Business Organized transcript of call or IPN conference presentation 13-Feb-20...

Organized transcript of call or IPN conference presentation 13-Feb-20 1:30 pm GMT

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Paris Feb 14, 2020 (Thomson StreetEvents) – Transcript call call or conference presentation earning Ipsen SA Thursday, February 13, 2020 at 1:30:00 pm GMT

Ipsen S.A. – Executive Vice President, Interim CEO and CFO

Creisse Suisse AG, Research Division – MD and European Head of Pharmaceutical Equity

UBS Investment Bank, Research Division – Research on Equity Research Head of Pharmacy

Ladies and gentlemen, I thank you for standing, and welcome you to the Ipsen Annual Results Conference Call 2019. (Operator Instructions) I must inform you that this conference is being recorded today, Thursday, 13 February 2020.

I would now like to give the conference to the first speaker today, Mr Aymeric Le Chatelier. Thank you. Please proceed, please, sir.

Aymeric Le Chatelier, Ipsen S.A. – Executive Vice President, Interim CEO and CFO [2]

Thank you. Good morning, and a good evening, everyone, and I thank you for joining us for the 2019 Conference of the Year Results on Ipsen Year Results. I am Aymeric Le Chatelier, CEO and CFO Ipsen, and I will update you on the business and our results before we open the questions. So, before I start, this is our safe harbor statement outlining the typical risks and uncertainty in this presentation.

Today’s agenda for our call will review our excellent operating performance in 2019, including our sound financial structure. I will then include the issue in the palovarotene development program, which remains a top priority for Ipsen and also – it is also a very important subject for many of you. Despite some recent development, I would also like to reiterate that the strengths of our business and our strategy remain strong, and I will give you more detail later. I will then cover our 2020 guidance and update our financial opinion 2022. Finally, we will open up questions.

So we are delighted to share our excellent operating performance with you for 2019. Our business is growing. We are operating consistently against the objectives and we remain focused on our growth strategy. Starting with the top line. Our group sales exceeded € 2.5 billion for the first time with 14.8% double-digit sales growth at a constant exchange rate, driven by our Specialist Care business growing at 17.2%. We have delivered strong performance across major Specialty Care products and all geography. To note that our Somatuline product has more than EUR 1 billion in sales.

On the baseline, we had a core operating revenue growth of 18.6% and margin expansion to 30.4% of sales, as a result of the leverage of our global commercial infrastructure, and accelerating investment in R&D and achieving 15% of net sales. We ended the year with a sound financial structure with net debt at EUR 1.1 billion, after obtaining Clementia and a net leverage ratio of 1.3x, which allows for further controlled investment in future business development. Note also that the Board decided yesterday to allocate EUR 1 per share, in line with the previous year.

Looking in more detail at our sales. Somatuline continues to drive Specialty Care growth with 18% growth, boosting the fourth quarter to 24%. The growth based on good performance in North America was growing by 21%, with increasing numbers and steady gains in market share, while sales in Europe continue to grow in double digit despite the first entry. generic octreotide in the European Markets. Therefore, the generic launched in July 2019 in Germany, the Netherlands last November, and later in France and the United Kingdom. There has been little impact to date and there has been no impact on pricing to date. , and the amount continues to grow. But going forward, in 2020, we are expecting more pricing pressures and additional launches across Europe. It is important to note that our new delivery system for Somatuline on a global basis, which distinguishes Somatuline from the SSA category and strengthens our ongoing commitment to a NET patient community, is very welcome.

The next product, Cabometyx, increased by 63%, reflecting the continued continued delivery over geography and production. To note that Cabometyx is firmly located as TKI of choice and that it is now the TKI that gets market share. As expected, we are gradually looking for an OO to receive a repayment combination and transfer into the first FCC in Europe. With the same trend as the U.S market, we expect that we will continue to increase second line share as the immune-oncology combination continues to the first line.

Moving now to Onivyde. We provided 17% growth in 2019, reflecting steady progress in the US. Our oncology commercial team was making great progress despite lower growth in Q4, where FOLFIRINOX had a growing market in the front line. We used Onivyde from the solid sales of our former U partner. – for Onivyde. In Decapeptyl, 2019 is another good year with strong momentum and a further 9% growth after a good performance in 2018, driven by our strengthened market leadership position in Europe and strong double digit growth in China.

Turning to Neurology. Our main product, Dysport, increased by 10% with in-market sales of over EUR 600 million under the brand, Dysport, including sales from our partner, Galderma in 2019. It was good performance in the US. this involves. the therapeutic market and aesthetic market and through strong performance in the aesthetic market in Brazil as well as a very high sale in Russia and the Middle East. Finally, our Consumer Health Care business. Sales for the year decreased by 1.2%, but there was no return to growth in the second half of 2019, despite the challenging Smecta environment in China.

Now that you are going to the operating costs, you will see that the cost of goods sold as a percentage of sales improved by 1.5 points driven by the positive mix of our Specialty Care business growing with a high contribution, in particular. Somatuline, partially offset by the higher growth Cabometyx content with a higher level of dues. Sales costs grew by 6.5%, a decrease of 2.8 points as a percentage of sales while leveraging our global commercial infrastructure with limited commercial investment to support our Specialty Care portfolio.

R&D costs increased by 1.5 points to exceed 15% at 15.1% of sales, reflecting the significant investment to support the promotion of our internal pipeline program in oncology, neurotoxin and palovarotene, our new Rare Disease products. Finally, G&A costs decreased slightly as a percentage of sales, including the impact of increased corporate structure and the new Rare Disease infrastructure. As a result, and our topline solid growth of 15.8% embedded, our core operating income grew faster by 18.6% despite other lower income, mainly from the loss of exclusivity of our Adenuric CIC product.

