Almirall, S.A.

Good morning to everyone on the call. Thank you for joining us to review Almiral's Q1 2023 results and business update. As per usual, you can find the slides to this call on the investor's page of our website at almiral.com. Please move to slide two. I would like to remind you that the information presented in this call contains forward-looking statements which involve known and unknown risk, uncertainties, and other factors that may cause actual results to materially differ. With that, please advance to slide three. Presenting today, we have Carlos Gallardo, Chairman and Chief Executive Officer, Mike McKillen, Chief Financial Officer, and Carl Singelberg, Chief Scientific Officer. Carlos will start with the highlights, biologic growth drivers and key products. Carl will provide you with details on the progress of the pipeline before passing to Mike to review the financials. Carlos will then make the closing comments before opening up for a Q&A session. I would like now to pass it over to Carlos Gallardo, our chairman CEO, to discuss the quarterly highlights. Please move to slide number five.

Thank you, Pablo, and good morning, everyone. I am pleased to say that Almirai is off to a good start from both financial and pipeline perspectives. The strong business momentum from our growth drivers continues. while we continue to prepare for Leverikizumab's launch. Based on the good business performance in quarter one, we are reiterating our full year 2023 guidance. The performance of the business was driven primarily by our European Dramatology business, underpinned by our recently launched products that I will discuss more later in the presentation. Let me highlight the performance of some of those. We continue to see strong performance from Illumetri across geographies with continued good uptake in Germany and solid contribution from recent country launches. Since the launch of Windsor and Clay City in Europe, we continued increasing market share in key countries, particularly in Spain and Germany for both products while making excellent progress with the rollouts in other European geographies. We also continue to work on the pipeline with positive clinical updates on lebrichizumab. Our Advantage Phase III B-Market Access Study Headline results are available and show positive results. Carl will shed more light on this later in the presentation. We continue to work with our partner, Eli Lilly, towards a targeted late 2023 European approval and launch soon thereafter. CLI-CD large field study has shown that the administration of CLI-CD in a surface of up to 100 square centimeters has been well tolerated. Finally, in the early stage pipeline, the phase one study of our anti-IL-1 wrap is ongoing, and we expect to launch phase one for IL-2 mutine during that year. Now, let's move to slide seven for a deeper dive on leveraging. In terms of key events, let me quickly revisit the timeline of the milestones. leading us to the expected approval later this year. During this first quarter of the year, the ADVOCATE and ADHERED studies were finally published in scientific journals. Another important milestone ahead of the launch has been completed recently, as we obtained positive headline results for the ADVANTAGE phase 3b study. We are positive on the good clinical development of lebrichizumab and confident on the expected approval of the product towards the end of the year. as we intensify the efforts to be prepared for a successful commercial launch. Let's move to the next slide to discuss the advantage in more detail. The Advantage Study headline data is already available, achieving positive results. Safety was consistent with the known profile of lebrichizumab. As a reminder, the Advantage Study is a randomized, double-blind, placebo-controlled, Phase III clinical trial to assess the efficacy and safety of lebrichizumab in combination with topical corticosteroids in adult and adolescent patients with moderate to severe atopic dermatitis who are not adequately controlled with cyclosporine A or for whom cyclosporine A is medically not advisable. Let's move to the next slide to discuss Illumetri a little bit in further detail. On the left side, you can see the market dynamics of the anti-IL-23 class in Germany, where the class continues to lead in new patients' market share. There is a small decline in February, possibly impacted in part by a similar center in the market. But the IL-23 trend remains robust, with around 40% market share of new patients within biologics. As you can see on the right side chart, Illumetri continued to demonstrate strong performance during the quarter, with net sales of 38 million in this first quarter of 2023. The contribution of other European countries compared to Germany continues to grow and now stands at around 50%, a trend we expect to continue. Overall, we are pleased with Illumetri's continued growth and we expect a good level of performance to carry on for the rest of the year.

Now let's move to the next slide to complete the update on other key products. Let's start with Aishara.

