U.S. Markets open in 8 hrs 10 mins

Edited Transcript of UCB.BR earnings conference call or presentation 25-Jul-19 12:00pm GMT

Q2 2019 Ucb SA Earnings Call

Brussels Aug 2, 2019 (Thomson StreetEvents) -- Edited Transcript of UCB SA earnings conference call or presentation Thursday, July 25, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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

Corporate Participants

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

* Antje Witte

UCB SA - VP of IR

* Detlef Thielgen

UCB SA - CFO & Executive VP

* Emmanuel Caeymaex

UCB SA - Executive VP & Head of Immunology Patient Value Unit

* Jean-Christophe Tellier

UCB SA - CEO & Executive Director

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

Conference Call Participants

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

* James Patrick Quigley

JP Morgan Chase & Co, Research Division - Analyst

* Jean-Jacques Le Fur

Bryan Garnier & Co Ltd, Research Division - Analyst

* Kerry Ann Holford

Exane BNP Paribas, Research Division - Analyst

* Laura Sutcliffe

UBS Investment Bank, Research Division - Equity Research Analyst

* Peter Verdult

Citigroup Inc, Research Division - Director

* Rushee Singh Jolly

Sanford C. Bernstein & Co., LLC., Research Division - Research Analyst

* Sandra Cauwenberghs

KBC Securities NV, Research Division - Senior Financial Analyst

* Trung Chuong Huynh

Crédit Suisse AG, Research Division - Research Analyst

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

Presentation

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

Operator [1]

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

Ladies and gentlemen, welcome to the UCB Conference Call. For the first part of this call, let me remind you that all participants will be in listen-only mode and afterward there will be a question-and-answer session. (Operator Instructions). Please note that this conference call will be recorded and that a replay of the webcast will be available later today on the UCB's website, under the Investors section.

I am pleased to present Mrs. Antje Witte, Head of Investor Relations, who will be the moderator of this conference. Mrs. Witte, the floor is yours.

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

Antje Witte, UCB SA - VP of IR [2]

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

Logan, thank you very much. Good afternoon, good morning from my side. Welcome to UCB's Half Year Results Conference Call with the capital markets participants. I like to remind you that this presentation, this call is covered with the disclaimer and safe harbor statement you'll find on page 2 of this presentation and I'd like you to take notice of that and read through those.

On the first page of the presentation, you will find our today's agenda and the participants of this call. So first, Jean-Christophe Tellier, our CEO will give you an overview. Emmanuel Caeymaex, our Executive Vice President of the Patient Value Unit, Immunology, will introduce to you a little bit further to Cimzia and the future of our immunology division, meaning bimekizumab. And then we have Detlef Thielgen, our CFO, guiding you through the financials. After the concluding words from Jean-Christophe, we are all here for your questions.

Thank you very much, and I'd like to hand over to Jean-Christophe.

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

Jean-Christophe Tellier, UCB SA - CEO & Executive Director [3]

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

Thank you, Antje. Good morning, good afternoon everyone. It's our pleasure to welcome you on our call for the first half result of the year 2019. We are very pleased with our results. As you have seen, we are building on our 5 years of continuous growth, and we are able to then continue and confirm this robust position that we have, which enables us to continue our investment into our future growth drivers.

You see here, some of our first half of the year achievements. Our strategy, which is based on innovation and differentiations, allow us to maximize the numbers of lines that we can impact positively with our current core products on the markets, and you see here, that we are, in particular, pleased of our 2 blockbusters that have enjoyed a double-digit growth during the first half of the year. And all of this performance has been driven by strong end market events, which brings more different drugs to the patients, and enhance our patients to be relieved of their chronic disease.

We are also pleased with the evolution of our portfolio, and as you see here, we have been able to continue to bring new indications or new product for new patients population. First and foremost, the product that we have in partnership with Amgen, Evenity, who have been approved now in U.S., Japan, South Korea, Canada and Australia. As these territories are territories lead by our partner Amgen, I will not comment on the performance of Evenity today because I will lead our partner Amgen to do that in a few days.

You have seen also that we have been able to get an approval for Nayzilam. Nayzilam is a program that we have bought from Proximagen. It completes our portfolio in epilepsy and we got an approval in acute repetitive seizure.

So you see that we have already 2 products approved this year, and not to mention the approval of Cimzia, nonradiographic axial spondyloarthritis, Emmanuel may comment a little bit more on that later on. But we are very pleased because with Cimzia we are the first and only products with an indication -- with such an indication.

And then of course, we are also pleased with the evolution of the rest of our pipeline. We are expecting the results of Phase III of bimekizumab in the next quarter, but we have already been able to start 2 programs -- 2 new programs with bimekizumab for psoriatic arthritis and axial spondyloarthropathies. At the same time, we have started a Phase III for padsevonil, our new antiepileptic drug and Phase III trials in myasthenia gravis as well as a proof-of-concept in CIDP, for rozanolixizumab.

