Q2 2019 Earnings Call
Good afternoon, ladies and gentlemen, thank you for standing by and welcome to the Sanofi second quarter 2019 earnings Conference call.
I would now like to turn the conference over to Georgia, Grofik, Vice President head of Investor Relations at Sanofi. Please go ahead Sir.
Good morning, and good afternoon to everyone on the call. Thank you for joining us to review sanity in second quarter results.
As usual you can find the slides for this call on the investors page of our website sanity Dot com.
Moving to slide two I'd like to remind you that information presented in this call contain forward looking statements that involve known and unknown risks uncertainties and other factors that may cause actual results to differ materially.
I refer you to our form 20-F document on file with the SEC and also our document or thanks Ross for a description of these risk factors.
With that please advance to slide three and let me introduce our speakers today.
With me are Olivier Brandicourt, Chief Executive Officer.
Jamba juice to shut the young executive Vice President and Chief Financial Officer, and John Reid Executive Vice President Global R&D.
Other gay will discuss key highlights after which is our CFO will review the financials.
John will then provide an update on R&D and we will close with a Q and a session.
Joining us for today will be Olivier Charmeil Executive Vice President General medicines, and emerging markets, Karen Linehan Executive Vice President Legal Affairs, and General Counsel, David Loew Executive Vice President Sanofi Pasteur.
Alan main executive Vice President consumer healthcare.
Bill symbols executive Vice President scenery, Genzyme as Dieter Wynand executive Vice President to primary care.
With that I'd like to turn the call over to Vivian.
Thank you George Good morning, good afternoon to everyone and welcome to our second quarter earnings Conference call.
On slide five we delivered continued sales and EPS growth into second quarter.
So results allow us to raise our guidance and we now expect to grow approximately 5%, which is a high end AFFO previews full year guidance, our second quarter sales were $8.6 billion up 3.9% and CR and our business EPS increased by 4.8% to one point 31 Euro if we adjust for cost and structure. Our sales grew an impressive 5.8% on an organic basis.
Slide six breaks down our second quarter sales performance two shows the drivers of our organic growth.
You can see that as in the past three quarters.
Underlying dynamics of our business more than offsetting the impact of credit Suisse.
On slide seven.
You can see the sales picture across our five gpus on a constant structure basis.
The highlights was to sustain rapid growth in our specialty care business centrifuge enzyme. However, we also benefited from very strong growth in our vaccines business center investor and from a good performance in China and emerging markets.
On slide eight as in previous quarters, our diversified business structure, clearly benefited us as we manage the impact of fed headwinds in mature markets.
In particular specialty care and vaccines showed impressive double digit growth in both metro and in emerging markets. In addition, our strong presence in emerging markets continue to be an important driver, we overall emerging market sales up 10% in the quarter.
Looking at our specialty care franchise on slide nine sales grew by 22% at constant structure.
Each of our franchises contributed contributed to growth in the quarter.
We applaud these orders grew by 2% assisted by the successful launch of kept levy gain to us.
Overall franchise performance was however, constrained by ongoing competitive pressure in the us for a look dates.
By contrast, our immunology franchise continues to perform exceptionally well driven by 2%, which is now annualizing at around 2 billion euros in sales.
Kim Zara also perform well we sales more than doubling.
You know colleague, we delivered strong growth in China.
Where our portfolio is transitioning towards specialty care.
Of course, we look forward to expanding our oncology portfolio. Following the recent European approval of deep value.
In multiple sclerosis, we again deliver a double digit increase in sales of full bajio, despite zero rival of new competition.
And finally, where disease reported a good quarter continuing these consistent growth trend growth was again led by double digit performances from our core franchise.
Oh, well pay go shape and February .
On slide 10, we highlight some continued outstanding launch of Dupixent.
We continue to see strong double digit growth in new patient starts across all specialties.
We continue to drive deeper healthcare professional penetration in that took them activities was approximately 45% of prescribers, having recent prescription for at least five patients.
In our second indication Asla, new to brand prescriptions continue to outpace recent analog launchers.
Our belief is that the opportunity in asthma lysine growing biologic market penetration was again confirmed reais about 80% of dupixent patients new to biologics.
In June CF da approved our served indication chronic rhinosinusitis with nasal polyposis and our launch is underway. We estimate there. They are 55000 patients with highest need into us who have failed one surgery.
Now turning to our strong vaccine performance on slide 11, where our second quarter sales grew by 25%.
Strong performance was mainly led by our pediatric portfolio with growth of more was at 40%.
Sales of Pantex seeming, China were especially strong as we benefited not only from a return to full supply, but also from strong underlying demand growth.
That does that also contributed to category growth helped by the low basis for comparison in the U.S.
Mr vaccines, whereas the other key driver in the quarter, we sales to close to 40%.
On the R&D front, our fully liquid men and vocal vaccine men Quad fee was accepted for review with an action date set for next April .
Finally on vaccines to squeeze your quarterly modeling I want to make you aware that the roughly one month delay in strange selection buys a W. At show has impacted the timing of our flu deliveries. Consequently, we expect though flu vaccine sales to be significantly weighted towards the fourth quarter, which is the reverse situation compare reached 2018.
Turning to primary care on slide 12 sales declined 10% on a GPU basis adjusting for the EU generic divestment.
Diabetes sales declined 13%, we again achieved solid growth outside the US led by emerging markets. However, this was more than offset by an 18% decline in U.S sales.
Ive mellowed was a bright spot things a quarter, but sales are likely to be lower in the coming quarters due to a downwards WAC price adjustment of 44%, which took effect in six months.
Turning to product sales were down 2% as a result, sofas, 30% decline in Suzhou Wes.
As in the first quarter volumes increased into us, but net pricing was heavily impacted by a rebating to improve access and affordability.
We also received disappoint is appointing news in the form of an injunction on product and sales in Germany. Following the adverse patent infringement ruling.
For your reference first half sales of Praluent in Germany, where 20 million euros.
Lastly, touching on established products sales were down 9%, reflecting lower sales of Logan box due to biosimilar competition in several European markets.