We have seen continued volume growth throughout quarter one, which led drive sales growth of 12% versus the same quarter last year. We have achieved a 5.8 market share in the antibiotic market and continue to focus our efforts on driving demands and improving the gross to net through better payer coverage and increasing access to more commercial lives. Also in the U.S., Clay City has received a strong recommendation in the AID guidelines. By comparison to the same quarter last year, sales grew by around 57%. This is a very good result for a new product, particularly when launched in a market with numerous genetic alternatives. Around 5,700 healthcare professionals have prescribed now Clay City, since its launch, and we continue to receive very good feedback with good patient engagement. We continue to differentiate CliveCity from what is already available in the market based on efficacy, tolerability, and convenience. Additionally, we are working on the large field label expansion over the midterm. Preliminary data reveals that the product is well-tolerated. We hope to launch a large field label next year in 2024 in the US. and in 2026 in Europe. With both products, Glycerin and Seysara, there has been good improvement in quarter one in TRX volume growth and market share. We think these are very good products with growth potential that will help our platform in the U.S. Moving on to Wenzora for patients with moderate to severe psoriasis, which we launched in May 2022. We are pleased with the progress, having achieved sales of over 3.5 million this quarter, with growing market shares in Spain and Germany. With that, I will pass to Carlos to cover in detail our pipeline section. Thank you, Carlos.

This slide shows you the progress of our pipeline. We continue to advance our promising late-stage pipeline while building an exciting early pipeline. For lepricopizumab, we have filed a marketing authorization application for atopic dermatitis with the EMA, and we expect approval in Q4 2023. The Advantage Phase 3B study met the primary endpoint at the Week 16 analysis. For glycerin, we have completed the clinical study addressing the expansion to large fields in the U.S. This phase 3 multicenter open-label single-arm study evaluated the safety and tolerability of tirbaniflin ointment 1% applied to a field of approximately 100 square centimeters on the face or belting skulls in about 100 adult patients with actinic keratosis. The administration of glycerin was well tolerated. Based on those data, we plan a submission to FDA in Q3 2023 and would expect a potential approval of the label extension in 2024. As mentioned previously, a potential launch in the EU is targeted for 2026. For the SARA in China, the Phase III clinical study met the primary and key secondary endpoint and we plan to file with the Chinese National Medical Products Administration in Q3 2023. For efinoconazole, we are under regulatory review and target an approval at the end of 2023. The phase one for our IL-1 rep monoclonal antibody is ongoing, and we aim to start phase one for our IL-2 mutine FC fusion protein that we developed in collaboration with IMCEA later this year. As you can see, we are making very good progress with both our early and late stage pipeline, and we are on track to strengthen our leadership position in medical dermatology. Now let's move to slide 14. Let me now explain the next steps for lepricizumab in more detail. As mentioned, we submitted a marketing authorization application to EMEA in October 2022. This application is currently under review, and we expect approval in Q4 2023. In terms of clinical update, the Advantage Phase 3b study met the primary endpoint at V16 after the induction phase. The study will continue up to week 52. We plan to report the detailed data at one of the relevant scientific meetings later this year. As already mentioned, the ADDvantage trial is a randomized, double-blind, placebo-controlled phase 3 clinical trial to assess the efficacy and safety of leprechaun in combination with topical corticosteroids in adult and adolescent patients with moderate to severe atopic dermatitis that are not adequately controlled with cyclosporine A or for whom cyclosporine A is medically not advised. In addition, a patriotic study was initiated by our partner Eli Lilly in October 2022. We're also in advanced planning stage of an extension study to explore long-term benefits of leprechaun for up to five years and expect recruitment to be initiated in Q2 2023. We believe that atopic dermatitis is a chronic disease that requires long-term treatment. We think that lepricizumab, with the potential as shown in our advocate studies to control the disease effectively with every four weeks dosing in the maintenance phase, is suitable to achieve this. Furthermore, we are working with our partner, NI Lilly, on additional clinical studies to maximize the value of lepricizumab. In summary, we continue to be very excited about the progress we're making with leprechizumab and the totality of the data and the profile that is emerging. Leprechizumab shows a consistent profile across the clinical development program with more than 2,000 patients. The safety profile is mild and consistent with prior leprechizumab studies in atopic dermatitis. Atopic dermatitis is an IL-13 dominant disease, and we believe labrakizumab is the best antibody targeting IL-13. Finally, for the maintenance of patients that responded at week 16, every four weeks dosing shows strong results that are like every two weeks dosing. Those data demonstrate the potential benefit that labrakizumab would bring to both HCP and patients. With that, I hand over to Mike.

