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Edited Transcript of IPN.PA earnings conference call or presentation 25-Jul-19 12:30pm GMT

Half Year 2019 Ipsen SA Earnings Call

Paris Jul 31, 2019 (Thomson StreetEvents) -- Edited Transcript of Ipsen SA earnings conference call or presentation Thursday, July 25, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Aymeric Le Chatelier

Ipsen S.A. - Executive VP & CFO

* David D. Meek

Ipsen S.A. - CEO & Director

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Conference Call Participants

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* Andrew Frost

UBS Investment Bank, Research Division - Analyst

* Delphine Le Louet

Societe Generale Cross Asset Research - Equity Analyst

* Emily Field

Barclays Bank PLC, Research Division - Research Analyst

* Luisa Caroline Hector

Exane BNP Paribas, Research Division - Pharma Research Analyst

* Matthew Weston

Crédit Suisse AG, Research Division - MD and Co-Head of European Pharmaceutical Equity Research

* Sachin Jain

BofA Merrill Lynch, Research Division - MD

* Sarita Kapila

JP Morgan Chase & Co, Research Division - Analyst

* Thibault Boutherin

Morgan Stanley, Research Division - Equity Analyst

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen, and thank you all for standing by. Welcome to today's Ipsen H1 2019 results. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. (Operator Instructions) I must advise also that this call is being recorded today, Thursday, the 25th July, 2019, and without any further delay, I would now like to hand over the call to your speaker today, David Meek. Thank you. Please go ahead.

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David D. Meek, Ipsen S.A. - CEO & Director [2]

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Good morning and good afternoon. Welcome to the Ipsen Half Year 2019 Results Conference Call. Before we begin, here is our Safe Harbor statement, which outlines the routine risks and uncertainties contained within the presentation. Beginning with the agenda, I'll provide an overview of our first half 2019 results and Aymeric will take us through the details of our financial performance and 2019 financial guidance and then I'll wrap up the presentation and open the call for questions.

In the first half, we continued to execute on our 3-fold growth strategy; growth on the top line, growth on the bottom line, and growth of our pipeline.

On the top line, we delivered strong double-digit group sales growth of plus 14%. This was driven by Specialty Care sales growth of nearly 17% and notably by strong performance across all major products and geographies.

On the bottom line, we achieved core operating income growth of plus 20% and margin expansion to 31.5%. This reflects our sales growth leveraging our global commercial oncology infrastructure and also accelerated investments in R&D, including Clementia.

Finally, we're very proud of several key pipeline highlights in the first half. We closed on the acquisition of Clementia which strengthens our rare disease franchise with palovarotene. We presented encouraging interim results for the Onivyde Phase II trial in first line pancreatic cancer at the ESMO-GI Congress in July and the Somatuline new delivery system was approved in the U.S. market. As always, we remain very active in our business development efforts to externally source new innovative assets. This is a key priority for the company.

Looking at a snapshot of the business, Specialty Care now represents almost 90% of total sales, while Consumer Healthcare represents 11% of sales. Oncology, the fastest growing therapeutic area and the largest contributor to growth now represents 72% of total sales. In terms of our geographic split, North America is the fastest growing region with 21% growth in the first half and now represents 29% of total sales. Importantly, we're seeing good growth across all major geographies and the business remains well diversified. Our oncology business grew by 21% and is the largest contributor to the excellent performance of our Specialty Care franchise. Somatuline continues to lead the oncology portfolio with strong momentum globally and new patient market share worldwide. The new delivery system was approved in the U.S. in the second quarter and initial feedback has been extremely positive. This further differentiates Somatuline and reinforces our commitment to serving the NET community.

In terms of SSA generics in the second quarter, the first long-acting octreotide was approved in the first European countries with expected launch country by country starting in the second half. Due to the time to secure reimbursement and the superior clinical profile and the product profile for Somatuline, we expect minimal impact in 2019.

Next, Cabometyx continues to progress nicely, it is the leading TKI in second line renal cell cancer with growing market share. It is now reimbursed in nine countries for first line renal cell cancer. We have also secured reimbursement in five countries for second line HCC and are pleased to see significant (inaudible) market share uptake. We continue to believe the major opportunity for Cabometyx is in second line renal cell cancer, especially as the immuno-oncology combinations move into the first line market. This is consistent with the development of the RCC market in the U.S. In terms of Cabometyx clinical development, there are several ongoing clinical trials in combination with immuno-oncology products. The Phase III CheckMate 9ER trial in RCC in combination with nivolumab and two trials in combination with atezolizumab, the Phase III trial in first line HCC and the Phase I trial in solid tumors.