Turning to CHC on slide 13 sales grew by 1.1%.
Looking at the quarter, our us business performed wealth sales were up 6% driven by digestive category and our allergy Brian Xis out.
Overall growth in CHC was however, lower as a result of the continued weak cough and cold season in Europe , and a flat quarter in emerging markets.
In addition sales growth of the CHC GPU into quarter was impacted by strengthening regulatory requirements, particularly in Europe as well as a continued effect of divestments of non strategic brands.
Together these items reduced reported growth rate by 2% and we've continued to have a dampening effect on growth through the first spotted of 2020 .
That said, we continue to maintain our strong profitability with POI margin north of 30%.
On slide 14, as I mentioned earlier, our emerging markets business continues to be a cost trend for Sanofi, we sales up 10% into second quarter.
China remains a key driver with growth of 17% in the quarter.
On slide 15, I want to give a little more detail on China, which is now our second largest market. After that you Wes we 2018 sales of 2.5 billion euros.
Growth in the second quarter was driven by vaccines, notably that Patrick same and by our specialty care portfolio.
On the other had as we had.
Our profile and plastics were impacted by implementation of that volume based procurement program.
Sales of these two brands were flat in the quarter and are expected to be lower over as a reminder of 2019.
This we'd obviously have an impact on the growth of our Chinese spot business.
As you can see from the chart showing our sales breakdown.
Looking forward, while our established products in diabetes portfolio have served us well in China and contributed to our number for ranking amount multinationals, we aim to rebalance our business by accelerating new product launches, especially in specialty care.
Successful fee products were recently listed by the National Medical product administration.
As medicines of urgent medical needs, including Dupixent, and we aim to submit more than 10 products for approval by the end of 2020.
Separately, we see strong potential in China's counties, where we have a dedicated sales force. So that we can leverage to drive sales outside the big cities.
We believe that successful execution of this portfolio transition will allow us to sustain good growth over the medium to long term in China.
On my final slide I want to update you on a key on key R&D milestones flows are coming 12 months.
In terms of regulatory approvals, we await decisions on a number of important new opportunities, including Dupixent in adolescents AG and nasal polyps in Europe .
These are two seamap in relapse refractory multiple myeloma, and so us and Europe men Quadrophenia us adequate Riva high dose flu zone in us and Europe .
We also have a number of people read outs due to do including new molecular entities suitably mapping coal that gluten in disease and Avado glucose see days alpha in pumping.
And lastly, we expect a number of proof of concept Readouts. This include our surge in metastatic breast cancer strategically mob in refractory ITP and anti IL 33 in Seo PD.
So some momentum in our R&D organization continues John will give you more detail in his R&D update in few minutes from now, including some of our more important recent data readouts and with that I now hand over to Giambattista competition.
Thank you all have yielded good morning, and good afternoon to everyone.
So before discussing the details of the PNM, we'd like to highlight the positive impact of Forex on our reported second quarter figures.
It's mainly resulted from the stronger US dollar in total is a benefit to sales was 1.6% with an offset that business EPS level, mainly due to the Argentinean fizzle.
Looking forward based on July 2019 over it to exchange rates, we expect a positive impact on 29 countries net EPS of between one on two persons.
On slide 19, we delivered an increase in view.
Despite the high base comparison in other operating income of last year.
Our expense discipline is very guarantee in the line, which declined by 3%. Despite the cost of new launches on the continuing global rollout of Dupixent.
R&D expense grew by around 5%.
Due to investments in our late stage pipeline on the incremental cost of ugly.
Other operating income and expense includes our share of the profit on loss of the Regeneron monoclonal antibody alliance.
Net of marketing expenses incurred by region Northern.
The combined outflow in the quarter increased to $143 million versus 46 million in Q2 2018.
As the antibody collaboration is no breakeven this quarter.
On we expect to be profitable in the second half of the year.
Taking these factors together view I grew by 3%.
On an effective basis, EPS was slightly negative, reflecting 1.8 billion euros impairment charge mainly related to relocate.
Looking now in detailed as our cost line.
On slide 20, so gross margin increase on a reported basis by 70 basis points to 72.
See R&D increase was 50 basis points.
The uplift in the quarter resulted from favorable geographic and product mix.
It is now our expectation that the 2019 gross margin will be between 70 and 71.
Constant exchange rate.
Turning to Opex R&D growth was compensated by growth at GSK control Opex performance underscore.
The change of mindset, we are implementing across the organization.
Overall, we expect to keep opex growth for the full year to around one person with a similar trend over the next couple of years.
On my final slide we have increased our full year guidance for 2019 business isn't we now expect to grow approximately 5% of consultants and rate.
The impact of higher rates is expected to be around 1% to 2% positive as I mentioned earlier.
Given we delivered business be a growth of 7% through the first half we are confident of meeting our revised full year guidance.
But for your modeling consideration, we expect growth to be lower in the second half. This reflects the impact of the China VBP program, a higher basis of comparison for pet vaccine.
On the outlook for Praluent in Germany on four it looks great.
On the lower pricing on milk in the U.S.
With that I would like to turn the call over to John .
Thank you John Multistem, good morning, and good afternoon, everyone.
Well, it's my pleasure to update you on the continuing evolution of Sanofi R&D.
Beginning with slide 23.
As we explained in February our high level vision for Sanofi R&D emphasizes continuing our efforts to reshape the portfolio.
First and foremost our aim is to substantially elevate our impact for patients.
By increasing the level of innovation in this and LP portfolio.
The real commitment to greater investment in first in class and significantly differentiated best in class medicines.
To achieve this vision, we announced a reallocation of our R&D resources to bright priority therapeutic areas that we believe offer the greatest opportunity to advance with standard of care for patients.
With a focus on diseases, where the unmet medical need remains very high.
We also said we will support the new focus by leveraging our broad range of therapeutic modalities.
And by accelerating our most promising early stage programs.
Looking forward, our aspiration is for the Sanofi pharma portfolio to evolve towards a state where.
Roughly 80% or greater of our R&D investments are in first in class or best in class molecules.
