waste and avoid multiple needle sticks for patients dosed subcutaneously. Consequently, we expect a more dynamic growth once this product becomes available. Independently of this, we expect our ESA portfolio to achieve a growth of approximately 10% in 2019.

Moving to the next slide. In the first half of 2019, the MACE results as part of the pooled safety analysis of FibroGen's HIF inhibitor were published. The outcomes were in line with our expectations.

Looking at our diversified portfolio of commercialized products for anemia management in the U.S., we draw the following conclusions: Dialysis is a low business risk on our iron franchise. Indeed, we have not seen further evidence of iron sparing when using HIFs. The need of intravenous iron is largely driven by blood loss due to extracorporeal treatment, and this effect is not addressed by HIF nor ESAs.

The risk for our ESA business is also limited as vadadustat would perfectly complement our current portfolio. The extension of our agreement with Akebia is excellent news for Vifor Pharma as it will allow us to reach up to 60% of the U.S. dialysis market and to provide our customer with probably the best part of a product portfolio for managing anemia.

In the predialysis setting, we expect minimal business risks to our IV iron portfolio. Injectafer's net sales in ND-CKD represent only around 10% of its total net sales, and more importantly, IV iron is expected to remain the first-line therapy for this patient population. The risk to our ESA portfolio outside of dialysis is basically inexistent today as we are currently only having very limited sales in this segment.

One more point regarding vadadustat. Akebia completed the enrollment in the global Phase III study program in dialysis-dependent chronic kidney disease patients in the first half of this year. Top line results are expected in Q2, 2020. Again, we look forward to these results and to making vadadustat available to our customers following its approval in the United States.

Moving to Slide 16 and CR845. In June, Cara Therapeutics published positive results of the U.S. KALM-1 Phase III study. The study looked at the treatment of moderate-to-severe pruritus associated with chronic kidney disease in subjects undergoing hemodialysis. These results were fantastic, and all primary and secondary endpoints were met.

The primary endpoint measures the proportion of patients achieving at least 3 points improvement from baseline in weekly mean of daily worst itching intensity numeric rating scale. I know that sounds a bit technical, but this is a very relevant measure for the efficacy based on patient-reported severity of itching.

The study showed that CR845 patients are 2.5x more likely to experience an improvement of at least 3 points versus placebo. CR845 was generally well tolerated with safety profile consistent with prior studies in this patient population. These results are very, very good news for patients and encouraging in light of the upcoming results of the global KALM-2 Phase III study, which are expected later this year. Filing in the U.S. and Europe is expected in 2020.

Moving to our third strategic growth driver Veltassa. Net sales increased by 69.9% to CHF 62.6 million in the first half of 2019. The net sales growth was about 60% when adjusting for foreign exchange rates and timing differences in wholesale and specialty pharmacy inventory purchases. We are confident to achieve 50-plus growth on a full year basis.

In Europe, Veltassa is now launched in Germany, Denmark, Belgium, Norway and Sweden. In Germany and Spain, we have successfully received a final reimbursement price, which reflects, in our opinion, the value of Veltassa. We are working on making Veltassa available to more patients across Europe. The negotiations are in line with our expectations and experience of other companies in a market access environment in Europe, which has gradually become more and more challenging in recent years.

Moving to Slide 18. I will elaborate on a couple of big achievements on the clinical side. In May 2019, we presented the results of the Phase II AMBER study at the National Kidney Foundation Congress in Boston. This study demonstrated that, at week 12, a significantly higher proportion of patients with resistant hypertension and chronic kidney disease taking Veltassa remained on guideline recommended spironolactone therapy compared to those taking placebo. And that built on that precedent which was set by PEARL-HF and other trials in demonstrating Veltassa's RAASi-enabling effect.

These results are encouraging and support our decision to initiate the DIAMOND Phase IIIb study. DIAMOND is designed to evaluate the potential of Veltassa in combination with RAASi medications to improve patient outcomes, specifically reducing cardiovascular mortality and hospitalizations. DIAMOND is a global multicenter double-blind, placebo-controlled trial aiming to study approximately 2,400 patients in over 400 sites. DIAMOND will include patients with heart failure, with or without CKD, and either current hyperkalemia at screening or a history of hyperkalemia in the past year. We recruited the first patient in May, and top line results are expected in 2022.