Moving on to Onivyde, we are steadily growing market share in second line metastatic pancreatic cancer and realizing strong synergies with the U.S. commercial oncology team. In terms of clinical development, we presented positive interim results for the ongoing Phase II trial in first line metastatic pancreatic cancer at the ESMO-GI Congress in July, which encourages us to further investigate Onivyde in this setting in a Phase III registrational trial. We also look forward to the readout of the Phase II trial in second line small cell lung cancer by the end of the year.

Finally, Decapeptyl continued to deliver strong growth in the first half in both Europe, where it is the market leader in several countries like France, Spain and Belgium, and also in China. In the second quarter, we also extended our agreement with Debiopharm for another 15 years for the development, manufacturing and distribution of Decapeptyl across Europe and parts of Asia and Africa. This long-standing collaboration reflects our mutual commitment first to the patients and also in maximizing the potential of Decapeptyl.

Turning to Neuroscience, our key product Dysport grew 6.8% in the first half. For therapeutics, there was strong momentum in the U.S. as well as in the rest of the world, driven by the value proposition of Dysport providing long lasting symptom relief between injections.

In the aesthetics market, even in a more competitive environment, Galderma continues to gain market share with a strong complementary and differentiated product offering supported by excellent service. We are also seeing good performance in territories where Ipsen commercializes the product ourselves such as Russia and the Middle East. As for the neuroscience pipeline, we are advancing two Phase II trials for hallux valgus, more commonly noted bunions, and vulvodynia, painful gynecologic condition, both of which have a significant unmet need and no approved therapeutic options. In our earlier stage pipeline, we are accelerating our recombinant neurotoxin programs, the fast-acting toxin has completed Phase I and the long-acting toxin is currently in preclinical development.

Now looking at Rare Diseases, we closed on the Clementia transaction in mid-April adding palovarotene to our R&D portfolio. We are now focused on the successful integration to ensure a smooth transition of operations, while keeping focused on our mission to deliver palovarotene to patients as quickly as possible. We are executing on our launch preparation plans with the teams already in place. The regulatory submission for palovarotene for the episodic dosing regimen for FOP is on track for the second half of 2019 with regulatory decisions expected in the first half of 2020 in the U.S., in the second half of 2020 in Europe. There are currently around 1,000 patients identified in reimbursable territories and also active patient identification efforts and an early access program underway.

In terms of clinical development, there are two ongoing trials. The Phase III MOVE trial for the chronic dosing regimen for FOP with final readout in 2020 and the Phase II trial for MO which is expected to read out in 2021. The successful regulatory filing, patient identification and launch of palovarotene is a top priority as we look forward to this next significant contributor of our growth for the company in the years to come.

Now turning to the pipeline, as we highlighted at our Investor Day in May, building an innovative and sustainable pipeline is a high priority for the company. We are accelerating the development of five new chemical entities, which are highlighted in orange here, though relatively early some of these programs could advance quickly through clinical development. We also have currently nine regulatory submission planned from 2019 through 2022. This sets us up nicely to exceed our objective of delivering one new chemical entity or meaningful new medication per year.

And finally, here are the expected R&D milestones for 2019 including program advancements, top line result readouts, regulatory submissions and regulatory decisions. We have made good progress so far. In Q2, we presented positive interim data from the Onivyde Phase II trial in first line pancreatic cancer and received FDA approval for the Somatuline new delivery system. Going forward, we are focused on the continued advancement of our pipeline. A few major milestones in the second half include the readout of the Onivyde Phase II in second line small cell lung cancer and the regulatory submission of palovarotene for the episodic dosing of FOP, and we look forward to keeping you updated on our progress. Now, I'd like to turn the call over to Aymeric to discuss the financials.