Thanks, Carl. Now on to slide 16. We're off to a good start for the year. As Carlos mentioned, Q1 2023 showed solid performance with net sales growth of 6%, giving us the confidence to reiterate our 2023 guidance. We've seen strong sales growth in Europe from the dermatology portfolio, which helped drive the overall net sales and core EBITDA increase. We achieved total EBITDA of 51.8 million in Q1 2023, down from Q1 2022 mainly due to the lower contribution of other income due to last year's AstraZeneca-COVIS milestones. As most of the revenue related to the COVIS agreement was recognized in 2022, we should expect a lower contribution in 2023 and going forward. In Q1 2023, our gross margin came in at 65.4%, which we have highlighted in previous quarters was impacted by higher energy costs and inflation, which affected some of our material purchases. This is in line with what we anticipated. SG&E for Q1 2023 was $106.7 million, as we continue to invest heavily in our newly launched products, as well as some pre-marketing ramp-up for Lebregizumab, which will accelerate during the year. R&D investments increased to 10.3% of net sales in Q1 2023, compared to 9.6% that we had in Q1 2022, as the first quarter is typically lower R&D investment for We expect the levels to normalize for the full year in the range of 12% over sales. We finished Q1 2023 at 1.1 times net debt to EBITDA, an increase compared to Q4 2022, mainly explained by the high amount of investments we had in the first quarter, including the FSC Tessaville extension deal, the PhysioRelax acquisition, Illumetri and Clyceri milestones, and an upfront payment to Isolex. We move to slide 17. As you can see, the dynamics of net sales here, the European dermatology business had a very strong performance with an 11.4% increase year on year. We also had a strong Q1 performance from our general medicine and OTC businesses in the EU, driven by good seasonality, which more than offset the expected decline in FSC Tessavelle following the patent expiration and price decrease experienced in Q4 2022. Our U.S. business recorded a slight decrease in Q1 2023, and I will provide further details on the next slide. Rest of the world dermatology sales showed good year-on-year performance, while general medicine has seen a small decline year-on-year, driven by immunorex and LATAM, which had a high demand during the pandemic and winter months in 2022. Overall, it's important to reiterate that our portfolio has limited patent expiry risk going forward in the midterm, especially now that Epicep-Tessaville patent has expired and we are managing the pricing impact. Let's take a closer look at the dermatology business on the next slide. On slide 18, as you can see, we had a strong performance in Europe, driven by the growth of Illumetri. Other EU products are also benefiting from the initial launches of Plyceri and Windsor in key markets, as highlighted by Carlos. Focusing on our U.S. business, we see growth in the TRX and market share of both Ciceri and Cesara, which are being translated into higher revenue, although we still need to improve the conversion to net revenue as we work to create a strong customer base for the brand. As you can see, the legacy business in the U.S. remains under pressure from the ongoing generic erosion related to Axone and Tazeret. In the rest of the world, there's some growth, including the introduction of Finjuvi in South Korea with a partner. Moving on to the full financial statements now on slide 19. We've seen the net revenue development in the previous slide, so let's focus on the rest of the P&L. Gross margin was in line with expectations at 65.4%, given the ongoing pressure of energy costs and material inflation previously highlighted. Other income was lower than Q1 2022, due to the milestone income recognized last year, as mentioned previously, that did not repeat. R&D expenses are up double digits from 2022 and reached 10.3% of net sales, a figure we expect to accelerate during the year to a full-year level around 12% of sales. SG&A investments grew in the low double digits compared to Q1 2022, but this will also accelerate during the year as we prepare for the expected launch of leverages now. Financial expenses have been impacted by a lower share price connected to the equity swap on the balance sheet, but the underlying financial expenses year on year are quite similar. I'd like to remind you that our effective tax rate is affected by the inability to deduct U.S. tax losses against the profitable European business. We expect this to continue going forward. We do not have any unusual items in the quarter, and therefore the normalized net income is the same as the net income. Please move to the next slide to look at the balance sheet in more detail. On slide 20, I'll just highlight a few key important factors. First, some financial assets have been reclassified to accounts receivable following the agreement with Covus to advance certain milestone payments related to the China respiratory business. And second, we finished Q1 2023 with a leverage of 1.1 times net debt to EBITDA. As I said before, this is due to a high amount of investment we had in the first quarter. we are comfortable with our debt ratio let's look at the cash flow statement on the next slide on flight 21 you can see we delivered operating cash flows of 1.2 million in q1 2023 a level similar to last year as operating cash flow is typically low in the first quarter due to the timing effects of accounts receivable and accounts payable in the investing activities We made key activities in Q1 2023, such as the Ephesib-Tessavelle extension deal, the PhysioRelax acquisition, Illumetri and Plyceri milestones, and an upfront payment to Isolates. The divestments line here refers to the milestones and royalty collections from AstraZeneca and Covus. These have been classified as investing activities due to the reduced focus in our operations and are lower than 2022 based on the schedule agreed. We do expect the overall cash flow to improve in the next three quarters, very similar to the pattern we saw in the previous year.

