Sandoz Group Ag S/Adr

Good morning, ladies and gentlemen, and welcome to the Sandos call today. I will now pass on to Craig Marks, Head of Investor Relations, for his opening remarks.

Thank you, and welcome to the Sandos H1 2025 results call. Earlier today, we published a results announcement and an accompanying presentation on our website, which will follow today. You can find these documents at sandos.com.invest. Joining me today are Richard Senor, Chief Executive Officer, and Remco Steenbergen, Chief Financial Officer. Please turn to slide two. Our results announcements, presentation, and discussion include forward-looking statements. Please see our disclaimer here. Please turn to slide three. Richard will begin today's presentation with a summary of the highlights in the first half of the year. followed by an update on the business. Renko will cover the financial performance, as well as our full year guidance. Following a wrap-up of the presentation, we'll be happy to take your questions. With that, I'll now hand over to Richard. Please turn to slide four.

Thank you, Greg, and hello, everybody. It's a pleasure to welcome you all to today's call, and I'm looking forward to taking you through the strong progress we're making as well as the significant opportunities that lie ahead for Sando. Please turn to slide five. I'm pleased to provide an update on our strong performance in the first half and the continued execution of our long-term strategy. We delivered 4% sales growth, which on an underlying basis amounted to 6%. The performance included accelerated sales growth in the second quarter, a period when 30% of our net sales came from buyer similars. Our core EBITDA margin in H1 expanded by 2.5 percentage points, reaching 20%, reflecting an improving sales mix and operating leverage. On the pipeline, we executed all launches successfully, including YOS Chibonsi and Peace Chiba in the US, and the Peace Chiba auto injector in Europe. We have had additional exciting launches planned for the second half of the year, further strengthening our portfolio and our long-term growth potential. Also, we announced the expansion of our manufacturing capabilities in Slovenia, reinforcing our commitment to reliable, high-quality supply for our global markets. You have also seen the recent news of our planned acquisition of JustEvaTech Biologics' in-house development and manufacturing capabilities in Toulouse, France. With these bold steps, we're building a leading global end-to-end biosimilars platform, from development through to manufacturing and commercialisation, to fully capture the significant growth opportunities in the biosimilars space. Looking ahead, we remain confident in our mid-term outlook and pleased to confirm our full-year guidance, namely, with single-digit net sales growth at constant currencies and a core EBITDA margin of around 21%. Now, let's move to more details of the business performance, starting with slide 6. Looking firstly at our biosimilar launches, we rolled out PISCHIVA in the US this year. This was an important moment for millions of patients living with chronic autoimmune diseases. and reinforces our commitment to broad access to treatment options for patients, while helping to build a more sustainable healthcare system in the U.S. Furthermore, I'm pleased that we launched the Pestiva auto-injector in Europe. This was the first ustekinumab biosimilar in Europe commercially available in an auto-injector. The device supports a more comfortable self-administration experience, with accurate automatic dose dosing and less frequent injection pain, offering the potential for improved adherence to patient treatment plans. I was also very excited about the launches of YS and Juvonti in the U.S. in June. These were the first and only interchangeable denosumab biosimilars in the U.S., providing new affordable treatment options for over 10 million patients suffering from conditions such as osteoporosis, and cancer-related clinical events. In the second half, we look forward to contributions from several other exciting biosimilar launchers, such as Denosumab, Leflibicept in Europe, and we also have continued ambition to launch Ritonazolizumab in the US by the end of the year. Now, let's see dive into the performance of PSEVA on slide 7. This important new medicine continues to make strong progress in the first half following the European launch in 2024. It has now been launched in 24 markets and we have achieved a leading position in Europe. The auto-injector launch marked another important milestone as we strengthened our leadership in the immunology biosimilar space and reaffirmed our commitment to pioneering access across Europe's evolving healthcare landscape. We're also pleased with the recent PCIVA launch in the US, which included private label. We look forward to updating you on the progress of this in the future as we move beyond the immediate launch phase. Now, please turn to slide eight. Turning to Hymeros, our global market share has been cemented by the ongoing progress of biosimilar penetration, which has now reached over 60%. It is important to note that These dates exclude private labels, which means actual usage may be even higher. We're seeing very strong momentum in Europe, accompanied by growth in international markets. And in the U.S., Sandor is leading the biosimilar space, driven by both private label Hymeros and our own label Adlunaman. We also benefit from having the broadest pair coverage in the U.S., a key advantage in such a competitive market. Together, these trends position Hymeros as a cornerstone of our biosimilar portfolio. Now please turn to slide 9. Let me now turn to Tyruco, our biosimilar natalizumab, which continues to demonstrate encouraging momentum. Since we started rolling out Tyruco across Europe, this important medication has been growing consistently, achieving a 20% market share. both tender authorities and health care professionals alike appreciate a more affordable option in the multiple sclerosis space. Looking ahead, we have additional