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Aymeric Le Chatelier, Ipsen S.A. - Executive VP & CFO [3]

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Thank you, David. I'm very pleased to present our financial performance for the first half of 2019. So, as David said, we achieved group sales growth of 14.3% at cost of accelerate and adjusted for consolidation scope many from our partnership in Consumer Healthcare. This performance was driven primarily by our Specialty Care business growing by 16.9%. As you see, Somatuline grew by 15%, including a 20% growth in North America with the continuing strong momentum driven mainly by volume and continuing market share, but also in U.S. and other territory with a double-digit growth. Decapeptyl sales grew by 8% driven by volume growth and market share gains in Europe, but also in China, and this trend is clearly in line with our last year performance for Decapeptyl. Cabometyx sales grew by 80%. The majority of the sales in the first half of 2019 came from the renal cell cancer indication with growth in key European country in second line, but also in first line and in liver cancer where we see good uptake in new approved country for both indications. We have also increased the number of new country for Cabometyx in the first half of 2019 with launches in Canada and in Asia. On Onivyde, we continue to see steady demand growth in the U.S. and a significant contribution from the sales to our ex-U. S. partner. We are confident that the new data from the Onivyde Phase II front line study should further support the growth of the product in the future.

In Neuroscience, Dysport sales grew by 7% with continued strength in the aesthetic market with our partner and in the therapeutic market across most of the geographies, including high double-digit growth in the U.S. It is just worth mentioning that the sales of Dysport in Q2 were negatively impacted by the phasing of shipments, which should normalize by the end of this year.

Our Consumer business was down 3.7% mainly from Smecta lower sales in the second quarter, primarily due to the new hospital competitive environment in China and some manufacturing delays in Algeria. But we expect consumer sales to grow in the second half of the year. With the growth of our U.S. business and the strong performance of Somatuline and Onivyde, the U.S. dollar now represents 33% of our sales and you see that the Euro is representing only 40% of our sales. As a consequence in the first half of the year, foreign exchange currency had a positive impact of 2.3% coming from the stronger US dollar.

Now turning to our operating performance and looking at each of the key operating expense lines; cost of goods sold as the percentage of sales has improved by 1 point, driven by the positive mix shift from our growing Specialty Care business with higher gross margin contribution, partly offset by higher and growing Cabometyx royalties. It is worth mentioning that the gross margin is still improving by 1 point despite the negative impact of a generic Consumer Healthcare product, loss of exclusivity since early Q2 of this year.

R&D costs on the top right increased by 24.5% or 1 point as a percentage of sales to reach 14.3% as we are investing to support the advancement of our key internal pipeline R&D programs in oncology and in neurotoxins but also to support the palovarotene FOP and MO program following the acquisition of Clementia. Selling costs grew by only 5% in the first half, a decrease of 3.3 points as a percentage of sales as we are clearly leveraging our global commercial infrastructure with limited additional commercial investment to support our Specialty Care portfolio.

And finally, G&A expenses remain flat as a percentage of sales reflecting the impact of the corporate structure and the acquisition in rare disease of Clementia. As a consequence, you see that the margin expansion of 1.2 points, get us to a core operating margin of 31.5% in the first half of 2019. This was mainly driven by the excellent performance of the Specialty Care business contributing to plus 3.7 points to the margin enhancements, which was really a consequence of the leverage of the strong sales growth while continuing to invest to support our commercial products and to advance our R&D internal pipeline.

You can see that Clementia at negative 1.2 points on the group margin, mostly due to the R&D costs for the ongoing clinical programs for both FOP and MO. Consumer Healthcare was able to manage its profitability with no impact on group sales despite some declining top line numbers. Currency despite a positive impact on sales had a negative impact on margin due to deliver of cost base in local currency and the hedging strategy impacting 2018 performance. Overall, we are very pleased with the margin enhancement reflecting our gross business model to leverage our top line growth, to improve our profitability and invest in internal and external new program to extend our pipeline.

Now turning to the item core operating income, which grew by 20% in the first half, you see that the operating income increased by 17.8% after amortization of intangible assets from Cabometyx and Onivyde as well as some other operating expenses mainly related Clementia transaction and integration costs and also to some of the restructuring costs related to the group transformation programs. Our consolidated net profit increased by almost 12% including higher net financing costs related first to the acquisition of Clementia and second to the impact of the Onivyde earn-out re-evaluation following the interim result of the first line pancreatic cancer study. And therefore, our core EPS grew by 18.5%.