Where we envision that approximately 70% of the portfolio is likely to be biologics.
And where we aim to accelerate the progress that has been made improving internal drug discovery such that around two thirds of the pipeline should come from our Sanofi labs.
I firmly believe we can deliver on this goal given the building blocks, we are putting in place.
Those building blocks include leveraging the recent by over it had been at Lynx acquisitions to bolster and reshape the portfolio, while also helping to increase our internal productivity with their technology platform to an expert scientists.
Shifting our allocations of internal resources to prioritize investments in specialty care indications, where we believe Sanofi has the best opportunity to deliver results that matter most to patients.
Focusing our internal discovery efforts by announcing recently for example, our intention to exit cardiovascular research.
Given that compared to several other therapeutic areas. The science is not as plentiful with compelling disease targets in the investment to reach definitive answers in the clinic can often be very high.
Establishing disease area strategies for all our therapeutic areas to align research with development with commercial and bring more focus to the R&D organization.
Restructuring the immuno oncology discovery collaboration with Regeneron to increase our freedom to operate as well as exiting several other collaboration agreements through tactical or strategic reasons.
And finally building up our CMC biologics capabilities to support a pipeline that features multi civic antibodies antibodies.
As well as rationalizing our footprint to bring more of our resources, where they're most needed to drive the pipeline.
Bringing new talent into the organization such as deep Marburger, our new head of global development, a man who is led development teams to 13 drug registrations, including 11 in oncology and two in hematology.
And then finally, elevating our competencies in digital internally and through collaborations.
Slide 24 shows the impact of our prioritization with the shift in the balance of our investments towards specialty care and vaccines.
This is true both for our research projects and our development stage programs.
You'll also note that the total number of projects is higher partly due to organic growth and partly due to the buy Veritiv and act at Lynx acquisitions.
Now moving to slide 26 shows the key outcome of the execution of our strategy.
Namely the shift in our mid to late stage pipeline towards internal are wholly owned molecules.
In total.
Eight of our 12 expected enemy submissions over the next five years, our Sanofi own programs.
This is departure from our recent past, where we have been significantly reliant on partnered assets for which Sanofi shares economics.
Furthermore, a high proportion of these assets, our first or best in class.
Slide 27 highlights the positive pipeline momentum we have recently achieved.
In particular, you see here five promising molecules that have each delivered positive data presented at scientific conferences in the last quarter.
These assets are completely aligned with Adobe is commercial and R&D goals as they span the specialty care categories of oncology and rare blood disorders as well as vaccines.
I want to spend a bit more time on each of these molecules beginning with these rituximab, our anti cdthirty eight monoclonal antibody.
Now on Slide 28, we presented the detailed results of the pivotal it carry a study of Easter took some have an ASCO and that each a last month.
We're particularly pleased with the results of the carrier as this is the first phase III trial to demonstrate prolongation of PFS.
Progression free survival.
When adding an anti cdthirty eight antibody to the standard of care combination palm decks.
For the indication of relapsed refractory multiple myeloma.
As you can see the median PFS for the combination of Unituxin Mabin pump X was 11.5 months.
Compared with only 6.5 months for palm decks.
With a robust hazard ratio of <unk> 0.6.
Of note 11.5 months is the longest PFS observed in this population.
And the PSS benefit was consistent across all major sub populations as I'll show in a moment.
Furthermore, we observe reversal of renal dysfunction, a significant co morbidity that often plugs patients with myeloma.
This adjustment was also well tolerated with no need for post infusion medications.
On the back of the carry results, we filed a BLA in the United States and in Europe , and we received an action date from the FDA of April 32020.
Now I know many of you are thinking about the patient journey in the anti Cdthirty eight category with the competitor recently reporting that a subcutaneous formulation could reduce its administration time.
However, it's important to note that a visit to the hospital is still necessary and there are multiple steps involved in emitter and administering anti cdthirty eight.
Which may include initial blood work pre and post infusion medications.
And appropriate post treatment monitoring before the patient leaves the clinic.
Consequently, even with the subcutaneous formulation.
We believe the overall patient journey time for the current standard of care may still be hours. This could be broadly comparable to our molecule based on Isa Tech summits recently optimize infusion time of 75 minutes from the third infusion onwards.
And importantly, its lack of need for post infusion monitoring.
Furthermore, we will begin studies on a subcutaneous formulation of east Rituximab in the second half of this year.
And we are optimistic will further reduce the total administration to.
Moving to slide 29.
Shows the consistency of that PSS benefit across pre specified sub groups in a carrier.
These included the most difficult to treat patients such as those with high risk cytogenetics.
Those refractory to Lenalidomide and those that renal impairment.
In fact this is the first phase three study to show a reversal of renal dysfunction in this population with anti Cdthirty eight therapy.
In short we believe the impressive a differentiated results from a carrier will position Isa texoma very competitively.
In the relapse refractory setting once approved.
To close on these attacks I am on slide 30 sets out our comprehensive development program across the treatment continuum of multiple myeloma.
You will see that in all cases from later lines to newly diagnosed and even smoldering disease. We have included the modern standard of care within our clinical protocols with the results, we achieve will be relevant to real world clinical practice.
You can see that our development program is very strategically designed to add isatuximab to the future standard of care combination regiments across all lines from later lines to newly diagnosed in smoldering disease.
In fact, we may have the opportunity.
To generate phase three data, where these whitaker ma'am.
With the most frequently used combinations for example, with the R&D.
Okay Revlimid dexamethasone.
In newly diagnosed patients potentially before starting to moment.
Consequently, we believe we are poised to generate a compelling and competitive data package with these whitaker ma'am.
I would also add that because these attacks Amar binds to a different epitope on cdthirty eight that conveys different biological properties the possibility still exist to show a best in class profile.
These biological differences include superior blocking the enzymatic activity of Cdthirty eight that is thought to contribute to immunosuppressive tumor microenvironments.
A superior ability to stimulate the expansion of tumor attacking effector T cells and a much reduced ability to actually complement which reduces the risk of infusion reactions and probably explains why you talked to Matt usage requires no post infusion medication.