The other slide shows the margin expansion of 0.7 points from 29.7% to 30.4% in 2019. Driven by the excellent performance of our Specialty Care business, despite some complex impacts of the palovarotene development plan – development costs, as we were able to grow strongly. leverage sales and invest to support our commercial products and, most importantly, promote our R&D to our internal pipeline. As you can see, consumer health care had a negative impact of 0.9 points on the group margin due to the lower profitability of that business compared to the group, due to the limited top line growth and highly selected investment level and impact. Adenuric product flexibility loss in 2019.

In terms of the currency, despite the positive impact on sales, this has had a negative impact on margin of 0.9 points due to the level of cost base in local currency and, most importantly, our hedging strategy. Overall, we are very pleased with the improvement of margins, reflecting our growth strategy to leverage our excellence growth to improve our profitability, and, most importantly, invest in an internal and external R&D program to expand our pipeline. .

Now turning to an item below the central operating income. A partial impairment of EUR 669 million before tax has obviously impacted on an operating loss associated with the recent blockages in the palovarotene development program. I will comment in more detail on that program later. It also reflects restructuring and other operating costs, mainly from group transformation and some of Clementia’s acquisition and integration costs. And if you go below, you will see the net consolidated loss of EUR 50 million included in addition to the impairment charge of the Clementia CVR revaluation gain, partly offset by Onivyde’s earnings in other finance income but also income tax impact of writing – from a deferred tax asset relating to Clementia, offset by the positive deferred tax effect of the intangible assets of palovarotene assets.

Now I want to highlight our strong cash flow generation, our sound financial structure. In 2019, we generated a free cash flow of EUR 468 million, up from 2018, driven by significant [pick] in EBITDA is growing 22% to EUR 873 million, including some managing working capital and increased investment in CapEx to support our business development strategy, which is clear with our main free cash flow our capital allocation.

Net debt amounted to EUR 1.1 billion at the end of 2019, having received EUR 1 billion for Clementia and a dividend of EUR 83 million. The net debt to EBITDA ratio at the end of 2019 was 1.3x, below the industry average and approved an additional business development transaction. In addition, in 2019, we completed the full refinancing of the company to increase our capacity for future business development debt, extend the maturity regime and diversify our funding source. This included a 5 year revolving credit facility of EUR 1.5 billion, but EUR 300 million dual-tranche notes were issued on private private market markets. Now we are clear and fast replenishing our fire force for business development with the ability to leverage our balance sheet up to 2x debt-to-EBITDA. We will add an additional EUR 1 billion by the end of 2020 for business development.

Now we can review the development of palovarotene program. As a reminder, partial clinical possession was initiated by the FDA for patients under 14 years of age in the trial for FOP and MO in early December. And the company received the formal letter describing FDA issue at the end of December. Later in January, as you know, the IDMC informed us that the MOVE Phase III trial reached a second default interim futility analysis, but she recommended not to discontinue the trial based on the therapeutic activity observed in some post-analyzes. hoc. The IDMC pointed out that the statistical statistical protocol may have had a negative impact on the efficiency analysis and transposed the statistical conclusion from significant therapeutic benefit to show treatment disadvantage.

As a result, we decided to pause patients in all ongoing FOP trials and carry out a comprehensive assessment of the Phase III trial set. We are addressing issues from the FDA and other health authorities at the same time. The next stage of the program is to decide as soon as possible in close cooperation with patients, an investigator, an ethics committee and regulatory authorities. Recent events have resulted in a partial impairment of EUR 669 million before tax based on a risk adjusted scenario under IFRS. In addition, we reduced the accounting value of the CVR and earnings associated with the MO representation reducing our net debt at EUR 115 million. We really understand that this is an important matter, and that there are still many questions. We will provide you with an update when we have more clarity about the future of this program.

But it is clear that we are still very committed to building a successful Rare Disease franchise. Palovarotene is the highest clinical treatment program for FOP, and we are very confident and motivated to provide the first therapeutic treatment option to the FOP patient community. And beyond palovarotene, we have the BLU-782 program, which we were allowed to get from Medicines Blueprint last October. BLU-782 is the highest advanced ALK2 inhibitors in the development of FOP. Palovarotene is a different mechanism of action and is addressing the root cause of the disease. The Phase II trial is expected to commence later this year. We look forward to keeping you updated on the progress of palovarotene programs and BLU-782 programs alike.

After that, I would like to emphasize our core elements and our strong business strategy. Starting in advance – reminding you, I mean, we are still at the forefront of a global biopharmaceutical company focused on innovation and Specialty Care. And as you can see on the chart now, our Specialty Care business represents nearly 90% of our sales and Oncology as the largest contributor to 72% of our sales, followed by Neurology, 15% to neurotoxin, Dysport, and Disease. Unique at 3%. Consumer Health Care represents the remaining 11% and now works increasingly as an independent and independent business.

The chart on the right shows you to geographically diversify our footprint, where you can see that Europe represents 1/3 of our sales, followed by North America, which now represents 30% of our sales, other countries accounting. in Europe for 19% and the rest of the world for 18%. Our business remains very diversified, with good growth across all major geographies.

And we have built a very strong Specialty Care franchise over the years, focusing on 3 main strategic therapeutic areas. Let’s go through all therapeutic areas, starting with Oncology. We established a leadership position in selected niche markets, where we have first-class products or first-class. We have products in chronic display like Somatuline for NET and Decapeptyl for prostate cancer as well as a product for sharp indications like Cabometyx for cell cancer and liver cancer and Onivyde for pancreatic cancer. In addition, there are a number of significant lifecycle management programs to broaden the benefit and maximize the market potential of our assets.

A few examples. There are 2 ongoing Phase III tests for Cabometyx: Check 9ER in conjunction with nivolumab for the first RCC; and COSMIC-312 in conjunction with atezolizumab for the first HCC line. And we also have the option of finding an additional potential sign that is being developed by our partner, Exelixis. Phase III ongoing Onivyde initial 2 trials are also present, 1 in PDAC front line and the second in the second line cell lung cancer, which could prolong the market opportunity for Onivyde.