So you see that we are progressing as planned and we deliver as promised on our -- at the same times, growth drivers and the ability to move forward, our portfolio, that allow us to believe in our clear future. We have been doing that as planned, so that our R&D ratio increased to 24% for the first half of the year, but we are committed to go back to the rEBITDA revenue ratio in 2021 of 31%.

I have mentioned our progress in the pipeline, and this is one of the messages I want to continue to deliver to you, we are very pleased with this progress that will allow us to launch potentially 6 products in the next 5 years. As I've said, Evenity is already on the market, and Nayzilam has already been approved. But rest of the portfolio, as you can see, can also demonstrate strong element of differentiation.

Bimekizumab is our anti-IL-17, which able to interact at the same times with IL-17A and IL-17F and with this dual neutralizations, we are confident that they lead to more profound activities on inflammations and so a better clinical relief for the patient.

Padsevonil has also a unique mechanism of action and the first time this unique mechanism of actions is able to target 2 receptors at the same time for the first time in epilepsy, and we are targeting refractory patients for this drug.

And last but not least, rozanolixizumab is a novel program as you know, to treat IgG autoimmune diseases, and we are here also pleased to be able to develop a product that will provide patients an ability to be treated at home for this type of disease, which they need today to go to the hospital.

The last one that you see here UCB-0107 is our anti-Tau antibody which is in Phase 1 and the Phase I is ongoing in PSP, progressive supranuclear palsy. All of these programs are progressing well and as planned, and so this is -- the important news that I wanted to share with you. The fact that the recruitment goes well, that we are on track on each of these trials and so these pipelines should mature, as planned.

And with that, I would like to hand over to Emmanuel, that he will comment furthermore on the immunology franchise.

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

Emmanuel Caeymaex, UCB SA - Executive VP & Head of Immunology Patient Value Unit [4]

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

Thank you very much, Jean-Christophe, and greetings everyone. Indeed, we are pleased to share details of the strong performance of Cimzia in this first half, and this for a few reasons. Beyond delivering on our long-held promise of sustained Cimzia growth in a dynamic market, it demonstrates that differentiation does translate to increased demand. And so I'll briefly touch also on bimekizumab with the Phase III development milestones coming up soon in Q4, as scheduled, in the buoyant areas of psoriatic disease and spondyloarthropathy.

So let me start with Cimzia, as you can see it grew at 10% at constant rates in H1. This was driven by multiple sources of growth, both geographically and in terms of patient populations. In the U.S. and Europe, growth was 8% and international markets grew by 32%. All of that growth is volume growth.

In the U.S., the TNF market is soft. Yet Cimzia grows strongly and the drivers are first and foremost, the lyophilized formulation for in-office injection, and also within the prefilled syringe formulation, mostly the women of childbearing age label expansion in rheumatology as well as the psoriasis new indication.

It's noteworthy given the context in the US, that the lyophilized formulation growth mostly comes from the Commercial Medical segment, meaning commercial insurances or the payer, and not Medicare Part B. Even though we've had growth as well in Medicare Part B, which now represents about 2/3 of our U.S. lyo sales.

The pre-filled syringe clearly beats the TNF markets by quite a large margin, and you may wonder about nonradiographic axSpA, for which we obtained approval quite recently. It will contribute from the second half, as in Q2, we gained coverage with most plans and PBMs and we'll be in a very good position with their growth of first-line coverage starting this summer.

Moving to Europe, despite biosimilars, Cimzia continued to grow. Mostly in the women of childbearing age segment, following the label update early 2018. So if I use Germany as a proxy for the rest of Europe, Cimzia's share in this population doubled to close to 30% of TNF inhibitors in this segment, or if you look at the total biologic markets, the share would be about 20%. So that's doubling essentially since we gained the label expansion. The biosimilars of other anti-TNFs have had a very limited impact on Cimzia net price as different (inaudible) Cimzia and basically as we had planned before.

A quick word on the international markets, strong market share gains, where Cimzia grew 4 times the speed of the TNF market. You very recently read that we obtained approval for Cimzia in China. This went quickly; we enjoyed the priority review, which is linked to the inclusion of their treatment cradle data in our label. We are partnering with Cinkate, a well-established local rheumatology company, that has a very innovative digital platform connecting patients in rheumatology with their physicians, and this will enable us as part of our co-promotion agreement, to work in a very targeted way and hopefully to accelerate the uptake. Now you may also know that in China, we first need to get the biologics through a few steps, before it can actually be launched, so any contribution will start as of early next year. And I also want to stress that China is a long-term play as the market size today is still quite limited. Nevertheless, a very important long-term opportunity.