I'm coming to my last slide, Slide #19. We already achieved significant milestones in the first half of 2019. You should expect further updates on market access, clinical trials and business development during the rest of the year. On market access, we expect further progress with Veltassa in Europe and aim to launch Ferinject in Japan, subject to obtaining reimbursement. And we expect to provide more information on our go-to-market strategy for China.

On the clinical side, ADVOCATE and KALM-2 Phase III readouts are expected, whereas VIT-2763 is expected to enter Phase II clinical development. Finally, one additional in-licensing product acquisition or corporate transaction is expected before the end of the year.

I will now hand over to Colin for a detailed financial update of H1 2019 and guidance.

--------------------------------------------------------------------------------

Colin Bond, Vifor Pharma AG - CFO [4]

--------------------------------------------------------------------------------

Thank you, Stefan. Of course, since 7 o'clock this morning, our financial and half 1 report has been on the website in both English, German and French. So I will summarize our financial results for half 1 in just 4 slides and then present a final slide on the guidance.

So starting with Slide #22. This summarizes the contribution made by each of the key products to the overall net sales.

Sorry, on Slide 21 -- shows the P&L overview for the first half of 2019. As previously mentioned by Etienne, the net sales in half 1 2019 increased by 22.2% compared to prior year. And of course, this strong growth was driven by Ferinject, Mircera, Velphoro and Veltassa.

Gross profit increased at a lower rate of 12% due to the planned and expected decrease in other income as well as higher depreciation in cost of sales related to Mircera commercialization rights. EBITDA increased by 32.6% compared to the previous year as a result of the strong net sales growth and judicious cost containment.

The decrease in net profit after minorities is due to the exceptional foreign exchange gain on U.S. dollar intercompany loans of CHF 42.9 million in the prior year as well as the recognition of tax gains in the previous period on unrecognized losses.

On Slide #23 -- On Slide #22, sorry, summarizes the contribution to the net sales made by each of our key products. There are a few products that I would like to highlight. Firstly, as previously mentioned, Ferinject net sales increased by 19.4% compared to prior year period to CHF 273.4 million.

Secondly, as already highlighted by Stefan, net sales of our ESA portfolio increased by 30.4% compared to prior year period to CHF 279.1 million, driven by the expansion to the midsize and independent dialysis organizations in the U.S.

Thirdly, Velphoro net sales increased by 126.6% compared to prior year, driven by strong adoption of noncalcium-based phosphate binders in the U.S. following the update of the KDIGO guidelines. Finally and as previously mentioned by Stefan, Veltassa net sales reached CHF 62.6 million in the first half of 2019, an increase of 69.9% compared to prior year.

Slide 23. This summarizes the strong balance sheet of the group as at the 30th of June 2019 with an equity ratio of 74%. Cash and cash equivalents decreased by CHF 78.8 million due to the annual dividend payments of Q2 to both shareholders in Vifor Pharma and to our joint company partner, Fresenius Medical Care.

Inventories increased by 13.4%, significantly below the growth rate in net sales of 22.2%. One technical point to highlight is the adoption of IFRS 16 leases led to the recognition of right-of-use asset of CHF 70.1 million and lease liabilities of CHF 77.8 million.

Slide 24 provides an overview of the cash flow for the first half of 2019. We reported strong cash flow from operating activities of CHF 197.9 million despite the increase of CHF 57.5 million in net working capital. Cash flow from investing activities was minus CHF 71.1 million. This was primarily the result of the extension of the commercialization rights for Mircera from Fresenius Medical Care to August 2020 for CHF 37.7 million.

Cash flow from financing activities amounted to minus CHF 202.9 million. This was mainly due to the dividends of CHF 174.7 million paid in half 1, 2019. This included CHF 129.7 million distributed to the shareholders of Vifor Pharma, and CHF 45 million, which was distributed to Fresenius Medical Care.