Net debt at the end of June 2019 reached EUR 1.5 billion, a huge change as compared to the closing level of debt at EUR 243 million as a consequence of the acquisition of Clementia, but also the first application of IFRS16. The impact of the acquisition of Clementia amounted to EUR 986 million, including the upfront payment of $25 per share, but also the risk adjusted discounted value of the CVR of $6 to be paid for the MO indication. IFRS16 certification amounted to EUR 188 million and coming from the operating lease obligation as of January 1, 2019. From a business point of view, we generated free cash flow of EUR 101 million delivered by our excellent operating performance with an EBITDA of EUR 430 million, offset by seasonal higher working capital as well as increased CapEx and restructuring expenses. As such, we have a steady balance sheet with financing capability to connect further business development estimated at over EUR 1 billion by the end of 2020, while remaining below a few times debt to EBITDA.

Based on this strong business momentum and strong performance of our Specialty Care business in the first half of 2019, we are now upgrading our full-year 2019 guidance and we are very pleased to announce that now we expect sales growth to exceed 14% at cost of actual rate and adjusted for consolidation scope versus an increase of at least 13% in the initial guidance. Some technical element of the guidance on the reported basis, we estimate the impact of currency to be 1.5 points positive based on the current level of exchange rate and we also guide for the impact of the change of scope quality to the consumer partnership to be negative by 1%. On the core operating margin, we assume our target to be around 30% and technically this includes the impact, which is dilutive of Clementia on the full year, but excludes any potential incremental investments in pipeline expansion initiatives.

So to conclude, as David said, we delivered a strong financial performance in the first half with double-digit sales and profit growth, while investing in our pipeline including Clementia, double-digit growth in sales, operating income, but also in net income. Net debt reached EUR 1.5 billion after the closing of Clementia and just to share with you also that during Q2, we completed a full refinancing of the group, including EUR 1.5 billion new revolving credit facility maturing in 5 years and $300 million of 7- to 10-year U.S. private placement increasing our financing capacity, extending our debt maturity diversification and confirming liquidity of EPS and credits.

So now, I will turn back the call to David for the conclusion.

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David D. Meek, Ipsen S.A. - CEO & Director [4]

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Thank you, Aymeric. To close, we executed well in the first half of the year and our objectives for the second half are clear. In terms of top line growth for Specialty Care, we aim to continue growing market share worldwide for our differentiated best-in-class products and for Consumer Healthcare to return to sales growth and proceed with the OTx transformation. In terms of bottom line growth, year-over-year margin expansion will be driven by our strong double-digit top line growth, cost optimization to leverage our commercial capabilities, while investing in R&D, including palovarotene. As for the pipeline, we achieved several notable milestones in the first half and we will further advance our pipeline in the second half. And importantly, our business development efforts remain active to identify, execute and integrate additional successful transactions. As I mentioned earlier, this is a top priority for the company. Next, building and maintaining a corporate culture that is agile, collaborative and patient centric is essential, and we aim to drive further transformation through great leadership and people, and with all this, we will deliver superior value to the patients we serve and our shareholders.

And now to the operator, we're ready to open the call for questions.

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Questions and Answers

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Operator [1]

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Thank you, ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions) Our first question is from the line of Emily Field.

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Emily Field, Barclays Bank PLC, Research Division - Research Analyst [2]

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I was just wondering, how much visibility you have into the approval timelines for generic Sandostatin in the U.S. and what gives you confidence that we won't be seeing a launch in 2019? And also if you know whether the company that received a CRL from the FDA for their formulation was different to the company who was recently approved in Europe? Also, if you could just go into any detail that you can on your underlying expectations for the 2022 guidance in terms of how many generics you expect on the market for both Sandostatin and Somatuline? And then lastly, I believe that there was meant to be an interim analysis for the MOVE trial in palovarotene that was conducted in, I believe, the first half of this year, if you could just confirm that that was done and that won't be made publicly available, and so the next we'll hear would be in 2020?