As we move to Neurology, we have a strong sustainable neurotoxin franchise which is a [anchor] an asset, Dysport, and has considerable expertise in staff research, development, manufacturing and commercialization. With regard to R&D, we have 2 ongoing Phase II tests for further indications, with no therapeutic areas – therapeutic treatment options available, hallux valgus and vulvodynia. And we also need to develop a modern re-recombinant toxin to provide an innovative solution along the paradigm of treatment. Neurotoxin is rapidly acting into Phase II development and also active neurotoxin in pre-clinical development.

Finally, our Rare Disease franchise provides a good balance for the other two therapeutic areas. We have created capacity in this space and a patient centered model to support non-compliant medical needs. A rare disease asset and leadership position in FOP, as I have already said, with our anchor asset, palovarotene, and the BLU-782 addition, and we remain committed to the first therapeutic treatment option for FOP patients.

Now turning on the pipeline. As we have indicated previously, innovative and sustainable pipeline construction is a key priority for the company. As you can see, our programs are well diversified across the 3 therapeutic areas and the different stage of clinical developments. We have a number of important lifecycle management programs in registration development at a final stage and we are also accelerating the development of a number of new chemical entities, highlighted in orange here in the slide. We are committed to promoting our internal pipeline, prioritizing our key development programs and continuing to improve and transform our organization with our Head of Research and Development, Howard Mayer.

This is the expected milestone of R&D for 2020, including program investment, top-line results and regulatory decision-making. Going forward, in 2020, we are focused on the ongoing implementation of our pipeline. Some of the major milestones include the top-line results of the Phase B trial of 9b of Cabometyx in conjunction with nivolumab. We should be reading in the first half of this year. And in terms of program investments, BLU-782 is expected to enter FOP into the development of Phase II and it is expected that a fast and fast acting recycling toxin will begin Phase II and Phase I / II, respectively. We look forward to keeping you up to date on the progress of these milestones.

Our business development strategy remains a key pillar of our innovation model to ensure long-term sustainability. We are very active and disciplined and focused on capital allocation and careful balance between the reward / risk profile of any transaction. We continue to focus on the three core therapeutic areas of Oncology, Neurology and Rare Diseases through various types of investments, including a different phase of clinical development from early and mid-stage assets to lower-risk late stage investments. We also evaluate all types of transactions as well as a different discussion structure to minimize risk. And as I mentioned earlier, due to our free cash flow generation, we will have fire power for business development over EUR 1 billion by the end of this year.

Now turning to the direction for 2020 and the outlook for 2022. First of all, talk about the 2020 guidance. As you can see, we expect a group sales growth of more than 6% at a fixed currency. . We do not anticipate any impact on currency based on the current level of exchange and assume that the new generic SSA entry in Europe or the United States will not have an impact in 2020. This is for Specialty Care Business, including the impact of the octane type on Somatuline already launched in Europe and lower sales of our product, Onivyde.

We are also accepting a mid-digit sales decline for our Consumer Health Care business due to a challenging and competitive environment expected in 2020 in China and France. We expect an operating margin of around 30% of sales, reflecting increased investment in R&D to support our internal pipeline in Oncology, Neurology and Unique Disease, including development costs for palovarotene, the global Care infrastructure. Leverage specialty and protect the profitability of Consumer Health Care through cost optimization initiatives. Again, this directive on an operating margin does not take any impact in 2020 on any new SSA generic entry and does not include the impact of incremental investment in so-called pipeline initiatives or business development.

Turning to the financial opinion of 2022. We are taking into account the latest development in our business, especially in the palovarotene development program. Our group’s net sales are under review from around EUR 3.2 billion to over EUR 2.8 billion. And the operating margin from more than 30% – 32% to more than 28% net sales. This figure only reflects the existing portfolio and does not accept the approval of any product or additional worthwhile representation. It does not accept any sale for palovarotene and lower peak sales for Onivyde, 2 high margin products, which have a negative impact on profitability. In line with our 2020 directive and our credit opinion, it also accepts that additional octide and lanreotide fiction does not appear to be positive globally but from 2021. As in 2020, the impact of incremental investment in initiatives does not include pipeline expansion.

Now zoom a little on some of the key product assumptions. As you can see, we expect double-digit volume growth for Somatuline product to the potential impact of a lantern from 2021. For Decapeptyl, we expect a mid-digit growth in one territory, by assume that there will be no generic impact in China. In the case of Cabometyx, we declare that RCC and HCC’s current production has a peak sales of EUR 400 million. With regard to Onivyde, we now review peak sales from EUR 300 million to EUR 175 million for the current approved production, including sales to our U partner. And for this product, we declare that we are expecting double-digit growth, in the future. with the attractive growth of the market toxins in therapeutic and aesthetic matters. And finally, for our Consumer Health business, we expect the business to grow back in 2021 to grow in line with Consumer Health Care markets.

As such, we are heavily focused on Ipsen in achieving our 2020 goal. In terms of crop growth and the baseline: for Specialty Care, we aim to maximize global growth and market share for differentiated, best in class products; and Consumer Health Care to continue the transformation and independence of this business. Through continued top-line growth as well as cost optimization to leverage our commercial potential, we will be able to continue to invest in R&D while protecting growth and profitability.

In relation to pipeline growth, our first priority is to prioritize and promote an internal R&D program, while at the same time changing our R&D organization. And secondly, to continue to identify and implement additional business development transactions with an optional capital allocation and an intensive risk profile.

From a cultural perspective, we are driving further transformation and ambition through leadership and people. On this note, the Board and the Nominations Committee have a comprehensive CEO search, which is a key priority for the company. And of course, Ipsen still has our mission to provide innovative therapies to patients with unmet medical needs. We believe that by successfully achieving this objective in 2020 and beyond, we are confident that we will continue to deliver better value for the patients we serve and our shareholders.

So thank you very much. And now, a worker, we are ready to open the floor for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Michael Leuchten’s line from UBS.