launches planned across Europe in the second half of the year, which we expect will further strengthen our position. As I said earlier, we continue to have the ambition of launching Tyroop in the US before the end of this year. Now, please turn to slide 10. Finally, After almost 20 years since it was launched, we again delivered double-digit growth from the probe, which continues to speak to the sustainability of biosimilars. The performance underlined our continued market leadership, driven by a particularly strong ongoing performance in the international region. Equally important, we have benefited from being a reliable supply partner, ensuring where we can consistently meet strong and growing demand. With a 35% global market share, Omnidrope continues to lead in the treatment of growth hormone-related disorders, and it remains a core pillar of our Biosimilar portfolio. Please turn to slide 11. Moving now to our Python, we announced during the period a collaboration license agreement with Henleus, strengthening our position in oncology and underlining our purpose of pioneering access to patients. As the global leaders in generic and biosimilar medicines, we are committed to innovation and dedicating to broadening access to more affordable biologics for patients globally by finding the right balance between leveraging internal capabilities and collaborations and partnerships. This agreement, providing access to the Illumina app, strengthens our leadership position in oncology even further. Now, please turn to slide 12. Today, we have an industry leading by a similar pipeline of 27 assets, covering around $200 billion of originated sales. Through a combination of in-house development and partnerships, we've been able to significantly increase the size of our pipeline over recent years. We plan to further increase it. We're also encouraged by the recent movements towards regulatory streamlining, such as the recent use on our development of Pembroke Loose Lab, ocrelizumab, and nivolizumab biosimilis. These dynamics have the potential to accelerate approval times and reduce complexity, ultimately benefiting patients and healthcare systems alike. At the same time, we continue to identify and pursue additional opportunities that will strengthen and expand our pipeline. Please turn to slide 13. This pipeline of 27 biosympathies is industry-leading, both in the number of assets and the portfolio coverage of the addressable market value. It includes five near-term launches and assets in clinical development, five assets in regulatory review, eight in technical development, and we have nine additional assets in early development, targeting around $56 billion of originator sales. This is an incredibly exciting pipeline, and we won't stand still. We aim to increase the number of assets even more, supported by the opportunities presented by regulatory streamlining and our growing in-house development capabilities. Now, let's turn to slide 14. Biosimilars is the fastest growing segment of our pipeline, as the needs of patients and healthcare systems for these critical medicines continues to grow rapidly. And the global leader in the field we are investing to meet rapidly growing patient demand. We are proud to significantly expand our biosimilar manufacturing capacity in Europe as Slovenia's largest direct foreign investor. This is another major step that will position Sandoz uniquely to capitalize on the unprecedented biosimilars market opportunity over the next decade. We've talked before about our state-of-the-art development center in Ljubljana and in Ljubljana, our high-tech drug substance production center. Last month, we also announced the start of the construction of a new state-of-the-art biosimilar production center for sterile product manufacturing in Britain. I'm delighted by our progress in Slovenia as we build internal capacity and drive biosimilar development. Of course, this was all complemented by our announcement from last week. Please turn to slide 15. The news of the proposed acquisition of Just Editech Biologics' in-house development and the manufacturing capabilities in Toulouse, France, marks a significant leap in our biosimilar future. The acquisition, totaling around $300 million, would seamlessly align with our strategic objective of capitalizing on the biosimilar market opportunity. Just Evotech Biologics has been a key strategic partner for Sandoz since 2023. The proposed acquisition would complement previously announced investments in Sandoz biosimilar manufacturing and development sites and would be fully in line with our strategy to reinforce in-house biosimilar capabilities whilst at the same time create additional strategic flexibility. Following its successful completion, the site will be used to develop and manufacture our biosimilars. Just EvoTech's fully automated and high-throughput technology platform will help us move faster, scale smarter, and maintain high quality while keeping costs under control. And I look forward to updating you on the progress of this proposed acquisition. Now, let's turn to slide 16. Turning to our generics business, it continues to be a cornerstone of our company, with over 180 launches across markets in the first half of this year, from around about 90 different medicines. For example, our generic ferric carboxymaltose is the first to market launch in Europe, and we target over $500 million of originator sales. Generics, at around 70% of our sales, ensures continuous scale in the market, with limited capital deployment and generation of significant cash flows. In the first half, our generic performance benefited from volume growth that partly reflected recent launches such as Packlet Axle. Looking ahead, our second half program as ambitious as we expect more than three individual market launches over the full year. Over the longer term, we continue to have an ambitious generics pipeline with more than 400 assets targeting around $220 billion of originator sales over the next decade. And with that, I'll hand over to Renko. Please move to slide 17.

