Ipsen S.A.

Thank you. Good morning and good afternoon, everybody, and thank you for joining us for Ipsen full year 2019 result conference call.

I am Aymeric Le Chatelier, CEO and CFO of Ipsen. And I will provide you an update on the business and our results before opening up for the questions.

So before I begin, here is our Safe Harbor statements that outlines the routine risks and uncertainty contained within this presentation. On the agenda today for our call, I will review our excellent 2019 operating performance, including a sound financial structure.

Then I will cover the setback in the palovarotene development program, which remains a top priority for Ipsen and also – is also a very important topic for a lot of you. Despite some of the recent development, I will like also to reiterate that the fundamentals of our business and strategy remain strong.

And I will give you this more in detail a little bit later. After that, I will cover our 2020 guidance and an update on our 2022 financial outlook.

And finally, we’ll open for questions. So we are very pleased to share with you our excellent operating performance for 2019.

The momentum of our business is really strong. We are executing consistently against the objectives and remain focused on our growth strategy.

Starting with the top-line. Our group sale exceeded €2.5 billion for the first time with a double-digit sales growth of 14.8% at constant exchange rate, driven by our Specialty Care business growing at 17.2%.

We delivered strong performance across all major Specialty Care products in all geographies. To note, that our Somatuline product exceeding €1 billion in sales.

On the bottom line, we had core operating income growth of 18.6% and margin expansion to 30.4% of sales, partially attributed to leveraging our global commercial infrastructure, while continuing to accelerate investment in R&D and reaching 15% of net sales. We ended the year with a sound financial structure with net debt at €1.1 billion, after the acquisition of Clementia and a net leverage ratio of 1.3 times, which allow for additional disciplined investment in business development going forward.

Note also that the board yesterday decided to propose a distribution of €1 per share, consistent with prior year. Looking at our sales in more detail.

Somatuline continue to drive Specialty Care growth with 18% growth, which even accelerated in the fourth quarter to 24%. The growth was driven by the good performance in North America growing by 21%, with volume increase and steady market share gain, while at the same time sales in Europe continue to grow in the double-digit despite the first entry of generic octreotide in the European markets.

On that front, the generic has launched in July 2019 in Germany, in Netherlands last November, and more recently, in France and U.K. There has been minimal impact to date and no impact on pricing so far and volume continue to grow.

But going forward, in 2020, we expect more pricing pressure and additional launch across Europe. It’s important to note that our new delivery system continue to be very well received for Somatuline on the global basis, which further differentiate Somatuline in the SSA category and reinforce our ongoing commitment to the NET patient community.

Next product Cabometyx grew by 63%, reflecting the continued steady launch across geographies and indication. To note that in second-line renal cell cancer, Cabometyx is now firmly positioned as a TKI of choice and is today the only TKI gaining market share.

As expected, we are gradually seeing IO combination securing reimbursements and moving into first-line SCC in Europe. And same trend as in the U.S.

market, we expect to continue to gain increasing share in second-line as the immuno-oncology combination will advance further into the first-line. Moving now to Onivyde, we delivered 17% growth in 2019, which is showing a steady progress in the U.S.

with high synergy from our oncology commercial team, despite a lower growth in Q4, where we have been impacted by growing market share of FOLFIRINOX in frontline. We benefited for Onivyde of solid sales of our ex-U.S.

partner, for Onivyde. Regarding Decapeptyl, 2019 is another good year with a strong momentum and another 9% growth consequently after the good 2018 performance, driven by our reinforced market leadership position in Europe and also a strong double-digit growth in China.

Turning to Neuroscience, our key product Dysport grew by 10% with in-market sales of over €600 million under the brand Dysport, including the sales from our partner Galderma in 2019. This was driven by the good performance in the U.S., both in the therapeutic and in the aesthetic market and by a solid performance in the aesthetic market in Brazil as well as very high sale in Russia and in the Middle East.

Finally, our Consumer Healthcare business, sales were down 1.2% for the year, but to be nothing, back to growth for the second half of 2019, despite the challenging environments for Smecta in China. Now, going to the operating expenses, you 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 high contribution, especially Somatuline, partly offset by the higher growing contribution of Cabometyx with higher level of royalties.