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Michael Leuchten, UBS Investment Bank, Research Division – Research of Joint Head of Pharmacy on Equity Research t [2]

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Originally a palovarotene. You mentioned that you will sit down with the FDA to find out how to move this forward. Could you give us a time frame when it happened? And when it happens, what format of communication should we expect? Will you tell us what the results were or do we have to wait? The second question on Somatuline, a very strong quarter in R4. You referred to the acceleration. I just wondered if you could add a little color to what drove the acceleration here. And then thirdly, internationally, in Germany, where there is generic. How does the state of the share occur? Have you increased the rate of change? Is it delayed? Do we see any changes in trends?

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Aymeric Le Chatelier, Ipsen S.A. – Executive Vice President, Interim CEO and CFO [3]

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Okay. Thank you for your question. So first on palovarotene, I will not be able to express so much on the timing. Today, the real priority is to fully assess and validate all data set from the post-hoc analysis. The team is assessing and starting to engage with patients, investigators, but with a regulatory authority, including FDA. And as soon as we have more visibility, we will come back to you as you know, the 2 aspects under consideration, which are the first response to the question from FDA following the partial clinical holding since December and following the future analysis and that we stopped building on the FOP MOVE study. So we both face. And today, staff are working very much and contributing to the strategy in their dealings with all stakeholders.

In relation to Somatuline, it is clear that we are very satisfied with the performance in Q4. Just to note that last year Q4 was quite low. There is therefore a good basis for comparison. However, we are delighted with the performance. As we said, this is the result of our new delivery system, which has been fully implemented in all countries. You should remember, it was only launched in the United States. At the end of Q3. So Q4 was making full use of this address. And on top of that, we see very limited activity on the first eighties, which did not affect our performance. We will have a greater impact going into 2020, particularly in terms of the pricing side. You are specifically asking Germany. I think Germany, we see the same trend as what we saw in Q3, and it is clear that the generic is the bulk of the market share for our competitors. We continue to increase and sustain our market share, and we do not see any impact on pricing in 2019 in Germany.

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Oibreoir [4]

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Tagann do chéad cheist eile ó líne Diana Na ó Goldman Sachs.

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Buaite ag Hae Na, Goldman Sachs Group Inc., Rannán Taighde – Comhlach [5]

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Tá sé Diana ó Goldman Sachs. Tá cúpla ceist agam, le do thoil. Díreach ar dtús ar do threoir 2022. An mbeifeá in ann an méid den ghearradh EUR 400 milliún san treoir ioncaim a chainníochtú a bhaineann le deireadh a chur le díolacháin palovarotene i gcomparáid le hionchais díolacháin na dtáirgí eile a athlonnú? Agus ansin laistigh den treoir ioncaim nua-eisithe, cad iad na toimhdí atá agat maidir leis an tionchar a bhíonn ag díolacháin Somatuline ó fhlaics, le do thoil? Agus ansin tá an dara ceist agam ar an ráig choróvíris. Is dóigh liom an bhfaca tú aon tionchar bolscaireachta go dtí seo tar éis seo? Agus an bhfuil tú ag súil le haon tionchar sna míonna amach romhainn? Agus an bhféadfá a chur i gcuimhne dúinn cé mhéad de do dhíolacháin 2019 a tháinig ón tSín? Agus ansin níl ach an tríú ceist agam ach ar fhorbairt ghnó. Tá an dá dhéileáil dheireanacha atá déanta agat sa spás de Ghalair Neamhchoitianta. Agus mar a cheapann tú faoi ghníomhaíochtaí forbartha gnó amach anseo, an bhfuil spéis chomhionann agat i gcónaí sna 3 réimse teiripeacha? Nó an bhfuil aon réimsí is fearr leat a neartú?

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Aymeric Le Chatelier, Ipsen S.A. – Leas-Uachtarán Feidhmiúcháin, POF Eatramhach agus CFO [6]

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Ceart go leor. Go raibh maith agat, Diana. Ceisteanna an-mhaith. Mar sin, an chéad cheann ar an dearcadh 2022. Agus is léir go bhfuil an bhearna den EUR 400 milliún – baineann an chuid is mó de le palovarotene. Agus go soiléir, bhí ár n-ionchas don táirge níos airde ná a lán den chomhthoil. Mar sin, tá níos mó ná leath den bhearna sin, a bhaineann go díreach le palovarotene. Ag glacadh leis – más cuimhin leat bliain ó shin, bhíomar ag glacadh le díolacháin le tosú in 2020. Is léir go bhfuil Onivyde ag an dara gné is mó, trí dhíolacháin bhuaice Onivyde a athbhreithniú. Tá sé seo ag cur le cuid shuntasach den chuid eile den bhearna. Agus ansin tá roinnt coigeartaithe beag. Bhain cuid de sin le gnó ár CIC.

Bhain an dara ceist leis an méid a chuir an scéal ar Somatuline inár EUR 2.8 billiún – nó níos mó ná EUR 2.8 billiún i ndíolacháin. Is léir, cad a fheicimid – agus a mheabhrú do gach duine ar an toimhde. Mar sin feicimid go leanfaidh Somatuline ag fás i 2020 mar ní fheicimid ach an t-ochtapas atá ann cheana féin ar an margadh san Eoraip. Feicimid go bhfuil sé réamh-mheasta go bhfuil an iontráil réamh-mheasta coimeádach in 2021 mar gheall ar ochtapas agus laindéaróid araon san Eoraip agus sna Stáit Aontaithe araon, rud a chiallaíonn go mbeidh laghdú tagtha ar dhíolacháin Somatuline go 20 faoin mbliain 2022. Agus creidimid go bhfuil ár dtáirgí Sainchúraim atá ann cheana in ann dul i ngleic le meath Somatuline.