Thank you, Richard, and hello, everyone. Please move to slide 18. I'm very pleased to share our strong financial performance in the first half. which reflects momentum and disciplined execution across our business. Firstly, we delivered underlying sales growth of 6%, with accelerated sales growth in the second quarter. Next, our relentless focus on operational efficiency is paying off, and the leverage down to P&L drove a core avatar margin expansion of 2.5 percentage points, bringing the H1 margin to 20.0%, We believe a meaningful improvement. Thirdly, core diluted earnings per share reached $1.46, representing growth of 33% at constant currency. Finally, we delivered a strong improvement in cash generation, with management cash flow more than doubling to over $500 million, a significant milestone that further enhances our financial flexibilities. Overall, these results position us very well for the second half of the year. Please turn to slide 19. We produced a strong performance in the first half and we're gaining momentum with further launches to come in H2. While generics provides a strong foundation for our business, the overall performance reflected the increasing contribution from biosimilars and strong execution across our organization. As a result, by a similar increase as a proportion of total net sales to 29%, compared to 27% in the first half of 2024. When looking at the Q2 performance itself, we hit the 30% target, the milestone that we have achieved earlier than expected. Our regional sales mix has remained broadly unchanged, with over half of our business in Europe where we hold a strong leading position. International represents a quarter of net sales, with 21% coming from North America. Now, let's dive into the performance of the business on slide 20. Generic sales increased by an underlying 2% in the first half and by 3% in Q2, reflecting the impact of recent launches, including Bacchitaxo in North America. Bias similars delivered very strong underlying growth, We were very pleased with this performance and strong progress that we are making with our biosimilars overall. Now, let's have a look at the performance of our three regions on slide 21. Europe sales grew by 6% in the quarter and in the half year. Strong growth and biosimilars continued, partly reflecting the successful launches of Beechieva and Tyruco. Generics momentum also accelerated in the second quarter. International sales grew by an underlying 13% in the quarter and by 8% for the half year, due to strong contributions from IROMOS and Omnitro. North America sales grew by 5% in the quarter and by 4% in the half year on an underlying basis. The region benefited from the strong generics performance, And we look forward to the impact of recent launches on the performance in H2, including the new sum up. Please turn to slide 22. In breaking down the sales performance for H1, you can see that volumes contributed 7 percentage points, while price erosion returned to a more familiar 3 percentage points. Foreign exchange had no impact during the period. Let's now move to the P&L overview on slide 23. I'm particularly pleased with the leverage we drove down the P&L in H1, producing strong profitability. Starting from net sales growth of 4% of constant currency, we delivered a 33% increase in core diluted earnings per share. The core gross profit margin of 49.2% represented a decline of around 1 percentage point, reflecting price erosion and some cost inflation, which were partly offset by an improved mix. This, combined with the impact of operating leverage, resulted in a core EBITDA margin of 20.0%, which represented a 20% year-on-year improvement in core EBITDA. Core EBITDA adjustment in H1 amounted to $176 million. This compares well to the $309 million in core adjustment in H1 last year. This year, the adjustments were driven by anticipated one-off costs related to the separation from our former parent and the rationalization of internal manufacturing sites. For the full year, we're still expecting one-off costs of around $500 million. Please turn to slide 24. Moving to the core EBITDA margin performance, we drove an increase of 2.5 percentage points from 17.5% to 20.0%. We delivered a favorable product mix that was partly offset by the impact of price erosion. Focus on cost leverage and discipline meant a positive impact on the margin from SG&A and DNR expenses, while foreign exchange movement had only a marginal adverse impact in the period. Please turn to slide 25. It's worth noting that we anticipated that the core EBITDA margin would further progress in the second half, partly reflecting continued improvements in the sales mix. We also see operating leverage continuing to deliver, with OPEX inflation set to remain below net sales growth. A year-on-year uplift in DNR expenses in the second half is expected, however, as we invest in the long-term growth of our pipeline. As a result, we expect our full-year 2025 core EBITDA margin to be around 21%, reflecting our ability to drive profitable growth while managing costs. Now let's move to cash generation on slide 26. To provide more insights on our underlying free cash flow, we exclude one of items when focusing on management free cash flow. As Richard mentioned, we have continued to invest in our future. CAPEX included ongoing investments in our biosimilar facilities in Slovenia, and there were also investments in facilities and technology. Importantly, we have not changed our view of mid-term CapEx commitments. We have been able to keep our inventory flat in constant currency and limit the increase in other working capital items. This led to the doubling in management free cash flow, which also reflected the increase in core EBITDA. Free cash flow of $207 million was compared to $21 million generated in the comparative period last year. The improvement was mainly due to increased net cash flow from operating activities partly offset by higher cash flows used for CAPEX. Please turn to slide 27. Now let's have a look at our balance sheet. Early in the year, we successfully strengthened our balance sheet and improved our maturity profile by issuing new bonds to repay spin-off term loans. At the same time, we signed a new $2 billion revolving credit facility. Both transactions give us continued financial leeway going forward, with the annual interest rates on gross debt expected to fall below 4%. A substantial weakening US dollar against the euro and the Swiss franc had an impact on net debt, which ended the period at $3.9 billion. When excluding the impact of foreign exchange, however, net debt was broadly unchanged. Our strong balance sheet and investment credit ratings have placed our company in a very good financial position to support our ambitions. Please turn to slide 28. I am pleased to say that we have reiterated our full year guidance today. We continue to expect net sales to grow by mid-single digit percentage points in constant currencies this year, with the core EBITDA margin set to increase this year to around 21%. The guidance is based on two key assumptions. Firstly, we continue to expect a return to more normalized levels of price erosion of a low to mid-single digit percentage. Secondly, we prudently assume that the announced US tariffs of the EU of 15% will be confirmed as applicable to generics and biosimilars. That will take the total impact this year to around $25 million. Given the anticipated shape of the business in 2026, we would expect an additional $45 million of impact over full year 2026, taking the total impact next year to around $70 million. Outside of guidance, we anticipate that if the latest spot rates were to prevail for the rest of the year, we would see a 2% tailwind to net sales over the full year. The core EBITDA margin would continue to face a limited adverse impact of less than 50 basis points, which would be in line with what we had in 2024. If you look at currency movements based on average rates in the first half, we must anticipate an immaterial impact on both net sales and on the core EBITDA margin. And with that, I will hand back to Richard. Please turn to slide 29.