Slide 25 is my last slide before opening the Q&A, and it summarizes the guidance for 2019. As I've repeatedly said, our intention is not to excite investors or analysts with this guidance but to state what we will deliver under all scenarios. As a result of the strong performance in the first half of 2019, we have decided to raise the guidance 2019 issued on the 14th of March of this year. In 2019, at constant exchange rates, Vifor Pharma net sales are now expected to exceed 15%, and reported EBITDA is expected to grow between 25% and 30%. But the guidance for 2020 is unaltered.

In 2020, net sales are expected to exceed CHF 2 billion and EBITDA to be in the range of CHF 700 million. Going forward, the dividend is expected to remain at the current level of CHF 2 per share.

Thank you for your attention. I will now open it up to Q&A. (Operator Instructions)

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Colin Bond, Vifor Pharma AG - CFO [1]

--------------------------------------------------------------------------------

Okay. So the first question comes from James Gordon at JPMorgan.

--------------------------------------------------------------------------------

James Daniel Gordon, JP Morgan Chase & Co, Research Division - Senior Analyst [2]

--------------------------------------------------------------------------------

Two questions, please. One was about deploying the balance sheet. And so you talked about doing business development by the end of this year. Is the most likely target something that can leverage the Veltassa U.S. sales force or EU infrastructure? And is it now unlikely that it will be a deal that falls into the Fresinius JV because that didn't seem to get as much of a mention? And also just on business development. Is it an immediate accretion focus? Or could it be pipelining? That was the first question.

And the second question is on Veltassa. I know one of the potential growth drivers has been that Lokelma would launch from Astra and that would expand the market. So are you seeing the market expansion? What are you seeing so far of the impact from Lokelma launch because the IMS prescription data doesn't really show an acceleration. I know there are some issues with the IMS data.

--------------------------------------------------------------------------------

Colin Bond, Vifor Pharma AG - CFO [3]

--------------------------------------------------------------------------------

Of Lokelma, James, you're referring to? Or...?

--------------------------------------------------------------------------------

James Daniel Gordon, JP Morgan Chase & Co, Research Division - Senior Analyst [4]

--------------------------------------------------------------------------------

Yes. Also what are you seeing Lokelma do to Veltassa? Is there being a benefit from Lokelma launching and that's increasing awareness? And is that going to be the route to getting more cardiologists use? Or might you do something else to get more cardiologists prescribing like a copromote deal or something else to accelerate this for Veltassa?

--------------------------------------------------------------------------------

Colin Bond, Vifor Pharma AG - CFO [5]

--------------------------------------------------------------------------------

Okay, James. So first question around the one more transaction before year-end. You won't be surprised to know that we look at all options, both pipeline and commercial opportunities. And of course, that's an ongoing activity that we have. And so to answer your question, it could be a commercial deal. It could be a pipeline deal. It could be both. And those deals could be in the name of Vifor or could be through the joint venture.

Your second question about Veltassa. I mean, it's not really for us to comment on Lokelma, but I am aware that their sales in the first half year were low single digit. I think I should focus on the performance of Veltassa, and I would say that, with the 69.9% growth, okay adjusted for currency and in-stocking effects approximately 60%, we are really encouraged by that and the progress that we've made. And we can see the July sales as well, and they're also very encouraging. Clearly, the cardiology space is underrepresented. 90% of the scripts continue to be in nephrology. And again, that's why we're investing in the DIAMOND trial. And clearly, we look at all options around accelerating the cardiology sales going forward.

Okay. The next question from Chris Gretler at Credit Suisse.

--------------------------------------------------------------------------------

Christoph Gretler, Crédit Suisse AG, Research Division - MD in Equity Research [6]

--------------------------------------------------------------------------------

Actually now, 2 questions. The first, with respect to home dialysis. In the U.S now, there is obviously an increasing push to drive transplants and not the use of home dialysis. Could you discuss how you expect this to affect your business and where you see actually the opportunities for you specifically? And then the second question is also with respect to Veltassa. Could you just remind us what kind of levels you included in your Milestone 2020 guidance in excess of CHF 2 billion sales and CHF 700 million in EBITDA? That will be helpful.