Maidir leis an dara ceist ar choróinvíreas. Tá sé an-luath a bheith in ann an tionchar a mheas. Is ionann ár ndíolacháin sa tSín agus thart ar 5% dár ndíolacháin iomlána. Agus mar atá ar eolas agat, tá siad roinnte idir – beagnach 50-50 idir ár ngnó Cúraim Speisialtachta, ár ngnó um Chúram Sláinte do Thomhaltóirí, agus táimid ag obair inniu lenár bhfoireann chun tuiscint níos fearr ar an scéal a chinntiú.

Do cheist dheireanach ar BD. Sea, tá tú ceart go raibh an 2 idirbheart deireanach le palovarotene agus BLU-782 i nGalar Neamhchoitianta, arb é 1 ár dtosaíocht. Ach inniu, feicimid – agus táimid an-ghníomhach ar scóip iomlán an 3 réimse teiripigh, is é sin Oinceolaíocht, is Galar Neamhchoitianta é, ach is Néareolaíocht muid freisin. Mar sin táimid ag obair ar an 3 réimse theiripeach. Agus d’fhéadfá a bheith ag súil go bhfógróimid rud éigin in aon cheann de na 3 réimse teiripeacha seo amach anseo.

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Oibreoir [7]

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Tagann do chéad cheist eile ó líne Matthew Weston ó Credit Suisse.

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Matthew Weston, Crédit Suisse AG, Rannán Taighde – MD agus Comhcheann Taighde Eorpach um Chothromas Cógaisíochta [8]

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Cúpla ceist más féidir liom. An chéad cheann, ag díriú ar threoir chorrlaigh 2022 agus ar ndóigh an díscríobh corrlaigh atá intuigthe. Could you help us understand the drivers? Is it gross margin negatively impacted by mix? Or is it an indication that you expect to continue to spend heavily and increasingly on R&D to drive innovation? And Aymeric, I think it will be extremely helpful to just talk about the cost levers that you think you have in the business currently. Given that there are a number of assumptions about generic entry that may surprise around timing, how confident are you in your ability to lever some of the key costs in order to react if any of those timings surprise?

And then just a small number of quick follow-ups, please. So naturally, in 4Q, just following on from Michael’s question, can you confirm that there was no stocking in the U.S.? I know it’s a price increase in January of this year, so I just want to check that. Decapeptyl guidance doesn’t include volume-based pricing in China, but can you please tell us what proportion of Decapeptyl is in China?

And then finally, a clarification, Slide 23. It says 2020 guidance assumes lower sales of Onivyde. I assume you’re referencing the reduction in peak sales guidance, so lower versus consensus, not lower absolute versus 2019. But if you can confirm that, that would be great.

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Aymeric Le Chatelier, Ipsen S.A. – Executive VP, Interim CEO & CFO [9]

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Okay. Thank you, Matthew, for the very comprehensive set of questions. So the first one is the margin 2022. So there is 2 ways specific. And really, most of that is related to gross margin or contribution of our key products as we are continuing to invest in R&D very consistently year-over-year. As you see, we’ve reached 15% of sales. And this is where we really want to continue to invest to make sure we replenish our pipeline. So clearly, from 32% to 28%, this is directly linked to the high contribution of both palovarotene and Onivyde. As you know, they were products — they are products with very low royalty to be paid and limited sales and marketing investments for the products in the rare disease model given the synergies that we have with our oncology organization in the U.S. for Onivyde.

Clearly, if you look at the 2022 versus our 2020 guidance, I think the drop from 30% that we are guiding for, for 2020 and the 32% that we are guiding, at least — 28, sorry, 28% that we are guiding for 22%, we see the impact of lower Somatuline impacted by the progressive entry of generic to be offset by other products with a lower contribution. Because as you know, if you take Cabometyx, if you take Dysport, if you take Decapeptyl, our key product in specialty care, they are, by definition, a lower contribution than Somatuline.

Your second question was about the ability to control cost. I think clearly, the organization is fully focused on making sure we will protect our profitability and there is a plan in place to be able that we permanently monitor, leveraging our commercial infrastructure and in order to make sure we continue to invest to support our pipeline. We are clearly positioned to control our costs.

Now the quick question. Q4, as you mentioned, there is no specific stocking other than the usual stocking we see in the U.S. when you have a price increase on Jan 1 of the following years. But there is no big impact other than what I said about the baseline in 2018, which was pretty low in Q4.

Regarding Decapeptyl in China, the answer is that around 20% of the sales of Decapeptyl are from China.

And your last question is about the Onivyde. Yes, it is true that we expect in 2020 lower sales of Onivyde as first, we revised the trajectory for Onivyde in the U.S., and we’re going to be impacting also ex U.S. sales to our partner, which are going to decrease in 2020 given the pattern of buying for this partner.

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Operator [10]

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Your next question comes from the line of Delphine Le Louet from Societe Generale.

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Delphine Le Louet, Societe Generale Cross Asset Research – Equity Analyst [11]

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Follow-up question regarding the R&D cost expansion and specifically the one we’ve seen in ’19. Aymeric, can you come back in terms of the proportion of the incremental growth that we’ve seen into the R&D, which is in the range of the EUR 90 million for the year? What was allocated to palovarotene or, let’s say, to the FOP, MO indication to the rare disease program, just to get an idea?

Secondly, if we look forward and just to be back regarding the guidelines that you’ve given for ’22 for the margin, we are now at 15% of sales for R&D. What would be the target by 2022, meaning that do we have to expect an expansion in the range that we’ve seen over ’19 in the next 2 years? Or is it not enough? First question.

Second question, I’m still very skeptical regarding the Consumer Healthcare. And I think we had a lot of learning coming out from ’19 both in terms of growth and in terms of the contribution to margin and the dilution, almost 1 percentage point at the group level. So when are you planning to make any strategic decision on that to avoid the dilution? We are talking here, of course, about 1 percentage point of the margin, which I don’t see any reason that’s not to expand in the coming years.

A follow-up question also regarding the CapEx level. I’m just trying to understand what’s going to be the figure. We were EUR 120 million in ’18. You move up to EUR 172 million. Excluding all the milestone paid, what was the increase linked about — this EUR 50 million about?