Let me now pass it back to Carlos for his closing remarks. Thank you, Mike.

So overall, you know, as you've seen, we are very pleased to have delivered a very good operational performance in this first quarter. We also continue with all the preparations for a potential Debris Kitimat launch approval later this year and launch thereafter. Also, we are very pleased on how things are going in terms of our launches in all countries in Europe. So, let's say that operationally we are ramping up well. We are confident that we can deliver and that we are delivering in Europe and that we will do a good job with the Rikithuma. The progress in the pipeline also is very positive. We are hitting all our expected milestones, so good news there. To close here, of course, we continue to explore potential inorganic growth. We have a healthy balance sheet. We are looking for small opportunities bolt-on that might reinforce the business from an inorganic way, but at the same time do not distract us from our goal of delivering Europe with the biologics. So overall, very pleased with how things are going. Thank you very much. We conclude this presentation. Pablo, I hand back to you for instructions on the Q&A.

Thank you very much, Carlos. Roberto, back to you to start the Q&A, please.

Ladies and gentlemen, we now begin the question and answer session. As a reminder, if you wish to ask a question, please press star 1-1 on your telephone. If you wish to withdraw your question, please press star 1-1 again. We are now taking the first question. Please stand by. The first question from John Walton from Credit Suisse. Please go ahead. Your line is open.

Good morning. Thank you. A few questions, please. Firstly, on Illumetri, you pointed to a biosimilar launch impacting in February. I wonder if you could tell us a little bit more about that, whether that's something that is permanently going to reduce your price in some way. Can we just confirm that if you are going to be able to file in the third quarter, it should be a six-month review? So we should see in the probably mid of 2024 your ability to launch Plyceri large field in the U.S. And just to confirm that you've effectively, with the positive tolerability, there's nothing else you need to do in the U.S. We understand there's more that you need to do in Europe. On Cesara, you're going to be able to file in 3Q. Have you made any more decision on how you will commercialize that? You're going to file before you have a partner, or could we see a partner being brought in quite quickly? And on Lebrecchizumab, you talk about recruiting a long-term extension study. Will that have an active comparator in that? And is there anything you can tell us? You say that you are discussing with Lilly more studies that you might do. Can you give us some idea of what those might be? And my final library question is just to confirm that you haven't had any significant clock stoppage within the EMEA. and that we should be able to see a full approval in the fourth quarter. So could you give us perhaps your best guess of which month we'll see the CHMP decision on it? Many thanks.

Sure. Thank you very much for the question. So I think that most of the questions are for either Mike or Carl. So I think the first one was the... Yeah, I can take the first one on elementary.

What we were referring to is on the slide number nine. You can see in the month of February, there's a slight pickup for the anti-IL-17 class in Germany. It's mainly coming from the older classes, and that was because of a biosimilar launch of one of the IL-17 class products. It really hasn't affected the momentum of elementary. It's just something that we wanted to point out on that slide. For glycerin, I'll pass that over to Gora.

Thanks for your question, Joe. I mean, in glycerin, we have the situation that in the U.S., we had an agreement with an FDA for the expansion to large fields to have a clinical program containing a PK study that we already completed earlier and an open-laden safety and tolerability study where we just reported a positive outcome. Based on that, we plan a submission for Q3 this year and then expect an approval in 2024, maybe around mid-year or so, but we'll have to see what the exact timelines will look like.

And in terms of, say, SARA China, we're actively looking at potential partnerships. So it's a little too early to say if we will announce and sign something before the filing or not, but we are definitely in... inactive discussions to find the right partner in China.