Thank you so much, Remco. I'd now like to wrap up the presentation before we go on to questions. Please move to slide 30. In summary, we've delivered strong results in the first half of the year. driven by great execution, our focused strategy and our commitment of our teams across the board. I would like to thank all our colleagues at Zandoz for their fantastic efforts so far this year. As we look to the second half, we're excited about the momentum we've built and the opportunities ahead. With several key launches planned, H2 is shaping up well. In short, we're fully on track to deliver our full year commitments. Looking ahead, We will also continue to invest in long-term opportunities that will shape our future growth even further, centering on biosimilars. For this, please turn to slide 31. I'd like to conclude our presentation with a reminder of a huge number of opportunities that lie ahead, and these are at the heart of the Sandals investment case. Today, we have an industry-leading biosimilar pipeline with 27 assets, covering around $200 billion of originated sales. Through a combination of in-house development and partnerships, we've been able to triple the size of our pipeline over recent years. Our investment in and focus on expanding the pipeline is now accompanied by the exciting momentums in regulatory streamlining and the enhancement of our development and supply capabilities. Our generic pipelines have more than 400 assets in development, covering around $220 billion of originated sales. No one single medicine makes up a material amount of our generic sales, so a large-scale and robust infrastructure allows us to continually bring new generic medicines to market. And, longer term, we also have the significant prospects from GLP-1s. We're placed to take a leading position of all of these opportunities, and I look forward to updating you on our progress. With this, please turn to slide 32 and I will ask the operator to open the lines for Q&A.

Ladies and gentlemen, we will now begin our Q&A session. If you have a question, we ask that you please use the raise hand function at the bottom of your Zoom screen, or if you have dialed in, please press star 9 to enter the queue. Once your name has been announced, you can ask a question. If you want to withdraw your question, please lower your hand using the raise hand function in the Zoom app or via telephone, press star 9. Thank you and a moment for a first question, please. Our first question comes from James Gordon with J.P. Morgan. Please unmute your line and ask your question.

Hello, James Gordon, J.P. Morgan. Thanks for taking the questions. So I have a question with Semaglutai. So hopefully now less than 12 months from the Canadian launch. So can you provide an update on timing and do you have a device, what device you can use, capacity? And are you also on track for Brazil next year? And when might that launch be as well, please? The second question was just biosimilars in North America was a little bit softer, at least that is consensus for the quarter. But how are you thinking about that in H2? Should we see an acceleration already in H2, or is it more like late in the year we get the acceleration? And is there a bit of a pipeline gap in North America, or does next year look good for U.S. biosimilars? And if I could just squeeze in a clarification, other income looked a bit better today, even on the core basis, and other expense a bit lower. But was there anything one-off there, or is the H1 number the good guy for H2?

Okay, thank you so much. Good morning, James. So, semaglutide, I mean, look, we've filed. We would anticipate to launch a market formation, again, reminding everybody for the diabetes indication, not for the weight loss indication. We've not given details about the device or volumes. Again, I've always said, look, I see Canada as a bit of an experiment. We'll see how the market evolves. We've got no idea how, as prices come down, market expands. And so we'll see as we get there. I mean, clearly, we would anticipate to launch a market formation at some point during 2026, but we'll see when we get there. And similarly with Brazil and a number of other emerging markets, again, we would anticipate to launch probably late 26, early 27, and see how that evolves again, how elastic this market is going to be depending on pricing, we will see. U.S. buyer stimulus, yeah, I think, look, again, we would expect much stronger growth in the second half. Underlying growth actually is very strong. If you strip out the stimuli impact, I think we're growing about 9%. in the U.S., about 17% in total, so very strong underlying performance. And then, clearly, we would give more detail in the Deno and Osteokinumab launches as we get into the second half of the year. Again, I would sort of caution, when we launched Adalunumab, it took about nine months before we started to see an inflection, so these things don't happen quickly. Again, I think we're well positioned, we're pleased with the coverage that we've got, and I think we're well positioned for the second half of the year. And so your third question, I was just making notes.