And finally, can we have a governance update? Just do we have anything on the Board, that’s any new mandates that should be proposed, any new people and any update on future CEO search?

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Aymeric Le Chatelier, Ipsen S.A. – Executive VP, Interim CEO & CFO [12]

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Okay. Thank you. Thank you, Delphine, for the questions. So let’s answer to first give you R&D. So you are right that part of the increased R&D cost in 2019 is directly related to the palovarotene development cost. So I’m not going to communicate — I don’t get the numbers on top of my mind, by the way, on how much is really directly related to the various clinical trials of palovarotene. But it’s probably in the EUR 30 million assuming we carried that cost for 9 months since the acquisition in April 2019.

Regarding your question more long term on the target for R&D, I think that we are unchanged to what we said a year ago about our objective to be above 15% to make sure we support our current pipeline and that we also are looking for early mid-stage assets to fuel our innovation model.

Regarding your comment on CHC, I mean I won’t comment that further on the division. I think there are 2 different business model. And I think the priority on our CHC business today and, I will say, for 2020 is first to complete the transformation of the business. And as you know, we are transforming the business more and more into an OTC business, and this is the case in some countries. This is going to accelerate in China with the entry of generics through the central procurement process. This is the case in France with the entry of generic also. And we are also doing that in many other country where we are. Secondly, we are ensuring that we are protecting the profitability of that business and implementing significant cost optimization initiatives to protect the profitability of that business, knowing that a consumer business has, by definition, a lower profitability than a biopharma specialty care business. And thirdly, we continue to work through the autonomy of that business to make sure that we maintain all the options.

Regarding CapEx, we have invested a lot to increase the capacity of our key manufacturing plants, including a huge investment in Signes in the south of France for Somatuline. And also, we are investing for toxin manufacturing site in the U.K. But it’s interesting also to notice that our CapEx level is increased by IFRS 16 as we are recording additional EUR 25 million for one directly linked to IFRS 16 with a corresponding increase to the EBITDA.

And the last question on the governance, I don’t think there is anything to add on the Board composition. I don’t think — I mean I think I already provided you with all the information regarding the CEO search, which is ongoing and which is managed by the Nomination Committee of the Board and really considered by the Board as a top priority for the coming months.

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Operator [13]

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Your next question comes from the line of Thibault Boutherin from Morgan Stanley.

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Thibault Boutherin, Morgan Stanley, Research Division – Equity Analyst [14]

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First one on the pricing for Somatuline. So it seems that so far, you haven’t taken any price cut in Europe. I just wanted to know if you could give us a bit more details in terms of the countries where you expect a price cut at some point, most likely monopoly price cuts. Are you going to come later in time in Germany, U.K., Netherlands, France? So kind of more details on timing and the exact geographies or exact places would be helpful.

Second question, Exelixis presented some interesting data from the COSMIC-021 trial a couple of days ago. And as far as I know, you are opting in that study. Exelixis said they would try to file Cabometyx in prostate cancer in the U.S. in 2021. So I just wanted to know how you stand in terms of filing in the rest of the world. Do you think you can file the data? Would you need additional data, potentially a more — a larger trial to be able to file on prostate.

And also, you mentioned the first-line RCC opportunity in combination with Opdivo, but you didn’t mention the second — the first-line renal cancer indication with TECENTRIQ. So I just wanted to know if this is still part of your expectations for multiple line extensions.

And then maybe one — just last one on Somatuline. Can you update us on distribution in China? I think looking at your pipeline slide, I don’t see this mentioned anymore, so just wanted to know if you could update us on your expectations here.

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Aymeric Le Chatelier, Ipsen S.A. – Executive VP, Interim CEO & CFO [15]

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Okay. Thank you. Thank you, Thibault. So regarding the pricing of Somatuline, so your question is related to the impact of the octreotide generic entry. So you’re right by saying that we’ve seen almost no price impact, but remember that Germany was the — almost the only country with a significant impact in 2019. Going into 2020, we expect, as we say, a double-digit percentage of price pressure in some selected countries as it is clear that Germany and France, there are not mandatory pricing. There are more rebate and way to protect and maximize our business. As you know, this is only facing a generic of our competitors. So this is not really facing directly generic. So this is the way we see. And I think our indication is that globally for Somatuline in 2020, we see that the U.S. are going to continue to grow volume and market share and that, in Europe, we may be able to balance between the volume growth and the pricing — the negative pricing impact.

Your second question relating to Exelixis, you’re right that we are opting to the basket trials. COSMIC-021 is a basket trials of multiple solid tumors indication for Cabometyx in combination. There is an interesting set of data regarding prostate cancer. So we have the right to opt in for the Phase III. The team is assessing today the quality of the data and deciding whether we’re going to opt in or not in this indication. But we are very pleased with the pipeline that Exelixis through Cabometyx is providing to us and with the way we structured the transaction to be able to opt in for our territories. And I remind you that we have the right for all the territory, excluding Japan and the U.S.

Regarding — I did mention the HCC atezo combination of cabozantinib in a front-line setting. As you remember, this study is important, but the readout is going to be later on even if the enrollment is going very well. I’ll let Exelixis comment on this one where they’re going to publish their Q4 earnings. And this one for us is really important for China as we have a specific Chinese cohort in that combination trials.

On Somatuline, you — we are discussing with the regulatory authority regarding [assays] of Somatuline. This is going to take more time. So this is why it was removed from the list.

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Operator [16]

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Your next question comes from the line of Sachin Jain from Bank of America.

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

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Sachin Jain, Bank of America. Just a couple of follow-ons, please. Just back to Cabometyx, just to clarify the comment on liver, please, Aymeric. Is your assessment then that the Phase III readout is not in the back half of this year, more likely into ’21? I just wanted to clarify that.