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David D. Meek, Ipsen S.A. - CEO & Director [3]

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Great. Thanks a lot for the question. Aymeric and I will tag team on these. Regarding the generic Sandostatin in the U.S., we're closely monitoring the situation. We will keep you posted. We do not anticipate any impact in business in the US in 2019. Also the question about the CRL and the same company that's been approved for generic in Europe, it is the same company based on our market intelligence, and the interim analysis for the MOVE trial for palovarotene, that did happen, it will not be public, but it's really just the DSMB, so the study continues on with that interim analysis.

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Emily Field, Barclays Bank PLC, Research Division - Research Analyst [4]

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Just on the question on the 2022 guidance, how many generics for each product, if you can comment?

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David D. Meek, Ipsen S.A. - CEO & Director [5]

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Sure. We didn't really go into the details. What I would say even based on the recent news the one generic that is beginning to (inaudible) Europe, all of this was in our 2022 guidance with the generics that could come into the market. But we didn't get into great specifics as to the numbers or geographies. But we did assume there would be generics in the market for our 2022 guidance and we're seeing some of this play out as we speak. So no change to our 2022 number based on what we know at this time.

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Operator [6]

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Our next question is from the line of Thibault Boutherin.

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Thibault Boutherin, Morgan Stanley, Research Division - Equity Analyst [7]

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I apologize, but I would really like to follow up on the previous question, and I think when you announced your 2022 guidance targets, your assumption was on the Sandostatin genetic available globally by 2020. So, just to make sure that an approval in the U.S. for Sandostatin generic before the end of the year will not challenge the assumptions behind your guidance? That's my first question. And the second question on cash flow, so despite a significantly higher operating income in the first half compared to previous year, the free cash flow was significantly lower vis-a-vis (inaudible) working capital, (inaudible) restructuring and higher CapEx as well, so just if you could comment on the phasing of this drug in the second half and should we expect a recovery of free cash flow or should we expect a lower cash flow conversion for the full year?

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David D. Meek, Ipsen S.A. - CEO & Director [8]

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Ok, I'll answer the first question. Regarding the 2019 guidance that we just upgraded to sales greater than 14%, that we do not expect any impact for Somatuline in the U.S. business. Based on that, we expect our strong growth trends in the U.S. Somatuline business continue through the end of this year in 2019. We're not aware of any imminent generic Sandostatin in the U.S. at this time and we are closely monitoring the situation. And just a point I just want to make is that we've talked about this before, but you mentioned the May 2019 Investor Day. So let me go back to something else we said there is, due to the uniqueness of the NET market and the patient population, the prescriber base, if and when a generic does enter, the erosion of the branded product will be mild and also we expect limited generic competition in the marketplaces that do have a generic and at this point in time Somatuline is now the only marketed somatostatin analogue in parts of Europe. So we're in the market offering physician engagement, patient services and so on in these marketplaces and the new delivery system that we're launching around the world. So, our team is very much on the offensive strategy and that's why we're growing our market share globally in all markets for Somatuline.

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Aymeric Le Chatelier, Ipsen S.A. - Executive VP & CFO [9]

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Regarding the cash flow, clearly H1 performance was not really outstanding and we expect to catch up for the full year, maybe going more into the details, so we had a very strong EBITDA and we expect to get that to the end of the year. I think working capital was clearly impacted by some seasonal impacts that we expect to reverse by the end of the year. Also CapEx are in line with our guidance to increase CapEx, you should not assume CapEx are going to be twice what you see in H1, we are more toward the EUR 160 million to EUR 170 million for the full year and our structuring and financial are going to be also more in line than the 2x 100. Just maybe as a technical comment on top of that, we are implementing IFRS16 for the first time. These are the positive impacts on the EBITDA, but also is increasing the CapEx as we are now accounting under the new IFRS rule.

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Operator [10]

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Our next question is from the line of Luisa Hector.

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Luisa Caroline Hector, Exane BNP Paribas, Research Division - Pharma Research Analyst [11]

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Maybe you could comment on opportunities in China for some of your assets, so I'm thinking perhaps Cabometyx and palovarotene? And then to go back to the Somatuline generic environment, so specifically your comments just now on the situation in Europe where the level of competitive promotion is not so high and that you have these additional services, you can add. So, how should we think about the price pressure that a generic Sandostatin could bring in Europe? Are you protected from that at all or is that the one area where you're at risk, more so than volume loss?