Selling cost grew by 6.5%, a decrease of 2.8 points as a percentage of sales as we leverage our global commercial infrastructure with limited additional commercial investment to support our Specialty Care portfolio. R&D costs increased by 1.5 point to exceed 15% at 15.1% of sales, reflecting the significant investment to support the advancement of our internal pipeline programs in oncology, in neurotoxin and also for palovarotene, our new Rare Diseases products.

And finally, G&A expenses decreased slightly as a percentage of sales, including the impact of the increased corporate structure and the new Rare Diseases infrastructure. As a consequence, embedded on our solid top-line growth of 15.8%, our core operating income grew faster by 18.6% despite lower other revenue, mainly from the loss of exclusivity of our Adenuric CHC product.

Next slide is showing you 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 dilutive impact of the palovarotene development plan – development costs, as we were able to leverage the strong sales growth while investing to support our commercial products, and more importantly, advance our R&D for our internal pipeline.

As you see, the Consumer Healthcare had a negative 0.9 point impact to the group margin, due to the lower profitability of that business as compared to the group, given the limited top-line growth, and a very selected level of investments and the negative impact of the Adenuric product, [low flexibility] [ph] in 2019. Regarding the currency, despite the positive impact on sales, this had a negative 0.9 point impact on margin due to the level of the cost base in local currency, and more importantly, our hedging strategy.

Overall, we are very pleased with the margin enhancement, reflecting our growth strategy to leverage our top-line growth to improve our profitability, while very importantly, investing in internal and external R&D program to expand our pipeline. Now, turning to item below the core operating income.

Clearly, operating loss was impacted by a partial impairment of €669 million before tax related to the recent setbacks in the palovarotene development program. I will comment later more in detail on that program.

It also reflects restructuring and other operating expense, mainly from group transformation, and also some of the Clementia acquisition and integration costs. And if you go below, you see the consolidated net loss of €50 million includes – on top of the impairment charge the Clementia CVR reevaluation gain, partly offset by the Onivyde earn-out reevaluation in other financial income, but also in income tax the impact of the write-off of deferred tax asset related to Clementia, offset by the positive deferred tax effects of the palovarotene intangible asset impairments.

Now, I would like to highlight our strong cash flow generation, our sound financial structure. In 2019, we generated free cash flow of €468 million, up from 2018, driven by a [significantly] [ph] in EBITDA growing by 22% to €873 million, including some management of working capital and also increased investments in CapEx to support our business development strategy, which is clearly with our strong free cash flow as the primary objective of our capital allocation.

Net debt was €1.1 billion at the end of 2019, after the acquisition of Clementia for €1 billion and dividend paid for €83 million. The net debt-to-EBITDA ratio was 1.3 times at the end of 2019, below the industry average and allowing for additional business development transaction.

Also in 2019, we completed a full refinancing of the company to increase our debt capacity for future business development, extend the maturity horizon and diversify our source of financing. This included a 5-year revolving credit facility of €1.5 billion, but also a €300 million dual tranche issuance of notes on the U.S.

private placement markets. Now, we are clearly and quickly replenishing our firepower for business development with the ability to leverage our balance sheet up to 2 times debt-to-EBITDA.

We will have an additional €1 billion by the end of 2020 for business development. Now, let’s turn to provide you a review of the development of the palovarotene program.

As a reminder, a partial clinical hold by the FDA for patients below 14 years of age in the trials for FOP and MO was instituted in early December. And the formal letter outlining the FDA question was received by the company at the end of December.

Later in January, as you know, the IDMC informed us that the Phase 3 MOVE trial reached a pre-specified second interim futility analysis, but recommended not to discontinue the trial, based on the encouraging therapeutic activity observed in some post-hoc analyses. The IDMC pointed out that the protocol pre-specified statistical model may have negatively affected the efficacy analysis and shifted the statistical conclusion from significant therapeutic benefit to showing futility of treatment.

As a consequence, we decided to pause dosing in patient in all ongoing FOP trials, while we perform a comprehensive and expeditious assessment of the Phase 3 trial data set. We are also simultaneously addressing questions from the FDA and other health authorities.