And then the second question related to Cabo. Obviously, Exelixis also talked about an addressable opportunity for the new indications. And I think they talked to prostate, renal and liver combined being a $4 billion opportunity in the U.S. Obviously, there is a significant amount of data coming in the next 12 to 18 months. You only include approved indications. Are you willing to just talk to how you think about the ex U.S. opportunities and the timing of when they would be realized?

And then just on M&A, stroke BD. The slide and the way you’ve discussed it is largely as you have done before. I just wonder, given the palovarotene setback, whether you have any greater urgency to pursue assets that are closer to market to help a return to growth nearer term.

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Aymeric Le Chatelier, Ipsen S.A. – Executive VP, Interim CEO & CFO [18]

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Okay. Thank you. Thank you, Sachin. First of all, Cabometyx, I won’t commit to deadline for the HCC. I think that Exelixis was quite pushy and potentially gets some first indication or first interim data as early as H2 2020. But as I said, I let it to Exelixis to confirm in their earnings what’s going to be exactly the time line. As you know, this combination of atezo, cabo is competing with another combination, which just recently has been showing some interesting data. So there is clearly head-to-head, and we are very happy about the progress of the enrollment and even more than the enrollment, the ability to get data as quick as possible.

The largest question about new indication, I think this is exactly what I was referring to by talking about the access to the pipeline. We are very exciting to have access to the pipeline. Now we’re going to be diligently looking at every indication, what does it mean for all territories, what are the economics behind that, and to be able also to assess the IP because as you know, Cabometyx has IP until 2028 for us. So clearly, this is not something that’s going to be available in Europe for the 2022 horizon. So we are not talking about the next phase, but there is clearly a potential for Ipsen to have access to more indication in oncology for Cabometyx if we were to like the data and like the economics of the transaction.

I cannot comment on what will be the peak sales, but you can make the math between the EUR 1 billion that today Exelixis is doing in the U.S. and they’re $4 billion and how much peak pieces we are communicating on the existing indication.

On the M&A, I think that this is a very good question, about how critical BD M&A is for the company. I mean clearly, we want to make sure we continue to do business development to get our external innovation feeding our pipeline. And you’re right that having some later-stage assets and what we are just discussing regarding Cabometyx could be of interest. Having said that, we need to — we have EUR 1 billion available by the end of the year, so you should not expect any large transaction. And also, based on the experience of Clementia, I think we’re going to be very careful about the balance on risk, opportunity and risk profile of any transaction especially regarding a late-stage opportunity.

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Operator [19]

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Your next question comes from the line of Richard Vosser from JPMorgan.

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Richard Vosser, JP Morgan Chase & Co, Research Division – Senior Analyst [20]

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First one, just to follow up on Matthew’s question. Just on the likelihood of value-based pricing in China for Decapeptyl, how we should think about that going forward and how you’ve treated that in your 2022 guidance.

Then on Somatuline generics, again, a clarification. So in terms of the actual Somatuline generics in the U.S. and Europe, are you assuming those generics enter at the beginning of 2021 in the guide? And perhaps you could give us an update on the filed generic, how you’re seeing that, its path through the regulators in Europe and just confirm to us that they haven’t filed in the U.S.

And then final question, just back on consumer health. I think in your long-term guidance, you’re returning consumer health to — or the consumer part to growth. So just maybe you could talk about the drivers to actually get that back to growth. What we’re seeing with consumer businesses is the growth goes lower and lower each year from competitors. So how should we think about that?

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Aymeric Le Chatelier, Ipsen S.A. – Executive VP, Interim CEO & CFO [21]

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Okay. Thank you. Thank you, Richard. So your first question about the China for Decapeptyl, today, we have a clear view that Decapeptyl is not on the list for the central procurement process in 2020. We have no visibility for ’21, ’22. This product is not one single product, so there is many different indications. So it’s likely that if it were to be impacted, it’s not going to be the entire product. And we have not assumed in our 2022 guidance a full generic to impact that product.

Regarding Somatuline generic, first, I mean our competitive intelligence, we always have to be very careful because as you know, talking about generic, we know what we know, and we have to be very careful. I think we are confident enough to take the guidance for 2020, that there will be no impact of additional generic, whether it’s an octreotide in the U.S., as stated by Novartis, or whether it’s an lanreotide in Europe, as you were mentioning, to be able to be on the market and have a significant impact.

Regarding our outlook for 2022, we are taking a very cautious assumption that there will be lanreotide generic both in Europe and in the U.S. starting progressively towards 2021. And I won’t go into more of the detail and also what the erosion curve that we take for each of the territories. But yes, our assumption is that we, across 2021, get all of that in the markets.

Last question about the CHC growth. You are right that we have benefited of a nice 2 years of growth of the business last year, and this year is going to be a more transition year. A lot of that is due to the 2 key territories of being France and China where we see impact of generic. And this is something that we had planned for a long time, and the transformation of the business towards OTC was a way to derisk the business from the entry of generic. So now we get the generic in China through the central procurement process, which is impacting all the hospital site. So now Smecta is going to become a pure OTC products with strong underlying growth in the pharmacy in China. And in France, we have also now announced reimbursed generic of Smecta, which is going to explain the low performance in 2020. And we believe that once the generic will have impacted the market when we’re going to be positioned in the OTC space where we have moved Smecta, we should benefit of the trend of the CHC business and have also cleaned a lot of our legacy portfolio in the CHC business. Having said that, we believe that this business position on OTC on 3 key geography should be able to drive growth and improve profitability after 2020.

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Operator [22]

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Your next question comes from the line of Lucy Codrington from Jefferies.

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Lucy-Emma Mary Sarah Codrington-Bartlett, Jefferies LLC, Research Division – Equity Analyst [23]

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Just a couple left. Can we just confirm that the 2022 guidance, that still assumes that you will cut commitment to spending behind Somatuline once generics are available? Or is that really just assuming a ramp in — or are you expecting a quite significant ramp in R&D? And then lastly, if you could just confirm, are we still expecting that we might be able to file palovarotene for the chronic indication this year? Or is that awaiting the discussions with the regulators?