So in summary, when it comes to Cimzia, the first-half reinforces the impact of our patient value strategy and of our differentiation with multiple sources of current and future growth, that will more than compensate the TNF by similar entries in the TNF class softness in general. So we're tracking well towards achieving our $1.7 billion peak sales guidance in the next few years.

In the next 2 slides, we will briefly dive into both the psoriatic and the spondyloarthritis spectrum of disease. To provide further context, through the relevance of bimekizumab, and this ahead of our Phase III results for psoriasis.

So first as a reminder, bimekizumab is an antibody, which potently and selectively inhibits both IL-17A and IL-17F as Jean-Christophe reminded us. When we look across studies with other biologics, we see best-in-disease efficacy in Phase II studies in psoriasis, in ankylosing spondylitis and in psoriatic arthritis. And the 1-year data were highlights at the American Academy of Dermatology and at the European Rheumatology Congress, EULAR. Now of course, we need to take all of this with a pinch of salt and we are waiting for the Phase III results for confirmation. We are actually investing in 8 large late-stage studies with bimekizumab, 3 pivotals in psoriasis and 1 Phase IIIb, 2 PsA studies, 1 in AS and 1 in nonradiographic axSpa and 4 out of the 8 studies have an active comparator arm, that includes the market leaders.

So we should be in a good position for both health care providers and payers in terms of illustrating the differentiation we aim at. The point here, with this slide is that, we're talking about very prevalent conditions with significant intersection and progression across, and these are important factors when considering which treatment to choose for patients. So taken together, these 3 circles here that you see on this slide, affect close to 5% of the population is in the Western world and the evolving understanding of axSpA and PsA is that both of those conditions are actually more common than rheumatoid arthritis. And so the increased realization of the consequences of moderate to severe psoriasis left untreated, which commonly leads to psoriatic arthritis, to cardiovascular disease and even a shortened lifespan in severe cases. So about 40% of the patients that are captured here are moderate to severe patients, and therefore are eligible for biologics. Yet the treatment rates are still low, especially in nonradiographic axSpA and in psoriasis. So very significant growth potential.

And you can also see that there are several interactions between psoriasis and PSA, between psoriatic arthritis and axSpA and that is due to the shared pathobiology of these systemic diseases that each affect several organ domains, the skin, the joints, the (inaudible), the eye, et cetera. And so this significant overlap and the progression highlights the need for drugs with excellent efficacy across these conditions, and the most commonly affected organ domains.

So if Phase III and Phase IIIb data confirm the findings of Phase II, bimekizumab will come one step closer to being recognized as the most effective medicine in each one and across these indications, and therefore a highly attractive option across the spectra of psoriatic disease and SpAs.

Now the next slide illustrates how sales in the G6 markets are forecast to grow in these indications, to $37 billion in 2027, and that is posed by similars in TNF inhibitors, and the growth is really driven by the IL-17 class and the IL-23 class. Now the way these drugs are expected to be used, actually varies across diseases.

In psoriasis, the IL-17s and IL-23s will gain the majority of dollar share as more patients gain access to systemic treatments, and as the treatment goals evolve towards sustained, totally clear skin and resolution of inflammation as a means to prevent the comorbidities I mentioned earlier.

Psoriatic arthritis will grow as fast as psoriasis. With TNF and IL-17s playing the central role, and IL-23s being affected, but potentially less compelling given the data seen in joints so far.

Now, one study recently shown that a pretty potent IL-23 doesn't work in axial spondyloarthritis, which is why the higher share of IL-17s in axSpA is visible here, but it's also of importance, given the axial symptoms in psoriatic arthritis, where in fact about half of the patients are suffering from inflammatory back pain. And so these agents may also potentially be less suitable in psoriatic arthritis.

So in summary, it seems that we are well on track towards achieving our guidance within the next year, with multiple growth drivers, including women of childbearing age psoriasis, nonradiographic axSpA and also geographic expansion, and the capabilities and the reputation that is being built with Cimzia are paving the way for bimekizumab success, based on a strong strategic rationale and the Phase III results come from Phase IIb results, bimekizumab will be well positioned to create significant value for patients suffering from psoriatic disease and spondyloarthropathy.

So with this, I would now like to hand over to Detlef.

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

Detlef Thielgen, UCB SA - CFO & Executive VP [5]

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

Thank you, Emmanuel, and welcome to everybody. You know, we just talked about some of the real strong growth that we saw for Cimzia. We talked about some of the prospects, let's get back to today and to what I believe are strong financials, that we show for the first half year.

When you look at the slides, I would like to say this is how good delivery looks like. We promised you that we would have some growth still to come, but it would be somewhat subdued. And here, we told you, it will be mainly also due to impact of FX, and that is the case. And we told you also that to achieve the growth for the future, we will have to invest into our promising programs, and the launch of our products.