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David D. Meek, Ipsen S.A. - CEO & Director [12]

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Okay. Let me begin with the second question, then I'll go back to China too. Regarding in the markets where a generic could enter beginning in Europe for generic octreotide, what we would expect and what we have in our models is a low-double digit blended price reduction, so across all markets, a very low double-digit impact. With that as we are the only marketed agent, we think we can make up quite a bit of that in volume as we know we're growing market share around the world, being the only marketed asset in the somatostatin analogue marketplace, so we're there to educate, identify and help physicians treat these patients with the services we provide. The new delivery system launch is well underway in Europe and it's taking significant traction at this time. So with the relatively modest price decrease in some markets and a volume gain, we think our Somatuline business, in this unique market, we think any erosion will be mild and over time, so that's why we're confident in the growth of our Somatuline business through the end of the year as we have discussed in our guidance upgrade and also on our 2022 financial outlook taking all that into consideration. Now moving on to China, yes, we do see significant portfolio expansion in China within our business today (inaudible) business is Decapeptyl primarily and our consumer business we have smacked up in that market and expect as a market leader, the Decapeptyl actually is very high market share, and not just in prostate cancer but in IVF and in puberty as well. It is one market that has multiple indications. What we're excited about is the future in China. Cabometyx is currently in a Phase III registration trial, the HCC trial that is in play today, we do have a cohort in there for China and the China FDA has already agreed to that study design. So that will be a registration trial for HCC; HCC patient population, about half of the patient population globally is in China. So we'll see how this trial plays out for us. With palovarotene, we absolutely expect to launch palovarotene. We've already had conversations with China FDA about the launch of palovarotene and the registration process. We're actually pending registration today for Somatuline in China for acromegaly as well as Dysport for glabellar lines in China. So we do expect a series of product approvals beginning in the next 12 months and rolling out for the coming years in China.

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Operator [13]

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Our next question is from the line of Sachin Jain.

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Sachin Jain, BofA Merrill Lynch, Research Division - MD [14]

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Apologies, a few back on Somatuline if I may, just to remind us of some comments. Aymeric, could you just clarify the comments you made at Investor Day that within '22 guidance, you assumed several hundred million decline in Somatuline, I just wanted to reconfirm that stands post the recent news. And then secondly, just a clarification on the last answer, I guess, you obviously reflected competition for your '22 targets, can you just clarify when you reflected that competition from IE, did you assume some pressure from 2020 and Aymeric, I wonder if you're willing to comment in that light on Somatuline growth in consensus next year roughly 10% which does assume a slowdown from this year, but is that enough?

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David D. Meek, Ipsen S.A. - CEO & Director [15]

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I will say first regarding the pressure from generics. This is pretty much playing out with what our 2022 guidance was. The impact for this year's business is nominal in Europe with the generic entry of octerotide and in the future years I talked about the pricing and some of the volume already, but this is playing out as we expected and this is what we put in our 2022 financial outlook and in the U.S. where we expect no impact to our Somatuline U.S. business at least for 2019 at this time so.

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Aymeric Le Chatelier, Ipsen S.A. - Executive VP & CFO [16]

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Yes, maybe just to add, you were referring to the (inaudible) impact. I think that was the impact in 2022 is there were no generic at all, given the fact that there is EU, U.S., octreotide (inaudible) are we are fully in line with this assumption, which baked into the EUR 3.2 billion by 2022.

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Sachin Jain, BofA Merrill Lynch, Research Division - MD [17]

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And then just any commentary on Somatuline growth rates for next year?

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Aymeric Le Chatelier, Ipsen S.A. - Executive VP & CFO [18]

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We are not providing guidance for 2020 at this stage. So, let's wait maybe for first completing 2019 and we will come back with further view when we talk 2019 assets.

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Operator [19]

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Our next question is from the line of Matt Weston.

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Matthew Weston, Crédit Suisse AG, Research Division - MD and Co-Head of European Pharmaceutical Equity Research [20]

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On ONIVYDE, Aymeric, can you confirm if the 2Q revenue number is a reasonable base for moving forward for the rest of the year? I just note the comment in the release that it includes a significant order or something along those lines to your ex-U. S. partner, so I just wanted to understand how much was sustainable versus bolus? Secondly, on the Somatuline new delivery system, can you just confirm that there is no price differential in the U.S. market and this is about securing or gaining share rather than actually seeing a meaningful step up in revenue per existing script? Other revenue, I guess in Q2, you've seen Adenuric go generic ex-U. S., so can you just confirm what sort of erosion rate or how the contract is structured with respect to reductions in other revenue coming from Adenuric in the second half of the year and going into 2020? Aymeric, you've refinanced the group, can you just tell us whether there has been any change in your business development firepower assumptions as a consequence of all those conversations in the rates that you've achieved and remind us what that number is?