Now on slide 31, I want to highlight another promising oncology molecule and this is our antibody drug conjugate against the cell surface glycol protein known to C. Chem five so called uncle fetal ancient.
Antigen that is expressed highly in the developing fetus then turned off an adult tissues, becoming re expressed on several types of solid tumors.
The first targeted indication for this molecule is second and third line non squamous non small cell lung cancer.
Which is has an especially poor prognosis after initial lines of therapy.
Roughly 20% of these lung cancers express and levels of C. Chem five.
At ASCO, we reported that our molecule achieved proof of concept in heavily pretreated third line patients.
Who expressed high levels of C Chem pie.
Specifically, we observed a response rate of 25%, which is more than double that seen with the standard of care Ddos attacks will.
And a disease control rate of 62%.
Importantly treatment was relatively well tolerated with grade three or higher adverse events seen in only around 10% of patients.
And with fewer than 5% of patients experiencing neutropenia.
The main side effect was care top at the a side effect, commonly encountered with antibody drug conjugates, representing a non inflammatory disease of the cornea that reverse without treatment discontinuation.
Given this profile our anti C. Chem five has the potential to become a new standard of care in second line non squamous non small cell non small cell lung cancer.
With high expression of C. Chem, five a patient group with high unmet need.
We aim to start a registrational study before the end of this year.
Okay, leaving oncology and moving to slide 32.
I want to build on our rare blood disorder franchise, we are developing fitusiran in hemophilia.
This is a novel R&D interference molecule that reduces antithrombin.
Levels, taking the breaks off the quality leasing system.
Given its unique mechanism of action Hutus Ram has a potential to be a first treatment for both hemophilia, a and b with or without inhibitors.
To this end our phase three program examines the tooth ran across the spectrum of hemophilia settings.
Our plan is to submit in 2020.
We believe the Twozs Ram may have a differentiated profile compared with existing products.
In addition to the breadth of usage you will be delivered as a small volume fixed dose subcutaneous injection for adolescents and adults.
In addition produce Ram has a number of other practical advantages.
Is that it is potentially stable at room temperature.
Is less likely to interfere with other blood assay and an antidote is available in the market for reversal should it be required.
We recently reported updated clinical data on produce ran at the highest th meeting.
Our safety program.
Over 60 patients have received treatment with fitusiran with more than 25 treated for over a year.
We're bleeding episodes have been encountered those have been successfully treated with low dose factor, we're using bypassing agents.
And finally, we completed we implemented a risk mitigation program to manage thrombosis risk.
The interim efficacy data from the phase two open line extension program demonstrated substantial reductions in annualized bringing leading rates.
In both non inhibitor and inhibitor settings, and when compared with both on demand and prophylactic therapy.
So thus far we have data that potentially set up produce ran as an innovative and differentiated pan hemophilia agent.
And we look forward to receiving the phase three results next year.
On slide 33, the next promising molecule I would like to highlight is believed to have a low one which we believe could be a breakthrough treatment for hemophilia a.
With a well understood mechanism of action and potentially attractive safety profile.
We have to follow on is a fusion protein that combines the region from von Willebrand factor and a component call to extend to extend the half life recombinant factor eight.
This unique construct means dipped below one is the first factory treatment able to overcome the so-called von willebrand ceiling, which limits the half life of current therapies.
We recently reported proof of concept data and I ask th.
Regarding safety treatment with below one was well tolerated and no subjects developed inhibitors.
The exciting part however is the half life, which at more than 40 hours was threefold higher than add bait.
This resulted in mean factor eight activity after one week of approximately 10% normal levels, depending on the dose would be of tableau one.
10% mind, you is above the threshold typically considered to constitute best practice in hemophilia patient management.
So what we potentially have in our portfolio is a highly efficacious recombinant protein that has the potential to protect against all bleeds with weekly dosing.
And because the pharmacology appears to be very consistent from week to week.
Regular monitoring a factor levels would not be required with the of below one which for hemophilia suffers is analogous to diabetics, having consistently robust glucose homeostasis such that they would no longer need to monitor their blood glucose.
Consequently, we are moving big Big Tableau, one into phase III studies in the second half.
Okay, leaving hematology moving to slide 34, the final project I want to mention is our partner to anti RSV monoclonal.
Your settlement previously referred to as SP O 232.
The clinical need is very high as nine and 10 children worldwide are expected to be infected with respiratory syncytial virus in their first two years and the vast majority of those who become hospitalized result infection or otherwise healthy.
Currently no vaccine is available for the prevention of RSV.
There are several mab is a much more potent than previously previous antibodies such that one dose can provide protection for an entire season.
Consequently, we are positioning their someof as a passive immunity solution for all intents and their per season and for high risk infants and children for their first two seasons.
We recently reported strong efficacy in a phase Twob study in healthy preterm infants, aged 29% to 35 weeks.
Compared with placebo there are seven mere reduced RSV confirmed lower respiratory tract infections by a striking 70%.
And RSV confirm hospitalizations by 78%.
Based on the unmet need we have received breakthrough and prime designations in the us and Europe , respectively.
And we're moving quickly with phase III beginning this month.
On my final slide 35, I want to reiterate the take home points.
Number one we are accelerating the transformation of Sanofi R&D by bringing more focus to the organization emphasizing investments in specialty care shifting more of the portfolio, the biologics and seeking to elevate the level of innovation the portfolio.
Number two we are supporting this transformation by enhancing our technological capabilities in biologics.
And in digital and data science.
Number three the pipeline is building momentum, having recently reported positive data on priority programs in rare blood disorders oncology them vaccines.
And finally as Olivier highlighted we have a rich news flow of clinical data expected in the coming year.
So with that I would like to hand things back over to Olivier.
Thank you very much John .
So let me summarize we we achieved a number of important R&D milestone in the quarter.
We sustained our new growth phase, we sales momentum over the past four quarters, averaging close to 5% CR.
Growth benefited from accelerated contribution from Dupixent clearly as we executed on new indication.
And indications and geographic expansion.