I'm very happy that we see that this money is well spent, by both, seeing the results in the marketplace in terms of volume growth, but also with 4 Phase 3 programs started and on their way and Jean-Christophe has mentioned that we are well on our way, that we are making good use of -- out of the money, that we have to take of the profitability.

For the first half of the year, profitability is still strong, with 31%, you will not be surprised, it is a pattern that we have seen over the last few years, that the first half of the year is always significantly stronger, that fits also very well to the beginning and duration of the clinical trials throughout the year and therefore is, I think, in line with our expectations. I'm also happy to say that our tax rate is at 20%. I know that tax rates in my duration has been up and down, but it's exactly where we have guided, and it just shows that with us being more and more profitable, gaining more and more scale, as these things get also more normalized.

When I look into underlying sales growth, net sales growth, it's important to say that while we look like 2% growing on real rate, the real underlying growth, if you take all the hedging in both years away and if you take all the divestments away, is 11%. That is driven mainly by our key products, Cimzia and Vimpat. But also all the other products are holding up well, taking in mind that we had a onetime dip in Keppra in Europe.

Established brands, also very resilient, if you take out divestitures. So all in all, a very, very strong performance on the sales side. That brings me back to our guidance. As I mentioned, we are well on track for delivering our year-end guidance, and Jean-Christophe already mentioned, that we are also confirming our midterm guidance, both on the rEBITDA revenue ratio of 31% in 2021, and the peak sales for our products Emmanuel pointed especially out for Cimzia.

With that, I can hand back to Jean-Christophe.

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

Jean-Christophe Tellier, UCB SA - CEO & Executive Director [6]

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

Thank you, Detlef. So as you have seen, a strong performance in the first half of 2019. We delivered on our commitment and our promises. We have been able to see a good and strong in-demand market growth of our core products, that allow us to invest in our rich pipeline for sustained growth in the future.

So as you know with that, we are -- we wanted to be able to reassure and treat more patients in the future. And you see here, the new patients population that we would like to reach in the future. In this context, as you know, we are continuously focusing on strengthening our operating model, in order to maximize our efficiency, and agility and to be able to meet our future growth expectations for the years ahead, and to continue to deliver on our patient value ambition. With the potential of these 5 launches in the next 5 years, that is for us unprecedented.

As part of this evolution, we are also -- as you have seen in the press release this morning, we are also adapting our Executive Committee structure that will come in the coming months, which enhance and secure our ability to continue, to focus and to prioritize the company on our core value drivers. In this context, as we have said, we are starting the process of the transition of our CFO, and almost after 13 years in the role, Detlef, which has played -- plays a critical role in UCB successes, helping to lead the company through the different phases since the acquisition of Schwarz will transition in the coming year.

I would of course like to thank deeply Detlef today, his dedications, loyalty, support and always having the best interest of the company in his heart and in his mind, has and is and has been an example for all of us. More personally, I feel really grateful and privileged to have been able to work with Detlef since I joined UCB. He always has been a perfect trusted sparring partner for me, and we have been working together very well, and I really appreciate that. We will of course continue to work closely together as -- in this new phase, to drive UCB and continue to deliver on our objective and ambition, and to ensure a smooth transition to his successor.

And with that, I would like to open the call for your question, please?

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

Antje Witte, UCB SA - VP of IR [7]

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

Thank you very much. Please enter your question.

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

Questions and Answers

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

Operator [1]

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

(Operator Instructions) And we have our first question from James Quigley from JPMorgan.

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

James Patrick Quigley, JP Morgan Chase & Co, Research Division - Analyst [2]

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

First question on Cimzia, you mentioned that -- the EU biosimilars of Humira, and not having much impact on price. I mean growth was strong, but you mentioned that was predominantly the women of childbearing age. So in different segments of the market, are you seeing any volume impact at all, since those will be well appreciated. And second question, obviously we had some snippets of potential healthcare reform in the U.S. So could you let us know your Part D exposure, especially for some of the key products like Vimpat, and also your Part D and also your Part B exposure as well for some of your injectable products like Cimzia. And then finally on the CFO transition, in terms of the timing, what are the sort of key events in the next year or so that would require a fresh pair of eyes or a new perspective as you prepare for those launches and what are you looking for in a new CFO?

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

Emmanuel Caeymaex, UCB SA - Executive VP & Head of Immunology Patient Value Unit [3]

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

Thank you, James. Emmanuel here. I will start with answering the first question. So in Europe, biosimilars of etanercept and adalimumab actually have an impact on market prices for anti-TNFs, and so within those molecules, we see net discounts going down to 50% to 80%, if we are adding the list price plus the extra discount or rebate that is being provided. However, as I mentioned, price erosion for Cimzia in the first half has been minimal, and that is because the product is essentially shielded from those biosimilars and those molecules through its differentiation.