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Aymeric Le Chatelier, Ipsen S.A. – Executive VP, Interim CEO & CFO [24]

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Okay. So the first question regarding 2022, what we assume is that clearly, we are going to continue to invest into Somatuline as long as there is only an octreotide generic in the market as we believe that the differentiation is clearly significant. And I think that the example that you see in Germany and that we are clearly driving through 2020 is going to be to further differentiate Somatuline to its competitors assuming — in 2022, we are assuming entry of potentially lanreotide generic. In that case, there’s going to be some significant adjustment to the cost base in order to mitigate the negative impact especially on pricing that the entry of lanreotide will have on the Somatuline.

The second question, I think we — it’s clearly too early to say. I don’t think we commit to any date to file in 2020. As you’ve seen, we have taken a significant impairment, meaning that the risk associated with the program are much higher. The team is fully reassessing both the partial clinical hold question from FDA and the situation regarding the new post hoc analysis data set, which is based on the chronic indication of the MOVE trials. And based on that, we will define exactly with the regulatory authority what’s going to be the path forward for palovarotene. But we do not have any date or any view of the filing for 2020.

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Operator [25]

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Your next question comes from the line of Michael Leuchten from UBS.

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Michael Leuchten, UBS Investment Bank, Research Division – Co-Head of Pharmaceuticals Research of Equity Research [26]

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Aymeric, just a question on — going back to the EUR 1 billion of incremental M&A power that you highlighted. Given recent experience, have you changed the way you approach BD in general in terms of process sort of control mechanisms? Or have you not?

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Aymeric Le Chatelier, Ipsen S.A. – Executive VP, Interim CEO & CFO [27]

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Okay. I think I partly already addressed that question. Clearly, we have EUR 1 billion available by the end of this year, very consistently with what we said a year ago after the acquisition of Clementia based on our very strong cash flow and our profitability. Clearly, as I said, we do not intend to spend that money in one single transaction. This is going to be a series of transactions to address various therapeutic area, to address both early-stage but potentially later-stage transaction, probably more appetite into derisk transaction but obviously licensing transaction like the Cabometyx one. But we’re going to remain open to any type of transaction, which could be also if attractive, and we’re going to also make sure that we’ve built all the capability that we have especially in rare disease to be able to execute on those transactions.

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Operator [28]

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All right. There are no further question at this time. Please continue.

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Aymeric Le Chatelier, Ipsen S.A. – Executive VP, Interim CEO & CFO [29]

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Okay. Thank you. Thank you very much to all of you. I think it’s — there’s still a question. Okay.

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Operator [30]

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Your next question comes from the line of Matthew Weston from Cr dit Suisse.

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Matthew Weston, Crédit Suisse AG, Research Division – MD and Co-Head of European Pharmaceutical Equity Research [31]

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Sorry, Aymeric. Thank you for squeezing me in, the last one. Other revenue, it’s obviously been a key focus in the past with a lot of moving parts within lost income and Etiasa and then also the Galderma arrangement. Can you just let us know, as we try and get the model kind of fixed over the next couple of years, how we should think of other revenue progressing 2020 and out to 2022?

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Aymeric Le Chatelier, Ipsen S.A. – Executive VP, Interim CEO & CFO [32]

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Okay. That’s a pretty simple answer. The biggest issue is really related to the Adenuric product, which is one of our product for our Consumer Healthcare business. That product has gone generic with a loss of exclusivity starting in Q2 of last year. And this was representing about EUR 40 million spread between 2019 and 2020.

Outside of that, you should not anticipate Etiasa and Galderma, which are the 2 biggest line on that other revenue line. They’re going to move and increase in line with both, I mean, the Chinese consumer business for Etiasa and Galderma or toxin Dysport business. So in a way, you should expect that other revenue are going to decline due to Adenuric in 2020, and then after 2020, that should be growing in line with the other products. I think there is a last question.

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Operator [33]

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Our last question comes from the line of Christophe Ganet from ODDO.

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Christophe-Raphael Ganet, ODDO BHF Corporate & Markets, Research Division – Head of Equity Research [34]

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Yes, absolutely. Two question maybe, one on Somatuline actually. What is your current production and manufacturing capacity? And in case of decline for Somatuline, how would you think about reallocate your sales force? Because you talked about adjustment of OpEx.

And second question is on actually Cabometyx. Is it correct that in your 2022 guidance, you haven’t included any specific new R&D program dedicated to potential new indications related to what you talked about with Exelixis?

And maybe one last question on operating margin for OTC. What is the assumption that you are retaining your guidance for 2022? What would be the landing point for operating margin in OTC business?

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Aymeric Le Chatelier, Ipsen S.A. – Executive VP, Interim CEO & CFO [35]

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Okay. So regarding Somatuline, clearly, we have significant manufacturing capacity, and we have increased that capacity recently to cope with the growth of the product. We haven’t defined any long-term strategy in case of entry of generic of whether are we going to be going into the CMO space for our site. And just as I remember, this is a site that is producing also many other products of the group.

Regarding the sales organization, I think it’s too early to provide you with the details. But clearly, there is ways to assess both in the U.S. and in Europe our commercial organization regarding impact of lanreotide generic, as I said before.

Regarding Cabometyx, you are right that the 2022 outlook does not include any new indications, which is going to be the one we were discussing beyond that horizon, especially talking about the European countries. This does not also factor a positive outcome of the 9-year CheckMate study, so the combination with Opdivo in RCC. But this is also going to take time before getting in European market.

Regarding operating margin for our consumer business, I think it’s more in the 15% to 20%. I would say around 20%, that’s the level of operating margin that you should expect from Consumer Healthcare OTC business.

Okay. Thank you, everybody, for your attention and for all the questions. And have a good day.

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Operator [36]

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Thank you. That does conclude our conference for the day. Thank you all for participating. You may all disconnect. Speakers, please stand by.

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