We achieved improved top line growth, while keeping opex growth at around 1% in the first half of the year.
And we have raised our EPS guidance to approximately 5% growth.
So before I had over to George to start a Q and a session. Many of you will be aware that this will be my last quarterly earnings call. We set a fee as they will retire as CEO at the end of August I would like to take this opportunity to thank you all for your interest in Santo feet.
I would also like to thank my executive colleagues and Sanofi employees worldwide.
For their hard work in supporting the transformation of the company over the past four and half years and with that over to you George two stones acuity.
We will now open up the call to your questions and as reminder, we like to ask you to limit your questions to each.
Alright.
Thank you, ladies and gentlemen, if youd like to ask a question. Please press star one on the Denison and with Keybanc.
If you wish to come to request based Breslawski once again, Darren one if you'd like to ask a question.
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We cannot hear anything Hello.
First question please.
The first question comes the line of Graham Parry of Bank of America. Please ask your question.
Great. Thanks for taking my question say when Thats, the best wishes to Olivier and yet your whatever your next venture isn't thanks very much for all the time the information over the time you've been at Sanofi and then first question just on Dupixent is growing ahead of prescriptions in the U.S. quarter on quarter. So I just wanted to clarify if there is any stock or rebate benefit in there or are we just seeing lower deductibles in the second quarter is patients.
I've been through that is that because you're just not paying as much co pay that and then secondly on because there is a one.
He reflected the strong proof of concept data at I.S.T.H. and you talked about second half phase three starts and when in phase three do you think you'll actually start being able to dose patients there and if you could help us just understand a little bit more about trial design that do you think you're going to stick at the weekly dosing at either the 50 or 65 days would you think you'll move up the dose higher and shoot for something in the two weekly range. Thanks.
All right. Thank you very much.
So starting with stupid Bill.
Low digit tool.
Great inventory.
Everything great. So thanks for the question Gary I mean first of all just to say from Q2 to Q1 year over year you're right.
A part of a driver in there is some favorable gross to net.
The majority is driven by demand so about 55% of its driven by demand about 36% gross to net and just as you said, it's it's people that.
We have.
Finished their co pay support so that reflects positively in Q2, and then less than 10% of it is inventory now just to anticipate the question on.
Year over year, Q2, 18 versus Q2 19.
77% is driven by demand there is about 13% on gross to net and just to remind everyone. Our first price increase with Dupixent was in July of last year at 3% and then we took a 3% in.
January of this year, so that led to some favorability in gross to net as well and then there was about 10% on inventory versus last year and the inventory fluctuations or just within our three to five weeks that we talk about nothing unexpected just.
It's a day or two here or there so thats going to continue to fluctuate over time.
All right. Thank you very much bills.
Ice T.H. and vivo, one and design Galaxy Phase three study John Please yes Graham Thanks for your question and for your interest in the low one.
With respect to the dose 50 versus 65, we actually Havent reached the final decision.
Both of them are pretty effective at maintaining that factored level close to 10%.
After one week 65, clearly more consistently does.
But 50 is close and so we are having internal debates about what it will finally be so I can't tell you exactly yet.
And the date of this start is.
In the second half of this year.
I don't remember the exact day, we can get that for you offline.
So let me just follow up on that they say the 50 to 65.
Weekly, but is there any scope to guide to a two week by pushing the days hiring phase three it was more the question.
Not at this point.
Okay. Thank you John Thank you. Thank you Graham next question. Please.
Thank you next question comes the line of Peter Sincerity. Please ask your question.
Yes morning, Peter from Citi apologies for any background noise.
Two questions John back to you.
Q1, Q2, showing a very strong gross margin.
On Opex control gross margin ahead.
Good Opex control in line.
With your guidance, despite the increased R&D investment.
Im just trying to gauge the upside risks.
Around direct action to drive across you know so wondering if you could spend a little time detailing some of the more cool.
Initiatives we've undertaken.
As well as whether you could confirm whether you are in line.
Well behind.
Internal targets you set.
Last year.
And then secondly, sorry, Bill just to go back to the pixels.
Yes, we're looking at who originally we will manage to Miss.
Yes, but 20% on a detailed some of the reasons where are you now in a position to give us a little more.
Retail on the breakdown.
Between atopic dermatitis.
You were just to get a little more handling the dynamics there. Thanks.
Thank you Peter.
Alright, initiating a cost management.
Well.
Dramatist.
Yes, thanks for the question, but maybe for Tom just word on gross margins the same drivers.
I've been.
Impacting your side in Q1 as you mentioned each one could do to images and we said Dupixent of course, which is really to have a gross margin level on them, So China, which remain.
Pretty high with a BBB, which is now kicking in really second half. So thats why we raised our gross margin guidance for the year.
270 71.
Which is.
Which is of course helpful. We have on the cost side.
Room for improvement both in Cogs on.
Jenny.
On the attach would help also to maintain our gross margin.
Of course.
On the.
Aegean is tied to.
The Opex side, you see that we have between our late stage.
Stage pipeline on.
The rollout of to be fun.
We have many opportunities of reinvesting to fuel the growth of the company. So thats why we keep our.
One person to guidance for this year over the next two years in terms of around 1% for the group. So for Opex. So no no specific worries on that.
From what I can tell you is that I can feel that there is a.
A real beginning of gentle mindset in the way we deal with we have cash in the company and that's not a bad quarter, it's really.
Is it starting to to be a very.
A significant too significant in terms of action plans into countries on within the teams.
Okay. Thank you protect your competition Bill yes, so Peter Thanks for the question I mean look the way to characterize Dupixent growth growth is this just strong all around 51% sequential growth globally a 168%.
Year over year and its contribution from that 80 from asthma, new indications geography. So it's it's it's really about the momentum across across the hall.
Product and you asked specifically about the U.S. yeah.
We on slide 10 have broken out the U.S. quarter on quarter MB Rx growth, which is 25% overall and that was driven by 23% derm, 22% Allergists and as you would expect a little bit higher growth rate, 69% with pulmonologists since the launch of asthma is now.