Yeah, I can take that. James Remco here, it was around the other income. Let me answer, and then if you have another question, Richard will pick up again. The other income in H1 was around $20 million. There were different kind of one-offs in there. Last year it was negative, so the year-on-year comparison is an improvement. Yeah, that other income could be a couple of tens of millions, plus or minus, depending on the whole year. Nothing special to be mentioned here.

Thank you. It sounds like in H1, there wasn't anything exceptional that was gone off. And H1 is roughly like what you do in H2 for this time of year now?

At this point in time, yes, something. But as I said, it could be 10, 20 million plus, 10, 20 million in the minus, depending on the smaller items going on. But nothing special here. Thank you.

Our next question comes from Harry Sefton with UBS. Please unmute your line and ask your question.

Brilliant. Thank you very much for taking my questions. So my first one is on the sequential by similar performance. Can you say if there are any significant stocking or destocking dynamics in biosimilars across the first quarter and second quarter, especially in some of those new launch markets in Europe? So, my second question is on the Evotech proposed acquisition. Now, their press release stated that divestment would be immediately accretive to short, mid, and long-term revenue mix profit margins. and capital efficiency. So I'd like to get your view on why you will be the better owner of this asset and whether it will have any near-term dilutive effects. And then if I can quickly have a third question just from a clarification. Can you just remind us on how much more you're expecting in terms of separation costs and are the last of these still expected this year? Thank you.

Perfect, okay. Thank you, Harry. Good morning. I'll take the first question and then, in fact, Franco, I'll let you pick up the Evatech and the separation costs. No, I mean, look, I clearly had a number of launches in a number of markets, but I don't think anything material in terms of stocking or stocking trade was unusual given those launches, so I wouldn't see any impact H1H2 from that going forward. Evatech?

Yeah, Harry, good morning to you. With regard to Ecotech, what we have said is that our guidance for 2025 and also our mid-term guidance is unchanged, correct, at this point in time, but we see if the non-binding comes to a binding agreement. What we believe is that Clearly, the site would be mostly allocated for us anyway, so it's probably better if we run it and we get all the capabilities internally and therefore also have the flexibility when we talk on the mid-longer term to really capitalize on the capabilities. So it's the capabilities on the development side and the capabilities on the manufacturing side. And we believe we can handle that all within our current guidance as it stands now. Of course, it's an additional activity we take on our shoulders, but we believe we will be definitely a very good owner in order to drive this forward as the largest bioplayer already now. With regard to the last question, the separation costs, we have 176 million of costs in H1. We still expect around 500 million for the full year. The majority of the 176 million relates to still the IT disentanglement. We expect that to continue in H2. We still have transformation costs and also some manufacturing-related restructuring we expect in H2. But also to mention that in H1, we have actually some positive legal benefit coming in. Normally, that's negative. Also to mention that also when it's positive, it comes in that negative. in that line item. So many thanks to our legal team here in Sandoz. I hope that answers your questions, Harry.

Our next question comes from Simon Baker with Rothschild & Co. Redburn. Please unmute your line and ask your question.

Thank you for taking my questions. Three quick ones, if I may. I'm just going back to James's question on obesity, but rather broadening it out. It's clearly been a fairly eventful market recently. So I just wonder how your view of the opportunity has changed in light of what we've seen in terms of the demand, the growth trends in the US, issues in international markets, the clear power of prices we see from the compounders in the US. Just sort of an update on how you frame the opportunity from a Sandoz perspective. And secondly, on the regulatory streamlining, You cited the impact on Biosimilar, Pengro, Ocrelizumab and Nivolumab. Longer term, you've said it will effectively allow you to do more for the same amount of investment. So in the near term, how quickly can you do more if you're spending less on those assets? I'm just trying to think how the costs of development are going to evolve over the coming years, whether you can immediately take advantage of that or whether there's a dip in spend before that manifests itself. And then finally, just a quick one. I know it's been on the slide for a couple of presentations, but in HER2 as a development target, Astra have said that they expect biosimilar penetration for ADCs to be limited because of the sheer complexity of them. I just wonder what your perspective was, Richard, on the competitive dynamics in ADCs. Do you see this as being a market with far fewer players than a traditional biosimilar? Thanks so much.