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Aymeric Le Chatelier, Ipsen S.A. - Executive VP & CFO [21]

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So, there are three questions. David, you are going to talk about the new delivery system in the US. So the first question about Onivyde, yes, there is a significant impact of our ex-U. S. sales in the Q2. So you should not take Q2 as a reference, as you know, there is a lot of seasonality in the shipment to our partner ex-U. S. and we had a lot of those shipments in Q2, we expect a much softer Q3 and probably a bigger Q4, as you know, our ex-U. S. partner is launching country by country, building inventory and is also managing its supply chain, which explains that there is not a (inaudible) recognize. Having said that, I think Onivyde is really going quarter to quarter and we expect that the positive data from the front line study which really supports an acceleration of that growth through H2. Regarding the other revenue, we have been guiding about the global impact of around EUR 40 million on the other revenue line from Adenuric. The generic entered the market as expected in April of this year and we expect that impact to smooth over two years, so through 2019 and 2020 base. There is no specific agreement we have with (inaudible), this is more the pace of launch (inaudible). Regarding the refinancing, we haven't added anything to our firepower. Our firepower is based on the 2x debt to EBITDA. I think we had very positive feedback from investors and banks and we have been able to secure all the financing to be able to really deliver on this billion by 2020. So in a way the refinancing has been sized to a low for that billion in case we have the right business development opportunity in the next 18 months.

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David D. Meek, Ipsen S.A. - CEO & Director [22]

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And then regarding Somatuline and the new delivery system and will there be a price differential in the U.S. market, the price for the new delivery system will be the same price that the current delivery system has with Somatuline in the U.S. and that delivery system, our current price is double-digit price over our key competitor. However, what's very interesting is our value story is significantly better than our competitor and this value story is playing out very well in key oncology accounts. The total value story because with Somatuline there's one dose per month and 12 doses per year, with our key competitor there is many times 14 to 15 injections per year instead of 12. So while our price is higher, the value story is actually better and this value story has been published with real world evidence and so we think we're able to maintain that price premium with the new delivery system as well and continuing to play offense with Somatuline and actually Somatuline with ATU, one of the ways we measure market share, new patient share is at 50% currently, so nice growth trends with our Somatuline U.S. business ex-U. S. as you know, many markets are above 50% and we have market leadership globally around the world right now for new patient starts.

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Operator [23]

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Our next question is from the line of Sarita Kapila.

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Sarita Kapila, JP Morgan Chase & Co, Research Division - Analyst [24]

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Just one on Cabometyx, what proportion of sales we can see this year from first line RCC and what proportion is coming from second line? And also, could you comment on your market share penetration in second line? And then secondly, if we could have an update on palovarotene phase, when do you expect to file?

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David D. Meek, Ipsen S.A. - CEO & Director [25]

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Sure. Our sales, the split of sales with Cabometyx, the vast majority of the sales are in the second line RCC. We have some sales in first line RCC and we have some sales emerging in second line HCC as we're just ramping up reimbursement in some markets. So, for second line RCC, we pretty much have global reimbursement in that market. We're launching in Canada, Australia, some other markets as well outside of Europe. Our product positioning is best in the second line setting as well. In the frontline setting, we do have relatively low market share. The first line RCC setting, we expect that to be dominated by the I/O combinations which of course we have one in clinical development as we speak, but we expect the I/O combinations to be the dominant player and then the second line setting for RCC, we expect to be the market leader as I/O shifts to frontline. The market shares are typically high 20s at this point time for market share and that changes when I/O becomes reimbursed in a market in nivolumab is the current market leader and the I/Os lead the market and then our market share increases significantly and we're seeing this play out already in a couple of countries. I mentioned first line RCC. In second line HCC, we now have reimbursement of five countries including Germany which already has over 30% market share in the second line HCC space. Regarding our palovarotene, we expect the first filings to be in the U.S. so the NDA will go in by the end of this year for palovarotene.