For competitive reasons, we're not going to break out the mix in allergist at the moment because that's the group that is writing for both.
80 and asthma.
So.
Highly competitive market and we want to go.
Hi, Keith.
Some of our information.
Proprietary.
Alright.
Thank you. Thank you bill.
Moving next question. Please. Thank you Peter Your next question comes the line of Florent Cespedes from Society Generale. Please ask your question.
Good afternoon, gentlemen, thank you very much for taking my questions.
Two quick ones first on the move.
Please could you share with us your view on this business of the performance.
For the first off is not exactly where it was expected to be.
My second questions for Alan on consumer and could you. Please tell us.
Greg I would like to try to understand why the performance on the messing with a bit softer.
In Q2, which you see some recovery or a more dynamic that sums for the rest of the year and full up on the consumer and what could be done to reenergize the business.
In Europe before as you may be mentioned during the call. We would have to wait until the first half of next year.
And when you see I would like to thank you very much and to wish you, but in the continuous your policy. Thank you.
Thank you very much wrong.
Oh I I take the first one so.
Yes, we took an impairment charge on ELOCTATE and as that it was and it is primarily due to the greater than expected share loss too.
Aleem Ross, So I think alumbrera share gain as a maybe not be totally surprising to everyone, but certainly the magnitude of it has surprised almost everyone. So.
At the time of the bio Rajiv acquisition, we really believes that seems a non individual markets.
See a U.S sales trajectory would be slower.
Due to at times, there were multiple serious safety events, which were reporting on Ilim Brian .
And we knew sanks to buy a relative's at historically.
Market was rather sticky.
And very.
Very oriented towards safety, so very safety conscious if you will and most specifically in Gi and we'll figure out a market.
So let's see.
That's a historical perspective now looking ahead, we do not expect to.
We do expect competitive pressure to continue of course, however, we do see some points of differentiation.
Which.
Built within ELOCTATE and more specifically, what we have talked about but maybe not sufficiently which easy speak advantage enjoyed health.
And also in Ipi.
Immune tolerance induction, which we have presented data on recent trees. So.
That's one thing to continue on future performance outside the U.S. and over the next few years, we are planning potential launches in additional markets within Latin America.
And but also.
Asia.
And finally, while we have taken an impairment charge on ELOCTATE right to reflect what I described before we still believe and Thats I think is a key off your questions via or achieve acquisition will deliver substantial value for sanofi and on a strategic basis.
It is going to be the foundation of our wider where blood disorder franchise.
And.
We think we are you know, we buy overachieve ready to build an industry leading franchise.
Which goes beyond emotionally our hands.
Your question around blog.
Blowed franchise, why those and specifically and we'll shelia, we do have.
Strategically map for CHP, but also.
GP, we just talked about vivo, one which had one point will be soon follow on compound to ELOCTATE with very and much stronger profile as you heard from from John So all of that in addition to Z early gene therapy programs that were part of the portfolio of by Overachieve and here I'm talking about Sangamo.
Focus research on Pitarrilla, Simi and sickle cell disease.
In addition to all shows a similar fairly hospital collaboration on Lentiviral.
A gene therapy for hemophilia all of that constitutes a strong pipeline, which we are very confident and so.
Ccs long answer, but I felt that I needed to use that to you. So CHC.
Yes, thanks for the offer the question first of all the emerging markets.
Overall for the first half has been quite strong with the growth of 4%.
A little bit more biased towards the first quarter.
Second quarter was flat, mainly reflecting lower performance in the allergy cough and cold so more of a seasonal impact as well as the pain category in Brazil being relatively flat.
It was offset by some price increases in Argentina to offset inflation and the continuing strong growth in China, Eurasia and southeast Asia. So overall I think it's more a phasing issue will continue to see strong growth in the second half and in the emerging markets.
You talked about Europe and of course, Europe's been impacted probably the most by seasonality over the last two quarters and also by the portfolio of divestments that we've made of non strategic brands.
So as those divestments grandfather of course that will start to have a positive effect.
We also mentioned the the tightening regulatory environment. That's also impacting Europe to some extent for example, with new IC H guidelines and a stronger position from maintenance and in France in terms of some old by ends requiring us to reformulate overdraw some of our older products in Europe .
And that's why we have given the guidance that will that will have an impact through the rest of this year into the early part of next year.
But impacting predominantly older portfolio thats not our focus categories. So underlying growth I think is still going to be seen as quite positive.
Okay. Thank you very much.
Thank you. Thank you for all next question. Please. Your next question comes the line of Luisa Hector from Exane. Please ask your question.
Hi, Thank you for taking my questions sake. It's a pipeline question on two of the cancer drugs you highlighted so to say.
And then the NTC come on so that base in relatively dynamic spaces, where we seen quite long PFS times. So I just wonder whether you can say any more on your thoughts on the trial design for the pivotal studies on the positioning of each of those assets as you move forward towards phase three.
So the so you've got that space at the CDK four six.
Are you thinking of this as a potentially even an adjuvant therapy eventually and how would you start assuming the phase two.
Comes you positively so how do you see a certificate.
And then on the CECO again, you know a lot of movement within the.
Non small cell lung so.
Anything more you can say could exceed those assets you have down with that kind of filing timeline towards 2023. So just.
Essentially trying to think about the positioning and.
The duration of this phase three studies thanks Keith.
Thank you thank you Melissa Joan.
Yes, thanks for the question start with Serge.
The.
Right now were focusing on the phase one b.
Testing asserting combination with Pavel Similarly.
In the anticipation that if that combination proves successful from a technical standpoint, we could move that into into the front line metastatic breast cancer setting.
We're also gearing up to do a randomized study of our served against.
Standard of care 80, hormonal therapy as a.
Test of moving into a monotherapy environment, which would set the stage for for edge of them today, Although as you know edge of it may change in the future if Pablo secluded becomes part of that.
Part of the therapy there.
So things are moving along and we're really continuing to develop a deep understanding of the certain how best to position it.
The.
C Chem five we.
I think is.
Very attractive in this second line setting for non small cell lung cancer. As you know most patients. These days are getting chemotherapy plus a PD one.