In terms of volume impacts, beyond women of childbearing age where Cimzia is growing fast. Of course, there is a decrease in other segments. But net-net, the brand is growing in a very healthy manner, volume wise, in Europe.

In terms of yes -- I mean -- maybe that answers the question. I will perhaps let Detlef or Jean-Christophe answer the question around Part B and Part D across the portfolio.

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

Jean-Christophe Tellier, UCB SA - CEO & Executive Director [4]

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

Yes. Thank you, Emmanuel. I can take the Part D, and part B across the portfolio. So I mean first of all, from a general standpoint, if you look at the evolution of the healthcare in the U.S. and you have seen their most recent changes in the proposal and in, particularly, the pullback of the rebate rule that was proposed earlier. We are disappointed by this, but for 2 reasons. The first reason is, we think that we need to evolve globally, also in the U.S., in an environment that recognized differentiations and bring the value at the level of the differentiations, and we saw that the previous model of the rebate rule removal was a good one to accelerate the ability for the senior to reduce the out-of-pocket money and making sure that part of the rebates would be able to pull through to the patient. We have seen recently, so these have been removed, so we will see what the future will give us. But in any case, what we see currently and the evolution of the Medicare potentially, so far, do not change anything in the competitiveness of our portfolio, which is an important one.

Now in the most recent maybe your questions covered also the Senate Finance Committee package, on this one also we are disappointed of this because once again, the proposal changes and merger will not have any positive impact on the patients. And so the savings that will be done, will mainly go back to the government, and what we aim and what we are -- would like to contribute to engage government with, is the ability really to reduce the burden of disease for the patients and making sure that the affordability of the drugs continue to be at the patients.

Now on the question on the Medicare Part B and the Medicare Part D; we are exposed with the impact mainly on Medicare Part D but that represents roughly 30% of our volume -- of our revenues and in -- for Cimzia, Emmanuel mentioned this.

In terms of the CFO transition, the reason -- that's also the reason why we wanted to give you a heads up and being transparent about this process. We are just starting this process between now and 2020, and that's the reason why we wanted to give you a heads-up, and this is long transitions, but we are, as you know at UCB, we are planning to do this transition openly with you.

The milestones that will come are mainly regulatory in the near future, and we are preparing these launches. So what I would like to see in the successor I would like to see -- I would like to find a brother of Detlef because I need to find again the same strong support, integrity, agility, ability to understand the business to secure the finance, in the phase to come, that will be leaded by a lot of new launches. But we will give you more informations in due time on that.

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

Operator [5]

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

We have another question from Jean-Jacques Le Fur from Bryan Garnier.

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

Jean-Jacques Le Fur, Bryan Garnier & Co Ltd, Research Division - Analyst [6]

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

I have 3 quick finance questions please. The first is on the -- in the other revenue line, and especially the contract manufacturing, which increased, I would say, quite significantly during H1. Is it the line which may continue to grow next in H2 and after that in the next years, this is the first question. So is it a sustainable growth we may have? Second is on cost of sales, pure cost of sales; you improved in percentage of sales, the cost of sales line in H1, is it a trend we may continue to see for full year? And lastly on the marketing and sales, if I well understood most of the key launches will be done -- or investment for launches will be done in 2019. So could we expect for the next 2 years before the next wave of new products, could we expect a slower growth of these marketing and selling expenses, I mean for 2020-2021 for example.

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

Detlef Thielgen, UCB SA - CFO & Executive VP [7]

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

Yes. Thank you for your questions. Concerning the other revenue, we are mainly talking about manufacturing income, and this is also related to some of the divestitures that we have recently made. It is quite common that you either produce for a long while or for a certain period and that is what this represents. So usually, that takes a little while before this is transferred. So we are going to see that for some time. But whether that will be sustainable forever, I cannot promise.

In terms of the cost of sales yes, the product mix is positive and therefore you see also cost of sales improving. This should be also going in the same direction for the overall year, with differences between the first and second half of the year, might lead to small deviations. But the general trend is positive.

It's also a scaling effect that we have seen in the years before. So in that regard, as bigger your products get, it gets smaller year-by-year, but the direction is still the same.

And the last question was about marketing and selling expense, I would expect that we will see, still, some investments that we have to do in preparation of some of the launches. We also will have additional launches to come, that will be fully effective only late this year or early next year. So in that regard, it's difficult at this moment to say, how we will look at it. We will give an update at the annual analyst conference.

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

Operator [8]

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

We have another question from Peter Verdult from Citi.

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

Peter Verdult, Citigroup Inc, Research Division - Director [9]

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

Pete Verdult here from Citi. Apologies if there's any background noise. Just 2 questions to Jean-Christophe. Firstly, just want to better understand, what's driven you to change the executive committee or management team structure? You've articulated a very clear strategy over the last couple of years. You are trying to execute on that strategy. So just want to better understand, what's driven you to decide change is required? Maybe you could discuss some of the other executive changes that you are making?