For leprechaun, I think your first question was around this long-term extension. I mean, this long-term extension is basically a study where we will try to the extent possible to move patients from our Phase III studies into extension studies because they have been already treated with leprechaun for up to a year. And with that design, there is maybe not so much to think about an active comparator for this type of study. Now, for additional studies, you know, we're looking very broadly based on the excellent properties of leprechaun and the data we have seen so far. you know, what other studies that would potentially make sense. We have already, you know, covered a broad spectrum of different patient populations now, for example, with the ones we reported today, the ones that are not adequately controlled by cyclosporine A. As you may know, Eli Lilly is doing a dedicated study in patients of skin of colors and patients that have been pre-exposed to Bixen. Both are, I think, important studies and important patient population. A patriotic study is also ongoing. And in addition to that, you know, we are exploring various other options, but today it's a bit premature to comment on the details. And then your final question on leprechaun map in terms of the regulatory process. I think what we can say today that the regulatory process is on track and we expect an approval in Q4 this year in terms of an exact month that I think is a bit premature to comment on.

Thank you. Thank you for your question.

We are now taking the next question. Please stand by. And the next question is from Halifax Campo from RBCC.

Please go ahead. Thanks for asking the questions. Just two, please. First of all, a question from Mike, just on the tax rate. Obviously, your guidance elements are all pre-tax. I'm just wondering if you can give me some kind of sense of how you think the net tax rate would look for the full year. Obviously, it looked very high in Q1. And a quick question for Carl on just the general Exima market, just some thoughts on the competitive landscape. I think since the last time we spoke, we've seen, for instance, data from Roy Vance on the tapeneroff cream. So just your sense of how some of those other competitive dynamics are reading out and what you think about that relative to the . Thank you.

Okay. So I'll take the first question on tax rate. You know, when we gave the guidance, we did indicate that the tax rate was going to be elevated because of this situation in the U.S. And I would expect the tax rate to remain elevated around the level that we saw in the first quarter. Too early to tell. It really depends on exactly how the income falls between the different buckets, the U.S. and the EU. But I think the first quarter is already a good indication of a relative rate.

I think on the competitive landscape on AD, perhaps a couple of thoughts. First of all, you know, on the check-in visitors, we are now seeing that the European evaluation of the safety is being completed, basically indicating that, you know, there are, you know, concerns about the broad utility of checks and actually the BRAC has recommended if alternatives are available in certain patient populations to use those. And the interesting piece is it's for all checks in all indications. This is for patients that are older than 65 or have certain risk factors, for example, in cardiovascular or also at risk of thrombosis, things like that. So that's certainly... will in a way limit check inhibitors we have to see to what extent. Now, in terms of other biologics, we see the anti-IL31s. Those are mainly targeting the itch, but not the eczema. And we believe to effectively treat AD, both aspects need to be covered, like we're seeing with lepricizumab. And then maybe a comment on the anti-Ox40s. Here we have two advanced compounds, one targeting Ox40 from Sanofi. This is perhaps a little weaker in terms of early data as compared to Dupilumab. And the other is from Amgen targeting the Ox40. They are now advancing into phase three, including it in every eight-week schedule. At the end, we have to see how the data will look like. There have been some concerns with the immune system, but in essence, I think it's too early today to comment. Overall, we still think that we are very well positioned with Leprechaun map and with the profile that we're seeing, and we believe we will be very competitive in that space.

Thank you, Carl. Very helpful. Thank you. Thank you for your question.

We are now taking the next question. Please stand by. The next question from Francisco Ruiz from BNB Paribas. Please go ahead. Your line is open.

Hello, good morning. I have three questions for me. One is a follow-up on the tax rate. If taking into account the tax rate on the P&L, we will see a similar cash tax in the cash flow statement on this. The second one is if you could give us more detail on the milestones this quarter, and if you could anticipate what is the milestone that we could expect on delivery approval at the end of the year. And last question is on ESG. So, sorry, SGA. We have seen that the cost has been performing better than sales, but you commented that you expect an acceleration during the year due to the launches of the new products. So can you quantify where could we see the SG&A at the end of the year? Thank you.