And when they fail that the.
Have very few options left they typically go onto a variety of different chemo regimens or cyramza.
The.
The side effect profile, those therapies and their efficacy user lead much to be desired. Our first study is going to be a head to head against ddos attacks or in the second line setting.
We are also planning to do a phase one the combo with Cyramza to see if that is a combination that could.
That could be deployed as a way to get even better efficacy and safety profile proves to be satisfactory.
And in terms of the timelines I would say.
Obviously cam fiber is the possibility to bring that forward faster depending on how some of the interactions go with the regulatory authorities will be meeting with the FDA next month impact.
So we'll be having discussions around that I think 2023 is probably a fairly conservative date for that.
For the third it's we're still we're still.
I'll have much to learn yet and so I would just stick with the 2023 for now but if there are opportunities to bring that forward will will will.
Obviously emphasized that in the future.
Thank you Lisa.
Next question please.
Thank you. Your next question comes the line of Richard Vosser from JP Morgan. Please ask your question.
Hi, Thanks for taking my question I, just actually a question on the C. Chem five festival and just could you give us some help from the durability of the response that you've seen so far in the 17 patients.
We've obviously seen other bdcs have promising early data and then and then that some of that efficacy fall away. So just to give us some idea of what that durability is an add on that product.
And then secondly, just going on to unlock fitting and just thinking about future potential pressure in China.
Obviously not at the moment that should we think of locks team, having some some pressure in the future. Thanks very much.
Thank you thank you Richard.
Durability of response.
John was a second five do you know.
The valuation is still ongoing I don't know that Weve reached a median.
Duration response, yet so we're still collecting data on that.
It's.
I guess all I can say is has been encouraging I would also note that we had a 62% disease control rate as well.
In addition to the 25% overall response rate.
So I am.
We'll have more updates for you in the future.
Okay and.
Look sitting in China Our review.
So there's been no official communication and the extension in terms of product.
Of the scope of the de Dios.
So it's too early to say on whether it looks the team could be impacted in the future.
Okay.
All right.
Thank you Richard Thanks very much.
Thanks.
Next question. Please your next question comes from the line of cable Bill Serene from Morgan Stanley . Please ask your question.
Thank you very much for taking my questions. So the first one is on parliament.
Could you give us an update on the situation of the U.S. litigations.
We some gen in terms of timeline as a next events.
And your expectations for the U.S. and help audience.
And beyond the risk of injunction I would be interested in your view on potential compensatory damages that may or may arise and how these damages would be shared between between finishing the hedging now.
And this is one question pipe and question on the ample liquidity dies and fast so could you tell us most of you and your next generation from pulled him could you tell us more about your expectations. How these assets how how you think.
About it in terms of acceleration of growth of the pumping franchise versus potential can you maybe they showed us a fill existing.
So.
All right. Thank you very much to go.
We're going first with Karen we're lucky to have Karen.
How do we as US today, so Karen do you want to give the stages of the U.S. litigation.
Sure. Thanks for the question.
As you May know in February of this year, a jury found that three of the claims and Pat.
And two were not so in other words, the jury had a split decision.
There was a hearing on a permanent injunction. The judge has not ruled on that and business continues as usual in the US you should know that we filed post trial motions one seeking to overturn.
In terms of the jury verdict that were unfavorable to Sanofi and regeneron and we raised a ruling on the functions. The court has requested an oral argument, which will take place on that so.
Okay.
And we'll be very selective.
Please be aware that any adverse ruling against that in general.
Both parties have appeared to go to the court of Appeals.
Second.
We cannot speculate on how long this will continue no matter what the length of the committed to defending this case to ensure cridland continues to be available to their pump impressions in the U.S. issues damages has not been addressed by the charter the jury.
And I think it's premature to comment comment on that but if there were any it would be shared.
Okay.
Second question on.
Of course, you days.
Bill do you have.
Yes, I think policies.
Sure great. Thanks for the question.
We are really excited about this this product and just to Orient you.
It's a second generation ERP for patients with Palm Bay.
And this was discovered in house by our researchers and it's a design that is specifically designed to enhance the receptor targeting an enzyme uptake you are greater affinity for the M. 16 receptors on muscle.
With the aim of having greater glycogen clearance and therefore potentially more efficacy than.
Myozyme and just to give you an idea we saw fivex higher uptake than Myozyme invivo.
So.
We are hopeful that this will.
A product, which is better than Myozyme and we will continue our efforts still with diagnosis and treatment in this area. So we believe that this is where the leaders now and this is an extension of our leadership and we'll be reading out more data in the future.
As a question was were you planning are you planning for some level of cannibalization, yes. The answer is yes.
Well as our level of Wearables, assuming assuming that it shows that it's already in which case, we would expect that patients want to be on this drug yep yep. Okay.
Very very much.
Executable next question please.
Thank you. Your next question comes line of Jo Walton from Credit Suisse. Please ask your question.
Thank you can I just clarify one thing first I wonder if we could also be used to repeat.
The regeneron contribution or rather general payment.
Other operating income line, which bit correctly.
My two questions one would be on U.S. reform.
We've seen the Senate proposals and one of which appears to remove the pennies rules for Medicaid.
Now given the size of a product like lantus and the ability to have taken price is well over CPR over many many years I wonder if you could tell us what the impact of removing the pennies ruling actually helping to pay out if the proposal stays lay all that remains and my second question would be on Dupixent X U S.
And I Wonder if you could tell us a little bit more about the adoption and how its going into Europe and in particular, what may happen to pricing in Europe , as you add incremental indications, which typically.
Resulting come in countries asking for price cuts many thanks.
All right. Thank you very much Joe so Joe but she starts we see.
Other income.
Yes. Thank you very much in other protein come on expenses. So it includes our share of the profit on loss of the region or a monoclonal antibody alliance.
Net of marketing expenses incurred by Regeneron. So the combined outflow in the quarter increased to $143 million versus 46 in Q2.
Last year.
This is because we are no breakeven positive breakeven.
We expect to be profitable second half from second half of the year I remember to know we were mentioning early 2020 . We are now with the.