The next step of the program will be to decide as soon as possible in close collaboration with patient, investigator, ethic committee and regulatory authorities. As a result of these recent events, we have taken a partial impairment of €669 million before tax based on risk-adjusted scenario under IFRS.

We have also discounted the accounting value of the CVR and earnout related to the MO indication reducing our net debt by over €115 million. We really understand that this is an important topic, and that there are still many outstanding questions.

We will provide you with an update, when we have more clarity on the future of this program. But it is clear that we remain highly committed to building a successful Rare Disease franchise.

Palovarotene is the most advanced clinical program for the treatment of FOP, and we are extremely determined and motivated to bring the first therapeutic treatment option to the FOP patient community. And beyond palovarotene, we have also the BLU-782 program, which we in-licensed from Blueprint Medicines last October.

BLU-782 is the most advanced ALK2 inhibitors in development for FOP. It is a different mechanism of action than palovarotene and is addressing the underlying cause of the disease.

A Phase 2 trial is expected to begin later this year. We look forward to keeping you updated on the progress of both palovarotene and BLU-782 programs.

Next, I would like to highlight our strong business fundamentals and strategy. And start before – reminding you that, I mean, our vision remain of leading a global biopharmaceutical company focused on innovation and Specialty Care.

And as you can see on the chart, now our Specialty Care business represents almost 90% of our sales with Oncology being the largest contributor with 72% of our sales, followed by Neuroscience, 15% with [toxin] [ph], Dysport, and Rare Disease at 3%. Consumer Healthcare represents the remaining 11% and now operates more and more as an autonomous and stand-alone business.

The chart on the right show you the diversification of our footprint in terms of geography, where you can see that U.S. still represents 1/3 of our sales, followed by North America, which represent now 30% of our sales, other European country accounting for 19% and the rest of the world for 18%.

Our business remains very well diversified, and we are seeing good growth across all major geographies. And we have built a very strong Specialty Care franchise over the years, focused on 3 strategic core therapeutic areas.

Let’s go through each of the therapeutic area, starting with Oncology. We have established a leadership position in selected niche markets, where we are first or best-in-class products.

We have products in both chronic indication like Somatuline for NET and Decapeptyl for prostate cancer as well as product for acute indication like Cabometyx for renal cell and liver cancer and Onivyde for pancreatic cancer. In addition, there are several significant life cycle management program to expand the benefit and maximize the market potential of our assets.

A few examples. There are 2 ongoing Phase 3 trials for Cabometyx: CheckMate 9ER in combination with nivolumab for the first-line RCC; and COSMIC-312 in combination with atezolizumab for first-line HCC.

And we have also the option to access additional potential indication being developed by our partner, Exelixis. There are also on the Onivyde front 2 ongoing Phase 3 trials, 1 in front-line PDAC and the second one in second-line small cell lung cancer, which could meaningfully expand the market opportunity for Onivyde.

Moving to Neuroscience, we have built a strong, sustainable neurotoxin franchise with anchor asset, Dysport, and have significant expertise in research, development, manufacturing and commercialization of staffing. In terms of R&D, we have 2 ongoing Phase 2 trials for additional indication, for which there are no therapeutic area – therapeutic treatment options available, hallux valgus and vulvodynia.

And we have also novel recombinant toxin in development to provide innovative solution along the treatment paradigm. There is a fast-acting neurotoxin entering Phase 2 development and also a long-acting neurotoxin in preclinical development.

Finally, our Rare Disease franchise offer a good balance to the other 2 therapeutic area. We have proven capability in this space and a patient-centric model to support unmet medical needs.

Relatively Rare Disease asset and also a leadership position in FOP, as I said before, with our anchor asset, palovarotene, and also the addition of BLU-782, and we remain absolutely committed to developing the first therapeutic treatment option for the FOP patients. Now turning to the pipeline.

As we have previously indicated, building an innovative and sustainable pipeline is a top priority for the company. As you can see, our programs are well diversified across the 3 therapeutic area and the various phase of clinical developments.