--------------------------------------------------------------------------------

Colin Bond, Vifor Pharma AG - CFO [7]

--------------------------------------------------------------------------------

Okay. I will invite Stefan to answer the first question on home dialysis. And I'll take the second one.

--------------------------------------------------------------------------------

Stefan Schulze, Vifor Pharma AG - President of the Executive Committee & COO [8]

--------------------------------------------------------------------------------

Chris, thanks for the question. Generally, we don't see a potential trend to home dialysis as problematic for us. When we look at our portfolio, whether it's phosphate binders or our anemia portfolio with iron, ESAs and potentially also the vadadustat, of course, (inaudible) HIF inhibitor, the use of these products, whether a patient is treated in a center or at home, is not materially different. So we would not expect any change in our business based on any trend there.

I would also not call the trend to home dialysis new. I believe this has been an effort by providers since many years. And so we will need to see to what extent this really accelerates. Of course, if patients would be transplanted and this would reduce the number of patients on dialysis, that would have an impact on our business because the consumption of the products which are part of our product portfolio would be quite different. But so far, we have not seen any material impact really based on that. And I give it to Colin, to answer the second question.

--------------------------------------------------------------------------------

Colin Bond, Vifor Pharma AG - CFO [9]

--------------------------------------------------------------------------------

Yes, Chris, you asked about the impact of Veltassa on the 2020 guidance. And really, in the numbers for next year, there's a lot of puts and takes. And since 2017, we've not really given specific guidance on the EBITDA impact of Veltassa, and we won't do that because we're managing a very complex business here. Of course, we're also focused on all the drivers of Veltassa growth: the duration of treatment, trying to leverage the AMBER study, increasing coverage, pricing, minimizing the cost of sales with the [API] production, and those things are things that we're working on very actively at the moment, but we're certainly not committing to a specific sales number for 2020 or going to disclose the EBITDA impact we see Relypsa and Veltassa as now an integrated part of the Vifor business.

Now Diana Na of Goldman Sachs.

--------------------------------------------------------------------------------

Hae Won Na, Goldman Sachs Group Inc., Research Division - Associate [10]

--------------------------------------------------------------------------------

It's Diana from Goldman Sachs. I have 2 questions, please. So first, on Veltassa. You had good progress on getting reimbursement in Europe in the first half. How are access and reimbursement discussions going for the remaining European countries, please? And when do you think we could start seeing an inflection point in European sales? And then my second question is just on the operating costs. You previously talked about OpEx growth of 5% in 2019. Is that still a reasonable assumption for the full year? And any color around OpEx growth in 2020 would also be very helpful.

--------------------------------------------------------------------------------

Colin Bond, Vifor Pharma AG - CFO [11]

--------------------------------------------------------------------------------

And again, Stefan will take the first question, and I will take the second one.

--------------------------------------------------------------------------------

Stefan Schulze, Vifor Pharma AG - President of the Executive Committee & COO [12]

--------------------------------------------------------------------------------

Diana, it's Stefan. Thanks for the question. When we look at the European countries and market access, reimbursement for Veltassa, we are quite happy with the results we have been seeing so far with regard to the countries which have accepted them or given us reimbursement as well as the levels of reimbursement that we were achieving. And we are in constant and active discussions with all other major European countries, whether it's [Ireland,] the U.K., in Italy as well as France. It's hard to predict them how exactly these timings for the negotiations will turn out, and we expect them further decisions during this year but certainly also during next year. Ultimately, by the time we launch in multiple countries going forward, that will trigger the inflection point to answer the second part of that question. I see us in a good position today. I'm sure we will close further countries, some during this year, and some of the bigger countries will probably more be in 2020.

--------------------------------------------------------------------------------

Colin Bond, Vifor Pharma AG - CFO [13]

--------------------------------------------------------------------------------

Diana, Collin here, and answer to your second question. I mean, clearly, we've done a great job of controlling the cost base in the first half of 2019. The key driver is FTEs. We kept the FTE increase to just 4%. That number is probably even higher than we would like, but of course, we're investing in individuals to drive the uptake of Veltassa in Europe and get ready for the launches of the pipeline. On G&A cost, an increase of just 1.8%, which was great. And the R&D increase is entirely due to the DIAMOND study. I think, looking to the full year, our commitment is that OpEx will grow maximum high single -- at a high single-digit rate.