Thank you. I'll start with the last question first. I mean, they would say that, wouldn't they? I mean, the originator industry has been saying that since I started in this business. They said that about biosimilars. They said that about pretty much every product that we've launched. I think we are strong in this therapy area. We have the relationships. Payers want the product. I'm very confident that when we bring this product to the market, we will open that market up and serve patients well. I think your guess is as good as mine. I think clearly this is a highly attractive product. As I said before, in my many years in the industry, I've never known a product where the originators can't actually meet the demand at a different price point. So I think really the question behind the question is what is the available capacity, how quickly can that come on stream and how rapidly that market opens up. And I think that's going to be very dependent by the individual market. Some markets like Brazil are very much out of pocket and I think has a rapid potential to expand. Other markets will be driven more by government payer frameworks who want to see more whole population treatment patterns going on. It really is too early to say. I think the first capital markets day we didn't even talk about GLP-1s. I think now every meeting I have I talk about GLP-1s. Clearly it's evolving. Our focus is clearly to bring to Canada for the diabetes indication as I say, use that as a test case and then think about how we expand that. And then Europe doesn't really start opening up until 2031 and then the U.S. to the mid-2030s. So this is a long game and clearly it's going to be interesting how that plays out. Your question on regulation, I mean, clearly, look, we see opportunities very rapidly. I mean, I think we said it, I said in my presentation, I'm very keen that we build on a world-class pipeline already. We have 27 assets. As we see savings and certainly in some of the reduced requirements in phase three trials, we would look to reinvest that as aggressively as possible to expand our pipeline. We see a significant opportunity to continue to leverage and grow and bring and expand our pipeline over the next few quarters.

Right, thanks so much.

Our next question comes from Florence Espides with Bernstein. Please unmute your line and ask your question.

Good morning everyone. Florence Espides speaking from Bernstein. Two big picture questions please. On biosimilar pipeline, When we look at the slides, we see that for the future, you have a lot of partnerships, not much less in-house. So maybe could you elaborate on what could be the impact on the margins on the medium term? That's my first question. And second question, another big question on biosimilar. When you look at the penetration market share, It's kind of flattering over time. So is it what could be done to increase your market shares, or is it fair to assume that you will grow first with the further penetration of the biosimilars? So any call on that would be helpful. Thank you.

No, and two important questions. So thank you for asking. In-house, I mean, look, we've already, as we separated from Novartis, we're investing heavily in our own in-house capability, both in Slovenia and clearly with the proposed acquisition of just Evotech. That means that then we can continue to expand what we develop in-house because clearly in-house products in the medium and long term are much more accretive. That said, what's becoming very clear as the leader in this space, more and more companies want to work with us. And so it's much more can be capital efficient to bring in other assets that we continue to leverage. If you look at our performance, we lose to KineMap, which we partnered with Samsung. Already now we've taken the leadership position in Europe, growing very strongly. And now other companies are seeing the benefits that we can come given our scale and capabilities. So still highly attractive. Our job is to bring as many products to patients as quickly as possible. And clearly by doing that as a combination of in-house, and partnership and in licensing and a mix of all three is important. In terms of market shares, I think it's two-dimensional. I mean, clearly, as other entrants come in, market share dynamics change. But also don't forget the market itself is growing substantially. If you look at the abalinumab market today in Europe, I think it's now more than twice the size and number of patients than it was in market formation. So don't just look at the absolute percentage markets, but also look at the size of that market because it's continuing to grow. If you look back at Omnitrope, we launched human growth hormone 20 years ago. Now we have a 35% market share still growing, and we're the world's largest supplier of human growth hormone, which again, I think we've said before, really shows the strength and depth and value creation that biologics bring over a much longer cycle compared to traditional small molecule generics.

Thank you very much.

Our next question comes from Thibaut Bouferin with Morgan Stanley. Please unmute your line and ask your question.

Thank you. First question is just from a strategic standpoint, the balance of geographies. At the time of spin-off, the U.S. was framed as a clear growth driver. I think it was framed as being half of the growth opportunities. I think since Maybe we saw a bit less growth in the U.S., a bit more ex-U.S. Ex-U.S. is closer to 80% of sales. So, you know, since the initial plans, have things changed and do you no more expect the growth to be balanced between U.S. and ex-U.S.? Should we think basically about the outlook a bit differently from a geographic perspective? That's the first question. And the second question, I just want to broaden a bit the previous question on the adjustments and about earnings quality and basically the free cash flow as well. So you talked about the expectation for second half of the year, but when we think about 2026 and onwards, how should we think about the pace of reduction of adjustments in the future and transitioning from the management adjusted free cash flow measure to a more standardized It's basically the pace of normalization going forward. Thank you.

I'll let Renko pick up there, so thank you so much, Thibault.

Hi, Thibault. Good morning. Yeah, first of all, at the moment of spin, we have a lot of assumptions with regard to the biogrowth, the generative growth, the regional growth. This year, clearly, we see that Europe is doing fantastically. So Europe with 50% of the overall is actually contributing 50% of the total. We have not to see what will happen in the coming years. It might be that Europe is continuing on this very, very strong growth, and certainly that's what we hope for. That would mean that perhaps the mix in the overall growth over the coming years will change a bit. For us, it's important that the overall company can grow the mid-single-digit growth, and of course we will try to do better than that. If that's in a different mix, it's fantastic. If you're a little bit less dependent on the United States, considering the current geopolitical situation and the tariffs, I would say that's not even a bad thing. That's actually a good thing. But it's too early to call that we already changed the overall growth. But certainly we believe we're in a very good position. With regards to the one-off cost, what we said before is around 500 million this year, then going to around 100 million next year, and then it should stop. We're still in that position. We still expect some of the IT changes still to take place next year with regard to SAP systems in our factories. And that will carry some cost. And then after that, it's gone. And then, of course, the managerial free cash flow and the reported free cash flow and the same on the margin would much more convert to a closer number. So no changes for what we said before. We are on track with this.