We have several important life cycle management program in late stage registrational development and are also accelerating the development of several new chemical entities, which are highlighted in orange here in the slide. We are committed to advancing our internal pipeline, prioritize our key development programs and continue to improve and transform our organization with our new Head of R&D, Howard Mayer.

Next, here are the expected R&D milestone for 2020, including program investment, top-line results and also regulatory decision. Going forward, in 2020, we are focused on the continued execution of our pipeline.

A few major milestones include the top-line results of the Phase 3 CheckMate 9ER trial of Cabometyx in combination with nivolumab. We should be reading in the first half of this year.

And in terms of program investments, BLU-782 for FOP is expected to enter Phase II development, and a fast and long-acting recombinant toxin are expected to enter Phase 2 and Phase 1/2, respectively. We look forward to keeping you updated on the progress of these milestones.

Our business development strategy remains a key pillar of our innovation model in order to ensure long-term sustainability. We remain very active and will be disciplined and focused on capital allocation and carefully balance the reward risk profile of any transaction.

We continue to target our 3 core therapeutic area of Oncology, Neuroscience and Rare Disease through various type of investments, including different phase of clinical development from early and mid-stage assets to lower risk late-stage investments. We are also evaluating all type of transaction as well as different deal structure to minimize risk.

And as I mentioned earlier, thanks to our strong free cash flow generation, we will have firepower for business development greater than €1 billion by the end of this year. Now, turning to the guidance for 2020 and the outlook for 2022.

First, talk about the 2020 guidance. As you can see, we expect group sales growth of greater than 6% at constant currency.

We expect no impact of currency based on the current level of exchange rate and assume there will be no impact in 2020 of the new SSA generic entry in Europe or in the U.S. Talking by business, this guidance includes a high-single-digit sales growth for Specialty Care business, including the impact of the octreotide generic on Somatuline already launched in Europe and lower sales for our product, Onivyde.

We are also assuming a mid-single-digit sales decline for our Consumer Healthcare business due to a challenging competitive environment expecting in 2020 in China and in France. We expect core operating margin to be around 30% of sales, reflecting increasing investment in R&D to support our internal pipeline in Oncology, Neuroscience and Rare Disease, including development costs for palovarotene, leveraging the global Specialty Care commercial infrastructure and protecting Consumer Healthcare profitability through cost optimization initiatives.

Again, this guidance on core operating margin assume no impact in 2020 of any new SSA generic entry, and also exclude the impact of incremental investment in pipeline expansion initiatives or so-called business development. Turning to 2022 financial outlook.

We are taking into account the latest development in our business, especially in the palovarotene development program. We are revising our group net sales from around €3.2 billion to greater than €2.8 billion.

And on the core operating margin from greater than 30% – 32% to greater than 28% of net sales. This figure reflects only the existing portfolio and assumes no approval of additional meaningful product or indication.

It assumes no sales for palovarotene and lower peak sales for Onivyde, 2 high-margin products, which also negatively impact the profitability. Consistently with our 2020 guidance and credit outlook, it also assume the positive entry of additional octreotide and lanreotide generics globally only from 2021.

And as for 2020, it excludes the impact of incremental investment in pipeline expansion initiatives. Now zooming a little bit on some of the key assumption of key products, as you can see, we still expect double-digit volume growth for Somatuline product until the potential impact of lanreotide generic from 2021.

For Decapeptyl, we expect mid-single-digit growth in all territories, assuming no generic impact in China. For Cabometyx, we confirm peak sales of €400 million on the current approved indication of RCC and HCC.

For Onivyde, we now revise peak sales from €300 million to €175 million for the current approved indication, including sales to our ex-U.S. partner.

And for this product, we confirm to expect double-digit growth, in line with the attractive toxin market growth in both therapeutic and aesthetic. And finally, for our Consumer Healthcare business, we expect that business to be back to growth in 2021 with growth in line with the Consumer Healthcare markets.

So to conclude, we are really focused at Ipsen on delivering on our 2020 objective in terms of top and bottom line growth: for Specialty Care, we aim to maximize our growth and market share worldwide for differentiated, best-in-class products; and for Consumer Healthcare to continue the transformation and the autonomy of this business. Continued top-line growth along with the optimization of cost to leverage our commercial capability will allow us to continue investing in R&D and growth while protecting our profitability.