And then secondly believing in the UCB pipeline is critical to the investment case to the upside, so just wondering, when you talk internally as a team, what sort of peak sales potential do you put on the current UCB pipeline. I recognize that there are still proof-of-concept studies to read out, but marrying that with the fact that you do have a significant patent cliff and believing in the pipeline is pretty crucial to buying the investment case. Just wanted to get your thoughts as to what you think the potential of the pipeline is?

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

Jean-Christophe Tellier, UCB SA - CEO & Executive Director [10]

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

Thank you, Peter, for your question. You know on the first one on the evolution of the executive committee; as I said, it's an evolution. So it's by far neither a resolution nor a change of the strategy, as you have rightly said. We have defined our strategy 5 years ago and you have seen in the slide that we have moved -- we will move from grow and prepare to accelerate and expand. So we are progressing as planned in the execution of this strategy. So there is absolutely no link to a change of strategy. And it's also not because of any, any disappointment from a performance standpoint, as we have said and shared with you, we are in the fifth year in a row now of growth and we are delivering according to plan.

It's more than you need to evolve constantly and sometimes this evolution that we are doing on a daily basis or at least on a regular basis, sometimes affects Executive Committee more than -- more than in other time. And that's what it is right now. So no particularly elements you should be concerned about. On the contrary, I think it's just an evolution and leveraging our strategy of differentiations and our position of strength to continue to evolve, to be more efficient for the future.

As you can imagine, we have started the communications today, but I will not communicate more today on this, I hope you understand that. As well as, I hope you understand that I will not share with you what is our evaluation of our portfolio internally, what I just can share with you, is the fact that we are confident. As I've mentioned, our portfolio and our pipeline is either new mechanism of action, first in class or differentiated product, which is the consequences in the illustration of our strategy, and we do feel and think that today as well as tomorrow, clinical and meaningful differentiation for the patients will be able to be recognized by the environments, physicians, payers and insurers. And we think that this the best way for us to secure our sustainability on the long term.

So of course, we have good proof-of-concept and good element of differentiation in Phase II. We have still to prove with the Phase III program that we have, that we will be able to deliver on these differentiation. But that's also the reason why and Emmanuel mentioned it, it's also the reason why we are doing an aggressive Phase III plan for bimekizumab for example, with comparison to standard-of-care with the aim and the objective to demonstrate superiority. And that for us is what differentiation means, and that's for us what clinical meaningful differentiation for patients mean. And that's what we have for our pipeline, and accelerating of this pipeline will ensure our ability to compensate the loss of exclusivity that will happen, first with the impact, it's a significant one in 2022 and then Cimzia in 2024.

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

Operator [11]

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

We have another question from Trung Huynh from Credit Suisse.

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

Trung Chuong Huynh, Crédit Suisse AG, Research Division - Research Analyst [12]

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

I've got 2 questions if I can. First one on Evenity Europe; so you've spoken previously that a key point of debate you've had with EMA has been how to characterize the CV risk. But given the mechanism of CV risk is unknown, how confident are you able to characterize this and get this through for approval in Europe? And then have you got any kind of time lines of potential submission or approval?

And then second question, just following up on James' question on the Senate Bipartisan bill, if you do see that removal of the doughnut hole, have you done any analysis on the potential uplift to UCB sales and then also on potential IPI have you done any analysis on what that could mean to UCB?

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

Jean-Christophe Tellier, UCB SA - CEO & Executive Director [13]

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

Thank you very much. So thank you for your question. So on Evenity Europe, as you have said, we have different analysis and different perspective on the products than the CHMP that have made a different opinion than other agencies, and up to now, as you have seen, we have -- we have had 5 positive outcome, and so CHMP is so far the only one that have been -- make a different outcome on the analysis of the data. There is no reason for us to believe that the cardiovascular elements, a numeric imbalance that we have seen, in one of our studies, leads to a particular link to Evenity. It's very difficult, as you know, to demonstrate if something is or is not linked. And so it's a matter of appreciation. We do feel and believe that we have a strong benefit of the patients suffering from fragility fracture, CHMP to know if they made a different conclusion.

So yes, we are feeding off the decisions. We are asked for a reexamination, and the process should take roughly between 4 and 6 months. We continue to be very confident on the value of the product for the patients, and hope that we will be able to convince the CHMP through this new procedure.

On the financing, that outcome, we are looking at that. As I said, the doughnut-hole for our Medicare patients may be an important one. So as you are right, we may have a certain uplift for this on IPI, which is the International Price Index. I think it's too early to say, what will be the magnitude, the measure, the ability to execute, and the timing. So internally we are modernizing a different potential impact, but it's too early to say what will be the reality. We do believe and think that from a legal standpoint, it will be very, very difficult, and from a more healthcare standpoint globally, I do believe also that it's not the best solution for the patients anyway because the security of the patients should remain the most and foremost important element for the environment to secure, and allowing like that different perspective, may be also dangerous. So the security of the patients and making sure that we will get a strong ability to get the right patients with the right drug should remain the priority number 1.