Thank you, Thibault.

Next question.

Our next question comes from Joris Zimmermann with Octavian. Please unmute your line and ask your question.

Yeah, hi. This is Joris Zimmermann from Octavian. I'm Richard Remkrentine. Congratulations on this set of numbers, and thank you for taking my questions. Two, if I may, one on the U.S. biosimilars performance here at you could share a bit more flavor to the launch product. So similarly, you said this is on a temporary vault. Is it still the plan to relaunch early next year? And then on the Hiramos, if I remember correctly, you mentioned increased pricing pressure in the last call. So here I will be interested in understanding how this has developed. And then the last one on the U.S. biosimilars is concerning this JIVA. Can you share a bit more details about the private label deals with which partners you've closed those deals? And then the last question will be on the manufacturing expansion, so to say, and your announced plans with the additional site in Slovenia and the acquisition of the site from just Evotech. If you could just help us understand the difference of the four sites a little bit more and how that integrates into your broader business also including the Novartis manufacturing capacities that you currently use. Thank you very much.

Thank you, and thank you for the comments around our performance. Yeah, we're clearly delighted, so thank you. U.S. buyers, similarly, yeah, I mean, similarly, obviously, we're on a pause. Actually, the underlying growth in the business is pretty strong, but that, at a headline level, distorts the numbers a little bit. We would anticipate to reintroduce that product probably late this year, early next year, and then slowly build that up. Hi, Miroz. Yeah, I think, look, really, this is a highly competitive market. That said... We have by far the best payer coverage. We have the leading position in terms of market share with our own product, both branded and unbranded, Adder. And then clearly we have the partnership deal, which again clearly is subject to price renegotiation. So it's a mixture of those things. We don't break out individual product or individual market pricing, but clearly this is a competitive market, but I'm pleased in terms of position that we've built in. And similarly with this Jeeva, we've not disclosed the details, but clearly this is structurally a different product. This is an in-license product from Samsung. So it's a partnership deal rather than a vertically integrated product. In this case, we don't actually book the top line. We only book the income. And then clearly we have our own product. Again, it's too early to share in terms of market share assumptions and performance. But again, early indications are we're pleased with the coverage that we have and would expect that to build in the following quarters. So again, hopefully give you a little bit more colour in that on the next earnings call. In terms of manufacturing capacity, I think With the investment in Slovenia, I mean, we have a long history in Slovenia anyway. We have a very good relationship. I think it's a high-quality, relatively low-cost location in Europe. Our ambition there is to build both drug substance, and that was the initial announcement in terms of that, development capability, which we've also built there, and our most recent addition was drug product, i.e. PhilFinish. which can be clearly used for other products as well, potentially GLP-1s in the future as well. So really thinking about a vertically integrated capability, co-locating development and manufacturing in one location to make it as efficient as possible. Our goal there originally was to put potentially a J-POD in from just Evotech, transfer a number of assets which were currently supplied from Novartis, as well as using that for development. Obviously, with the potential acquisition of just Evotech, that means we then also get additional development capability and also additional manufacturing capacity, particularly centered around the J-Pod and continuous manufacturing. And that then positions us extremely well, both in terms of existing portfolio, but more importantly for our future portfolio. And in terms of our relationship with Novartis, clearly we have a longstanding supply agreement with them. If we wish to, we may choose to continue to leverage that capacity in various forms beyond our sites coming on stream. I think I've always said I want to build security of supply and flexibility of supply. Novartis have been a good partner and potentially we would continue to look at that, but I think we'll have that conversation. But that in essence is our manufacturing strategy. Thank you so much for your question.

Our next question comes from Charlie Hayward with VOA. Please unmute your line by pressing star six and ask your question.

Charlie here with Bank of America. Thank you for taking my questions. First one, your guide implies second-half sales acceleration to a 6% constant exchange rate in line with the first-half underlying. Could you talk to the push and pull for that sales growth into 26? I guess it's a second-half 6% CR sales rate, a good exit rate prop. Who do you think of that 26 growth rate? Or could we even see an acceleration from annualizing buy symbol launches to Sema and your Smerdy relaunch. And then the second one, obviously 20-term first half margin, 21-term for full year. How should we think of your annual cadence to your mid-term 24-26, margin-guided by 28? And how much of that margin progression is still driven by post in efficiency versus underlying mix and operating leverage? Thank you.