Accelerate the growth of the business already at breakeven on looking forward to.
Have some profit so on the slides we will be recording.
On top of the selling expenses.
Incurred by Regeneron.
Half of the profit and loss.
Of the appeal of the alliance so that will be occurring negative on this line linked to the success of the partnership.
All right. Thank you very much which is excess bill Thats us for thanks for the question Joe We're seeing.
Very similar uptake in every country that we've launched in.
And in the around the world that is similar to what we've seen in the U.S. and just as a comparator way.
Have been anywhere from two to seven times the uptake of the Cosentyx launch another strong dermatology launch are well recognized dermatology launch so that that's been a consistent story everywhere and it's still very early obviously in asthma were just getting going but we would also expect to see strong demand there now regarding the pricing as as we we always thought of this is being priced as a multi indication product. So that was taken into account when we had our first discussions and our first internal plans and ultimately discussions with payers.
You're right that there there can be some downward pressure.
On pricing as a result of next indications that's been taken into consideration and we're trying to mitigate that.
To the next best extent that we can.
All right. Thank you Bill.
Joe onto US reform I know you specifically ask on Z.A.M.P. cap, but.
I just want to start by saying.
As a company and as an industry as you know we oppose the Senate Finance Committee legislation right and the reason is because it does very little to what we try to do since the beginning which is to improve the affordability for them. It is a large majority of patient.
So thats number one but also because it introduces price control into Medicare part D program.
So thats zero position as you know its a.
It's a moving target nothing is finalized, but you're right within the different proposal of that.
Draft Bill Zerella is one piece has to do we see and the cap for Medicaid and there are several version which have been consider.
For removing that cap and the latest we are aware off.
The latest proposal suggests a modification of the maximum rebate cap moving from 100%, which is today to do 100% to 125%. However is that we would only kick in during the fourth quarter of 2022.
And.
It will be launched two it would be pack to.
As a launch year price so thats one thing, but the second is even more important you would not apply reach respectively and that has to do with your question on Lantus. So we don't we don't feel.
That would be applied retrospectively is there for lantus should not be affected a waiver prospectively.
You would have to companies would have to be very careful.
With.
With price increases and the potential CPR and impact on Medicaid. So that's what I would say.
At this point so thank you very much Joe.
Next question please.
Thank you. Your next question comes from the line of Simon Baker from Redburn. Please ask your question.
Thank you for taking my questions two please firstly on Praluent.
You indicated that in the second quarter. Your sales were down 37% impacted more significantly high rebates from the prescription data we've seen it looks like volumes are up about 65%.
Which would suggest.
Probably that there were some prior period adjustments within the quarter. So I wonder if you could give us a little bit more color on that.
And then secondly on.
But you talked about the.
Opex growth this year of 1% being.
An indication of the growth in the coming years.
I assume the statement was made prior to the Fridays in Christa termination and could you give us an idea what sort of impact that would have.
The elimination of that promotion would have on opex over the coming years, thanks very much.
All right very good.
Jeter did you get a question whether its us so.
Lead volume has been growing very nicely in the us since we launched a new NDC and we got the expanded label for hospitality being the only product for with that label now.
We have seen our NBC Rx share grow by eight percentage points and we have seen top total Rx is trx is grow.
By two points. So we are encouraged by the momentum that was offset obviously by continued pricing pressure in the us and that did not completely offset the volume growth that we that we have experienced in the us.
So that really explains there was nothing unusual.
Prior quarters or so that is just how how to market has evolved going forward I would hope.
Prices.
It will stabilize and we will see that volume transcend into revenue growth as well.
Okay. Thank you Peter.
Opex growth coming back.
To that question, John but just.
Yes.
Perfectly right.
Of course, so folks that we will not to force you to newquist alone will.
We'll be.
Positive for next year on the.
Revenue for the second half.
In Opex, so thats why we are around 1% growth.
We have.
Our next opportunity for reinvestment case to fuel our growth in other areas of the business.
Okay. Thank you very much Simon I think we have time for the last question.
Operator. Please next question next question comes line of Jordan Mcdonald from Deutsche Bank. Please ask your question.
Hi, Thanks for taking my question. This is John Mcconnell from Deutsche Bank.
Just the first one please.
Could you elaborate on your expectation for Dupixent in therapy.
And highlight any dates you have in house supporting that progression into phase III trials, just looking to understand your level of confidence in that program.
And then secondly, do you have any feedback from the company. We launch that you can share on just how is that tracking versus your expectations.
Thank you.
Okay.
Thank you Jordan.
John do you want to take the superior quality and on July accent, Yeah, I'd be happy to take that thanks for the question.
Hi, it's thought that at least a subset of CBD patients have a component of type two inflammation, which.
Is that an area, where we know dupixent really excels in squashing that information so.
We're doing a study as you're probably aware to test that.
In the same study were comparing dupixent with BRL 33 molecule and then doing a combo as well.
And from this then we'll have much better insights into the relevance of those cytokine.
And that immunobiology relevant to Seo PD.
The.
You know the Pts right now we would put probably technical success, we put standard levels on it.
For phase two studies.
So we're just waiting for data with the data. We can then make decisions about where we go from here.
All right. Thank you John .
Second question was feedback on completing and leaving great. Thanks for the question. So we're really pleased with the initial demand and usage in our early market and just to remind you. We're now launched in Germany, Denmark, Austria and of course, the U.S. and we'll have some other Nordic countries that are planned to launch later this year and with each one of these is building the market from scratch. This is something it's a it's a completely new innovative therapy and so that takes a little time, but overall, we are tracking well in each of the markets and the feedback has been.
Really quite impressive from physicians and patients were hearing stories of lives that have been safe and that this has been really transformational so it's early but.
So far very pleased.
Alright, thank thank you bill.
Thank you Jordan so with that.
I think Seattle phone call.
Again I want to thank you very much for your interest.
Incentive fee and.
With that.
Wish you well thanks, everybody.
Thank you that does conclude our conference for today. Thank you for participating and I will disconnect.
No.