And so the different proposals, such as the drug importations or pricing index and the ability to execute on that, we are looking at that very closely.

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

Operator [14]

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

So we have another question from Kerry Holford from Exane.

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

Kerry Ann Holford, Exane BNP Paribas, Research Division - Analyst [15]

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

I have 3 questions please. Firstly on Evenity, I know you said at the beginning that you were not able to comment on the sales in the quarter, but it seems there was no income within the other operating line here, and I just wonder if you can help us understand when we might expect Evenity to break-even through that line, and functionally is there a delay between you receiving income, such as when the sales were generated through your partners.

Second question on tax, Detlef, you've guided us to 20% for 2019, but I wonder if you might comment on the outlook thereafter, is it prudent to assume that that may increase slightly over time. And then lastly on bimekizumab, you mentioned 4 of the ongoing 8 studies in Phase III versus an active comparator. Can you detail which drugs you're going head-to-head with in which disease?

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

Jean-Christophe Tellier, UCB SA - CEO & Executive Director [16]

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

So in terms of Evenity, you know as you rightfully said, there is limited impact on the operating expense line.

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

Detlef Thielgen, UCB SA - CFO & Executive VP [17]

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

Your second question was around when will we get to breakeven. That is a bit of a tricky question because usually it takes a few years to get to breakeven. Here it's also a question, how we share that with partners. So it might be our breakeven at that moment in time. And as I am not able to comment on sales development, you know, it's very difficult for me to also argue about profit development because it would already give indications, which I would not like to do just for the same reason that Jean-Christophe said out of fairness to our partner. In general, I would stick to what I said, it will take usually a few years to get to profitability for the overall product, which means for us and for (inaudible).

In terms of the tax rate, as we guided for 20%, we think that the tax rate for this year is around that number with a little deviation, that is not [claimable]. We think that in general terms in the -- the mid-term, we might have a benefit, and it will depend also on new products coming to market. In terms of the patent boxes, so there might be a slight decrease over time, depending on the profitability, our investment in R&D, et cetera, on the same time. So it's not easy to predict without having these different parameters. But I would say in general, more slightly down, and then -- that might move up a bit again, these are the normal waves between income and expenses that you have in these patent box units. I hope that we'll be giving you a good enough indication.

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

Emmanuel Caeymaex, UCB SA - Executive VP & Head of Immunology Patient Value Unit [18]

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

With regards to the bimekizumab comparative studies, we have 3 of those studies in psoriasis, compare -- comparing bimekizumab with Stelara, with Humira and with Cosentyx. And the first 2 studies, Humira and Stelara, will -- the results will become available in Q4 this year, they are pivotal studies. The study comparing bimekizumab with Cosentyx will result in Q2 2020. In addition, we have a Humira comparator in one of the psoriatic arthritis Phase 3 studies, for which results will become available in 2021.

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

Operator [19]

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

We have another question from Rushee Jolly from Bernstein.

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

Rushee Singh Jolly, Sanford C. Bernstein & Co., LLC., Research Division - Research Analyst [20]

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

Rushee Jolly from Bernstein. 3 quick questions if I may; a follow-up question on cost, please? So we've seen a step up in R&D and SG&A in 1H so far this year? And could you provide a little bit more color on how we should think about these costs going forward, specifically on R&D whilst you've started the four new Phase IIIs you have been completing in psoriasis late this year, early next. And on SG&A, you know, to what degree could you use infrastructure from Cimzia, to commercialize bimekizumab, if successful?

Second question on Cimzia, so consensus is currently forecasting sub EUR 1.6 billion peak sales in 2021-2022 compared to guidance. You know, from your perspective, what contents are missing here, and what's going to drive that incremental growth and how much is going to be coming from new indications? What else do you have to do to execute to get there?

And finally a quick follow-up from Trung's question on Evenity, is Europe less of a focus for you, for Evenity and given that Prolia is losing exclusivity in 2022 versus and 2025 in the U.S., you know and that comes back to the point you're making previously about not becoming profitable for a couple of years.

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

Detlef Thielgen, UCB SA - CFO & Executive VP [21]

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

So I think the, on the cost question, you will see that -- what we have spent in the first half of the year is significantly still below our guidance that we have given for the full year. So that will answer your question, we expect this to go up and we expect to be within our guidance for the full year. For the future years, we will comment as usual, when we are going into our next year's guidance. But it is very clear, and we communicated that before that also for 2020, we expect to have significant R&D costs based on our late-stage program.