Yeah, good morning, Charlie. The line was not 100% correct, but I think I understood your question, so I will take them. Remco here. So, indeed, we had in H1 around 4% sales growth for the full year. We tied mid-single digits. So, depending, that is then 5% or 6% because we expect to step up in H2. You talk, indeed, in a range from 6% to 8% in H2. That would be mathematically correct. We don't get guidance yet on 26, so I don't comment. But clearly, the midterm guidance is mid-single-digit growth. So that is still what we're striving over the years through 28. And for 26, you have to wait a little bit later in the year. With regard to the profitability in H2, yes, indeed, we expect a step up in H2 versus H1 to come to the 21%. But what is important to keep in mind that in H2, we will step up our DNR expenses versus H2 last year. So also for the others on the call, and I'm talking not only in amount, I'm talking also in percentage, because we want to make sure that not only we handle the short term, but we also really invest in the longer term. And we have a little bit of impact on the margin of the FX because of the US dollar-euro impact. There's also a little bit of SEPA versus H2 last year. That corresponds with around 21% for the full year, and we have to see how that then further develops because we have some fantastic launches planning. But we're very confident with the H1 results under our belt that we can meet our full-year guidance. Further out for 26 or 27, 28, we expect a progressive growth on the margin to come to the 24 to 26%. Again, it's too early to say anything on the individual years, but we are really, really confident that we can meet those targets and we're on track. So I hope that answers your questions, Charlie, and I hope you do them well. That does. Many thanks.

Our next question comes from Victor Floch with BNP Paribas. Please unmute your line and ask your question.

Hi, thanks for taking the question, Victor Floch, BNP Paribas. So two questions on GLT-1, actually. So first of all, with charges, we simply alluded to the fact that Canada, being the second largest emagglutide market in the world, likely reflects some cross-border business dynamics. So in this context, I was wondering if you expect that the Florida drug importation program could be extended to GLP-1 at some point, and is that it could potentially pave the way for more U.S. space to apply. And my second question, still on GLP-1, I'm interested to know if you can confirm if ever the semaglutide API that you source is manufactured through chemical synthesis or same way as the originator through yeast cell production. Thanks so much.

Thank you very much, Victor. I mean, we've not commented on the manufacturing process in terms of API. So we actually have a couple of partners on that. And again, we can discuss that closer to launch. Your question on, I mean, again, I think I try to be super cautious in terms of how I view GLP-1s in Canada. A, we were only focusing on the diabetes indication. B, we've got no assumption that we would be shipping cross-border. I have no intention of getting injuncted by anybody. So in all our planning assumptions, it's very much diabetes and very much for Canadian use only. As I said, this is an experiment. We've not put any guidance in terms of numbers, expectation. This is a whole new category and opportunity. I would much rather have a modest expectation in terms of how we view this and then build on it. rather than see this as transformational for the business. So I think it's important. I know I get a lot of questions on GLP-1s, but again, we see this very much opportunistically at this point. We'll see how Canada evolves. It's a unique set of circumstances, given the lack of patent or the failure of the patent there, and then as the various data exclusivity on weight loss and diabetes fall. But again, our focus is diabetes for the Canadian market. Thank you so much for your question. I think our last question.

Our final question is from Sadaf Modi with Barclays. Please unmute your line and ask your question.

Hi there. Thanks for taking my question. Sadaf Modi from Barclays. Do you find me? The first one is on Vios and Jibondi, which have launched in the US. Obviously, the discount to the branded products is much lower compared to what we have seen for Siwa and Hiramos. But then this space is very, very competitive and a lot of new entrants would come into the market in the second half. How do you expect the price erosion and how would you position yourself to defend a large share of market share? That's my first question. And second, like recently a lot of manufacturers, branded manufacturers have been talking about DTC sales. How does that impact Sandoz and what are your takes on BTC sales from branded manufacturers in the US?

So, first of all, thank you for your questions. I mean, look, we are at the moment with YSG Bonte. We're the only one with a Q code. We're the only product that technically can be reimbursed. None of our competitors have yet got a Q code. I would point to our performance in other biologics. If you look at how we perform both with Eustachinumab and as an in-licensed product, and Adalunamab, which is a vertically integrated product, as is Denosumab. I think we're extremely well positioned to leverage commercial capabilities and channel capabilities. Yes, it's a competitive market. We're used to competition. But in terms of how I expect price erosion, you really will see how that evolves in the latter part of this year. But certainly, we're in a position, A, to compete in terms of our cost of goods, and B, to execute in terms of our commercial footprint. DTC, it's a fascinating subject. I think clearly I'm watching with interest to see how other competitors look at exploring this space. Clearly, I think one of the issues in the U.S. is the middleman, and any mechanism that potentially changes that is interesting. Certainly something we've not explored at the moment, but certainly it is something that I would watch with interest. Thank you so much for all your questions. Thank you for your time today. I apologise we started a little bit late. Very un-Swiss of us, but thank you so much for your time.

This concludes today's call. Thank you everyone for joining. You may now disconnect.