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Operator [26]

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Our last question is from the line of Andrew Frost.

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Andrew Frost, UBS Investment Bank, Research Division - Analyst [27]

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In terms of the Onivyde pancreatic data, thinking forward to the Phase III, do you think you'll be running a head-to-head trial versus FOLFIRINOX? And if not how do you think this will fit into the treatment paradigm? And then secondly in terms of the impact of the Clementia integration, it was quite large on the IFRS numbers. I'm just wondering whether this was in line with expectation.

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Aymeric Le Chatelier, Ipsen S.A. - Executive VP & CFO [28]

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So maybe before David answer the question on Onivyde, just wanted to avoid any confusion. This is really transaction cost what you see on P&L according to IFRS, you don't book other transaction costs made in the bankruptcy by the way are books through the P&L and that's what you see. There is a few expenses related to the integration, but there are very limited even if there is a lot of people working on the integration to be (inaudible). Clearly, what you see on the P&L are mainly transaction cost.

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David D. Meek, Ipsen S.A. - CEO & Director [29]

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Great. Regarding Onivyde in the first line PDAC trial, we were really encouraged by the interim results and the data was published at ESMO-GI just a few weeks ago. The data has been shared with world-leading key opinion leaders as well in pancreatic cancer. They were also very excited by the data and highly recommended we pursue a registrational trial. Just some of the data, just a quick reminder, at week 16, the disease control rate was 72% and the disease control rate at any time was 81% and this compares to the disease control rate at any time reported in FOLFIRINOX Phase III study at 70%. Importantly, when one looks at the safety profile while not a head-to-head study, when looked at the safety profile of the NAPOX regimen, which was the Onivyde regimen compared to the FOLFIRINOX regimen, it's a pretty impressive safety profile. So based on all of this, we do plan to move to a registrational trial this year. The work is underway already, and I think at that time, when we're ready we will allow what the study design is and the comparator and so on. So stay tuned in the coming months, we'll have that information available as we proceed to Phase III registration trial.

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Operator [30]

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We do have our next question, sir. It is from the line of Delphine Le Louet.

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Delphine Le Louet, Societe Generale Cross Asset Research - Equity Analyst [31]

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Just a quick follow-up, try to understand and mostly for Aymeric, regarding the receivables intake, you mentioned the seasonality effect, but just to be sure, how much does that breakdown in between Onivyde and Somatuline? Second question to be back effectively on the cost of Clementia acquisition, because when you go through there is transaction cost, there is also effectively the banker cost, but there is plenty. So can we get an envelope of effectively how much Clementia extra cost linked to the acquisition, apart from the price of acquisition was booked already in H1? And, can we get a precise figure for the IFRS16 impact on the EBITDA?

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Aymeric Le Chatelier, Ipsen S.A. - Executive VP & CFO [32]

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Okay. So the first question regarding account receivables, so we don't break down account receivables by product, I think the seasonality is across many, many countries, as there is only one element, which is related, I think there was a question about the ex-U. S. Onivyde sales. So, the seasonality of the shipment to (inaudible) had some impact on the working capital. So this impacted Onivyde as you know, outside of that, this is more the normal path and there will be some clear action through H2 and we don't see any higher increase of working capital than the one which is required by the growth of the company. Regarding Clementia, we don't provide the breakdown of the cost of Clementia into the P&L; we're not talking about huge number. Regarding the impact on EBITDA, this is clearly a dilutive impact to EBITDA. I think we have a 5x debt to EBITDA from IFRS 16, which means that we expect something around EUR 30 million additional EBITDA, so you have probably something around 50% of that into the EUR 430 million that you see for H1.

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Operator [33]

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No more questions, sir. Please continue.

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David D. Meek, Ipsen S.A. - CEO & Director [34]

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Well, thank you all very much for joining us for our first half 2019 results. We're looking forward to another very strong growth year of our top line, another strong growth year of our bottom line and importantly a growth story for our pipeline and we look forward to some of the milestones we'll be reading out in the coming months. Have a great summer, everybody, thank you very much.

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Operator [35]

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So, that does conclude our conference for today. Thank you all for participating. You may all disconnect.