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

Emmanuel Caeymaex, UCB SA - Executive VP & Head of Immunology Patient Value Unit [22]

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

In terms of the, the costs related to field operations with Cimzia and bimekizumab, I would say that in rheumatology, the current infrastructure will be able to be leveraged with bimekizumab and the time lines are nice, with projected 2023 entry of bimekizumab in axSpA and PsA. However, in dermatology, we are continuing to build our teams. Cimzia was a focused launch in psoriasis, and since initial results have been positive, we are expanding those teams and we will continue to expand in anticipation of the bimekizumab launch in a few years' time.

Then your question around the delta between peak guidance and consensus, I think that -- the way I would look at it is, we're going to lose on some parts and we're going to gain more in others. And so the parts where we will definitely gain are psoriasis, non-radiographic axSpA U.S., further women of childbearing age market share gains, and potentially also we're working strongly on a better experience for patients, potentially leading to better adherence and compliance, through patient support programs and some benefit verification in the U.S., and I believe that this will be a source of growth as well. And so if you add all of that up, you come to a nice number. And my hope is that, we will lose far less than what this number will equate to. So that's why we're confident about our guidance of EUR 1.7 billion peak.

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

Jean-Christophe Tellier, UCB SA - CEO & Executive Director [23]

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

And about your questions on Evenity, I will not comment on the Amgen portfolio and on Prolia. But what I will -- what I can share with you is that, as you know, UCB is the lead company for Evenity in Europe, and so that's -- that for us is a clear priority and we are putting everything we can, in order to have a positive outcome of the reexamination because we think that for the majority of the patients that are suffering from fragility fracture and Europe is one of the most important potential market from a patient standpoint there. It's important that we will continue to offer them a solution. As you know, there is no competitions between a product like Prolia and a product like Evenity, they complement each other, as Evenity is the first year of treatment as to fracture, because of this fast and impressive efficacy, while antiresorptive agents will be the follower of Evenity.

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

Operator [24]

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

We have another question from Laura Sutcliffe from UBS.

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

Laura Sutcliffe, UBS Investment Bank, Research Division - Equity Research Analyst [25]

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

Just on Cimzia, you said it was doing well in women of childbearing age. Could you just maybe tell us whether most of the new patients you see there are treatment-naive or whether they are switch patients? And if they are switch patients, where they are coming from? Secondly, could you maybe give us a bit of an update on how recruitment is going for your myasthenia gravis trial? Have you dosed your first patient yet? And lastly, have you yet made a decision on whether or not you will launch your intra-nasal midazolam in Europe?

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

Jean-Christophe Tellier, UCB SA - CEO & Executive Director [26]

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

Yes, Laura. Thank you. I will take the first question. So the majority of women of childbearing age patients being prescribed Cimzia are biologic naive patients. Once a patient is controlled, it is unusual that they would be switched to another molecule.

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

Emmanuel Caeymaex, UCB SA - Executive VP & Head of Immunology Patient Value Unit [27]

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

So on the clinical trial for myasthenia gravis, as I said, everything is doing well, recruitment is on track. So we are very pleased and we will come back to you as soon as the recruitment will be fully done, and we will be able to comment on that. And as you know, Nayzilam so far has been approved in the U.S. It was based, as I said, is an acquisition from Proximagen. Proximagen have done the development plan in the U.S. That's the reason why the product is planned to be launched in the U.S., and so far for this and coming time, we have no plan in our minds to register or develop in EU.

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

Operator [28]

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

We have another question from Sandra Cauwenberghs from KBC Securities.

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

Sandra Cauwenberghs, KBC Securities NV, Research Division - Senior Financial Analyst [29]

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

Just one small question, that's still on Cimzia, you're quite confident on the peak sales of EUR 1.7 billion, I was wondering if you can comment a little bit on the JAK space and how you see this for the RA segment in terms of market share. Do you think that there will be an impact on the Cimzia sales for that particular segment?

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

Jean-Christophe Tellier, UCB SA - CEO & Executive Director [30]

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

Yes. Thank you, Sandra. Yes, indeed JAK inhibitors usage is increasing significantly in rheumatoid arthritis. I think that this already has an impact on Cimzia use in RA, but that impact is more than made up for, in spondyloarthritis, in psoriasis as well as in women of childbearing age. So in a way, my message would be, it's factored in already and it's a known trend already.

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

Antje Witte, UCB SA - VP of IR [31]

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

Do we have any further questions, please?

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

Operator [32]

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

No, we have no further question, madam.

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

Antje Witte, UCB SA - VP of IR [33]

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

As we have used your time, thank you very much for being with us this afternoon, this morning. Thanks very much to the gentlemen from our Executive Committee, and please have a wonderful summer. If you have any further questions, you will know where you find the Investor Relation team of UCB. Thank you very much and have a great day.

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

Operator [34]

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

Ladies and gentlemen, this concludes today's conference call. Thank you all for attending.