Now, Holger Blum of Patinex.

--------------------------------------------------------------------------------

Holger Blum, Patinex Management AG - Analyst [14]

--------------------------------------------------------------------------------

Just one question from my side. I noticed from Etienne's opening remarks, he mentioned the Ferinject protection -- patent protection and nanomedicine in the same sentence. Could you elaborate a bit on this?

--------------------------------------------------------------------------------

Stefan Schulze, Vifor Pharma AG - President of the Executive Committee & COO [15]

--------------------------------------------------------------------------------

I mean, generally what we have seen over the last years is that, especially in the U.S., there's a very active legislative process in order to acknowledge that nanomedicines are not -- or should not fall under the same regulatory pathway as small molecules. So there's a legislation process which has been completed, and the FDA is now basically implementing a process on how they will treat nanomedicines with regards to the regulatory pathway.

And the expectation we have is that this will look somewhat different from small molecules and biosimilars, so probably something in the middle from clinical or preclinical requirements which generic companies need to meet. And we expect that EMA will follow at some point similar guidances and is actually also actively discussing that internally. This is also one reason in order to acknowledge the importance of nanomedicine and the differences, why Vifor Pharma earlier this year has been decided to sponsor a university chair in Basel.

--------------------------------------------------------------------------------

Colin Bond, Vifor Pharma AG - CFO [16]

--------------------------------------------------------------------------------

Thanks, Stefan. Then Laura Pfeifer of Octavian.

--------------------------------------------------------------------------------

Laura Pfeifer-Rossi, Octavian AG, Research Division - Analyst [17]

--------------------------------------------------------------------------------

So I have 2 questions. First, on Veltassa in the U.S. Please could you maybe tell us a little bit more about the trend or if there have been any changes, such as the therapy duration per patient or maybe also the kind of specialists and the number of patients that are starting with therapy? And then secondly, I would be interested to hear your thoughts on the underlying gross margin evolution going forward. So which factors do we have to consider? And is it also valid to expect quite an improvement from the current 60% level like going forward into the next few years? And specifically here, I'm interested to the -- of the potential to reduce the costs for Veltassa.

--------------------------------------------------------------------------------

Colin Bond, Vifor Pharma AG - CFO [18]

--------------------------------------------------------------------------------

Okay, that was 3 questions, not 2, and I will deal with questions 2 and 3 before handing over to Stefan for...

--------------------------------------------------------------------------------

Stefan Schulze, Vifor Pharma AG - President of the Executive Committee & COO [19]

--------------------------------------------------------------------------------

There seems to be a pattern that the first question is always coming to me. But Laura, the -- when we look at Veltassa in the U.S., what we can say right now is that we have over 100,000 patient experiences. So there were over 100,000 patients, which have been prescribed Veltassa. And what we do see is a very steady increase in prescriptions and patients on the drug. There's not a material change during the treatment duration. But I would like to remind that we also said that, actually, we were very happy how the treatment duration turned out at a very early time point with Veltassa already. So we don't expect that there will be really substantial changes on short term. Clearly, with the DIAMOND study additional data, we may see a little pickup here. I guess that was with regards to the Veltassa in the U.S., and I will turn it to Colin to answer the other parts of the question.

--------------------------------------------------------------------------------

Colin Bond, Vifor Pharma AG - CFO [20]

--------------------------------------------------------------------------------

Yes. For question number two, regarding the gross margin, I mean, clearly, the big increases in the revenue was in half 1 both Velphoro and Mircera, which have a margin below our average for the group. And that of course causes a reduction in the overall gross margin. Looking to 2020, Ferinject will continue to accelerate, Veltassa will accelerate and the growth in both Velphoro and Mircera will plateau following the success we had at the midsized clinics for Mircera and the Velphoro growth following the KDIGO recommendation. So in summary, 2020 should see an increase in the gross margin of 1% to 2%. That will be my expectation, but we need to go through the detailed budgeting now in Q3.