Regarding pipeline growth, we aim first to prioritize and advance key internal R&D program, while transforming our R&D organization. And secondly, to continue to identify and execute additional business development transactions with a selective capital allocation and strict risk profile.

In terms of culture, we are driving further transformation and ambition through leadership and people. On this note, the Board and Nomination Committee are conducting a comprehensive CEO search, which is a top priority for the company.

And obviously, our mission at Ipsen remains to bring innovative therapies to patients with unmet medical needs. We believe that by successfully executing on this objective in 2020 and beyond, we are confident that we will continue to deliver superior value to the patients we serve and to our shareholders.

So, thank you very much. And now, operator, we’re ready to open the floor for questions.

Firstly on palovarotene, you mentioned you will be sitting down with the FDA to figure out how to move this forward. Could you give us a timeframe when it would happen?

And once it has happened, what format of communication should we expect? Will you let us know what the results of it was?

Or do we have to wait? Second question on Somatuline, a very strong quarter in Q4, you did refer to the acceleration.

I just wondered if you could add a bit of color, what drove the acceleration here. And then thirdly, also in Somatuline, in Germany, where there is a generic; what’s the share situation like there?

Have we seen an increased switch rate? Has it slowed down?

Are we seeing any changes in trends? Thank you.

Okay. Thank you.

Thank you very much for your question. So first on the palovarotene, I won’t be able to communicate that much on the timing.

Today, the priority is really to fully assess and validate all the dataset from the post-hoc analysis. The team is assessing and starting to engage with patient, investigators, but also regulatory authority including FDA.

And as soon as we will have more visibility, we will come back to you regarding, as you know, the 2 elements at consideration, which are first answer to the question from FDA following the partial clinical hold from December, and also following the futility analysis and the fact that we have stopped dosing on the MOVE FOP study. So we are both addressing, and today, the team is really working and elaborating the strategy engaging with all the stakeholders.

Regarding Somatuline, clearly, we are very pleased with the performance in Q4. Just to note that Q4 last year was pretty low.

So there is a good basis of comparison. Having said that, we are very pleased with the performance.

As we said, this is due also to our new delivery system, which has been fully implemented in all the countries. You should remember, it was only launched in the U.S.

at the end of Q3. So Q4 was fully benefiting of this launch.

And on top of that, we see very limited activity on the octreotide generic front, which has not impacted our performance. We’re going to see more impact going into 2020, especially on the pricing side.

You were asking a question specifically on Germany. I think Germany, we see the same trend as what we saw in Q3, which is clearly the generic is taking most of the market share to our competitors.

We continue to grow of volume and to maintain our market share, and we see no impact on pricing in 2019 in Germany.

Thank you.

Hi, thank you for taking my questions. It’s Diana from Goldman Sachs.

I have a couple of questions, please. Just first on your 2022 guidance.

Would you perhaps be able to quantify how much of the €400 million cut in the revenue guidance relates to the removal of palovarotene sales versus the rebasing of sales expectations for the other products? And then, within the newly issued revenue guidance, what are your assumptions around the Somatuline sales impact from generics, please?

And then, my second question is just on the coronavirus outbreak. I’m wondering whether you’ve seen any promotional impact so far following this?

And are you anticipating any impact in the coming months? Could you just remind us how much of your 2019 sales came from China?

And then, just my third question is just on business development. The last 2 deals that you’ve done had been in the space of Rare Diseases.

And as you think about future business development activities, are you still looking at all 3 therapeutic areas with equal interest? Or are there any areas you prefer to strengthen?

Many thanks.

Okay. Thank you.

Thank you, Diana. Very good, very good question.

So the first one on the 2022 outlook, and clearly, I mean, the gap of the €400 million, the majority of it is really affiliated to palovarotene. And clearly, our expectation to the products were higher than a lot of the consensus.

So there is more than half of that gap, which is really directly related to palovarotene; assuming, if you remember a year ago, we were assuming sales to start in 2020. And the second biggest element is clearly Onivyde.

By revising the peak sales of Onivyde, this is contributing for a significant part of the remainder of the gap. And then there is some minor adjustment.