Yeah, so on the tax rate, I mean, the cash tax will probably be very similar to last year. It really depends on, you know, whether or not we get a Q4 refund from the Spanish Authority or not. Sometimes it's Q4. Sometimes they push that payment into January. So that will have a little bit of effect on the cash tax, but we're expecting it to be very similar to last year. In terms of the milestones, I mentioned the key buckets. So we had an extension payment for the FSEP TESAVAL. We purchased the PhysioRelax asset, and then we had some milestone payments related to Plyceri, as well as a payment on Illumetri for participating in the psoriatic arthritis trial that Sun is doing to try to get an approval there. So for the full year, I would expect us to be, you know, roughly in the 80 to 100 million range in terms of investments, absent any new both on acquisitions or major licensing we do. If we do anything that's not contemplated right now, that could go a little bit higher, but we'll manage that and we'll try to manage the communication. The leverage milestone is expected to be around $20 million at the end of the year for the approval in the EU. In terms of SG&A, when we gave the guidance, we talked about mid-single digits. We expect that still to be for the full year. If you look in the Q1, it was only about a 2% increase. so that will accelerate partially as we start to get ready for the leverages amount we will be putting more resources particularly into Europe in the second half of this year so that's where you'll start to see the acceleration thank you very much Mike thank you for your question we are now taking the next question please stand by

The next question from Guilherme Senpaio from Casebacks. Please go ahead. Your line is open.

Hello. Thank you very much for taking my question. So three, if I might. The first one, net sales growth was slightly above the guidance for this year in Q1. If you could provide some color on the puts and takes for the remainder of the year. Second, there was some quarter-on-quarter slowdown in Clive's series. Just there was not a lot of seasonality in Solaris. Just whether you could provide some color on how is – what kind of main drivers did you slow down? And third, if you could provide some color on the advantage, if you could see that. Thanks.

I'm sorry. The third question, we didn't – Advantage.

Advantage, okay.

So let me take the first two. I guess, Carl, you can take the third one. Yeah, so we had a good quarter. We were slightly above. We saw some good seasonality, particularly in Spain. We had about 3 million year-on-year gain in the cough and cold. We also saw a good seasonality from the allergy products. We still feel confident with our low to mid-single-digit sales growth for the year. Let's see how the remaining quarters will play out, but I think we're in good shape so far. Clysteria did go down a little bit quarter on quarter, but Q4 is typically a higher quarter for the treatment of actinic keratosis, particularly in the U.S. You come off the summer sun, and a lot of people go in to get treatment in the fall and winter. So that's just a little bit of a seasonality. It's not a huge amount. So we would expect to see that pattern going forward as well. And then, Carl, if you want to take advantage. Yeah.

Thanks for the question. The advantage trial, as mentioned, is a trial to explore efficacy and safety of leprechaun in what you can call a hard-to-treat patient population. These are patients that have been treated with cyclosporine A already and still need further treatment or for whom cyclosporine A is medically not advisable. This trial has the size of about 300 patients. It's adult and adolescent. It also includes patients that have been pre-exposed to PIXEN. So we learned more about this population as well. re-exposed to dupixent in addition having failed on cyclosporine or for which medically this is not advisable. The primary endpoint was after the induction phase at week 16 and it's patients achieving an EC75. This primary endpoint was met and this and detailed data is mentioned will be then presented at one of the scientific meetings later this year.

Thank you. Thank you for your question.

We are now taking the next question. The next question is from Joe Walton from Credit Suisse. Please go ahead. Your line is open.

Excuse me, just to follow up, you mentioned in the ADDvantage study that some patients have had a pre-exposure to Dupixent. Can you give us an idea of how big that group is and whether you'll be able to call that out with specific detail and publish that before you get the chance to launch the drug so that you can use that with your marketing?

Well, yes, happy to talk about that. I mean, that is what the smaller portion, you know, as if the patients, you know, need to meet both criteria and are more, I think, difficult to get. We are in the process of analyzing all the detailed data that we received. We are reporting today just the top line. And as mentioned, we will publish those results in a scientific congress later.

Thank you.

Thank you for your question. There are no further questions at the moment. I will hand back the conference over to Ms. Pablo for closing remarks.

Thank you very much, Roberto. We are not going to close our Q&A session, and with this, we will conclude our conference today. We want to thank you for your participation. You may now disconnect.