In terms of the Veltassa cost of sales, we currently source the API from 2 CMOs. We've been through a selection process to get a new CMO with an improved process, and we're down to the last 2 potential CMOs that will be chosen to actually supply up to 1,000 tonnes in the mid-term, and that will bring the cost of sale down by approximately 10% from the current level. So if you imagine that we're going to be at a blockbuster status with this, that can potentially put CHF 50 million to CHF 100 million on the bottom line if we get it right versus the current run process.

Christian Glennie, Christian from Stifel.

--------------------------------------------------------------------------------

Christian Glennie, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [21]

--------------------------------------------------------------------------------

Thanks for taking the questions. Can I have 3, please, as well? Just to kick off on Veltassa, just to be clear in terms of the guidance, there's 50% growth for '19. Obviously, you had close to 70% in H1, albeit, that sort of normalizes closer to 60%. But just to be clear, is there any particular issues in terms of H2 because obviously to get your 50% growth rate in H2 would imply a much, much lower rate.

Then in terms of Retacrit, and I know it's a small product, but I didn't really follow the vials side of thing and sort of potential timing of that issue? And has that had an impact in terms of your overall sort of peak sales, rough estimates for the product. I think previously it was in the sort of mid-tens of millions.

And then just finally on the EBITDA number. They are in the range of CHF 700 million, just to push you a bit on that in terms of -- is that CHF 700 million still your expectation of more of a floor. And similarly, you talked about the puts and takes on the sales side, but are there some -- are there some things related to that on the OpEx side that could obviously help you get to that CHF 700 million.

--------------------------------------------------------------------------------

Colin Bond, Vifor Pharma AG - CFO [22]

--------------------------------------------------------------------------------

You've actually broken the trend. Stefan is not going to answer question number one. I'm going to take 1 and 3, and Stefan is going to do 2. So I'll do my 2 first.

Firstly, Veltassa. As you correctly said, the 69.9% normalized for sort of FX and stocking is around 60%. Why are we indicating 50%-plus for the full year? A lot can happen in the second half of the year. We don't see any deviation in the trend that was established in the first half year. But of course, Lokelma is in the market. We need to continue to work on the coverage and the uptake of the drug. So really our view on the second half is unaltered to the first half. And with the reimbursement agreed in Germany, we should see an acceleration of the product in Europe.

In terms of the CHF 700 million. The 25% to 30% EBITDA growth on prior year now means a range of CHF 489 million to CHF 509 million. So assuming that we were at the top end, CHF 509 million for 2019, getting to CHF 700 million would be a 37% growth, which by any standards would be a really cool achievement. So in a way, we issued our mid-term guidance as a one-off when we went through the IPO 3 years ago. I think going forward, we will only issue guidance on the current year. That's probably the -- and what we would see is that going to a guidance now of 25% to 30% is actually giving everyone the confidence that the CHF 700 million is certainly achievable. With that, I'll hand over to Stefan for the Retacrit question.

--------------------------------------------------------------------------------

Stefan Schulze, Vifor Pharma AG - President of the Executive Committee & COO [23]

--------------------------------------------------------------------------------

Yes, there were 2 questions, I believe: one about timing, the other one about peak sales. And Christian, regarding timing, I believe I would need to refer this probably to Pfizer really. We don't want to comment on this on our side. We are waiting for Pfizer to make this product available to us.

And when it comes to peak sales, I can only indirectly refer to they clearly see upside potential for Retacrit upon availability of the multidose vial. In my opinion, that can be reasonably substantial. We don't have guided on peak sales that much. But I don't believe that we will change our peak sales estimates. By a delay of the multidose vial, I believe there's upside to the extent that we can grow this portfolio once this product becomes available.

--------------------------------------------------------------------------------

Colin Bond, Vifor Pharma AG - CFO [24]

--------------------------------------------------------------------------------

Thank you, Stefan. Are there any more questions on the line? My team is indicating that there are none.

So with that, I would like to thank everyone for their support of Vifor Pharma and for dialing in today. Thank you very much, and I wish everyone a good day.