Some of that’s related to our CHC business. Your second question was about what’s the story on Somatuline in our €2.8 billion or greater than €2.8 billion in sales.

Clearly, what we see, and to remind everybody on the assumption, so we see Somatuline to continue to grow in 2020, as we see only the existing octreotide generic on the market in Europe. We see progressive entry in our assumption to be conservative in 2021 of both octreotide and lanreotide, both in Europe and in the U.S., which mean that by 2022 sales of Somatuline will have decreased to some extent.

And we believe that our existing Specialty Care products to more than offset the decline of Somatuline. Regarding the second question on coronavirus, it’s very early to be able to assess what will be the impact.

Of sales in China represent about 5% of our total sales. And as you know, they are split between – almost 50-50 between our Specialty Care business, our Consumer Healthcare business, and we are working today with our team to ensure a better understanding of the situation.

Your last question on BD. Yes, you’re right that the last 2 transactions with palovarotene and BLU-782 were in Rare Disease, which is one of our priorities.

But today, we see and we are being very active on the full scope of the 3 therapeutic areas, being Oncology, being Rare Diseases, but being also Neuroscience. So we are working on the 3 therapeutic areas.

And you could expect us to announce something in any of these 3 therapeutic areas going forward.

Thank you very much.

Thank you very much. A few questions, if I can.

The first focusing on the 2022 margin guidance, and obviously, the margin deleverage that’s implied. 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. Somatuline 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 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 will be great. Thank you.

Okay. Thank you, Matthew, for the very comprehensive set of questions.

So, the first one is the margin 2022, so there is 2 very 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 Diseases model or given the synergies that we have with the 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 by ex-U.S.

sales to our partner, which are going to decrease in 2020 given the pattern of buying for this partner.

Thank you very much.

Yes, hello, good afternoon, everybody. A follow-up question regarding the R&D cost expansion and specifically the one we’ve seen in 2019.

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 €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 2022 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 2019 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 2019 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 €120 million in 2018. You move up to €172 million.

Excluding all the milestone paid, what was the increase linked about – this €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? Thank you.

Okay. Thank you.

Thank you, Delphine, for the question. 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 by – 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 €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 UK.

But it’s interesting also to notice that our CapEx level is increased by IFRS 16 as we are recording additional €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.

Thank you.

Thank you for taking my questions. 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, [mostly likely monetary] [ph] price cuts.

Are you going to come later in time in Germany, UK, Netherlands, and 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 the situation 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, yeah.

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 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 trial 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 opting for the Phase 3.

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 trial. On Somatuline, you – we are discussing with the regulatory authority regarding [assays] [ph] of Somatuline.

This is going to take more time. So this is why it was removed from the list.

Okay. Thank you very much.

Hi, 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 3 readout is not in the back half of this year, more likely into 2021?

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/BD, the slide and the way you’ve discussed it’s 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. Thank you.

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 timeline.

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 €1 billion that today Exelixis is doing in the U.S.

and they’re $4 billion and how much peak sales 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 €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.

Thank you.

Hi, thanks for taking my questions. 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? Thanks very much.

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 2021, 2022. 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 a 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 de-risk 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 sites. So now Smecta is going to become a pure OTC product 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 we have also cleaned a lot of our legacy portfolio in the CHC business.

Having said that, we believe that this business positioned on OTC on 3 key geographies should be able to drive growth and improve profitability after 2020.

Thanks very much.

Hi, there. Thank you for taking my questions.

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? Thank you.

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 adjustments 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 dates 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.

Thank you for my follow-up. Aymeric, just a question on going back to the €1 billion of incremental M&A power that you highlighted, given recent experience, have you changed the way you approach BD more general in terms of process, sort of control mechanisms, or have you not?

Thank you.

Okay. I think I partly already addressed that question.

Clearly, we have €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 our various therapeutic areas, to address both early-stage, but potentially later-stage transaction, probably more appetite into [de-risk] [ph] 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 built all the capability that we have and especially in rare disease to be able to execute on those transactions.

Okay. Thank you.

Okay. Thank you.

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

Okay. Let’s take last question.

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 with [Tim] [ph] 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?

Okay. That’s a pretty simple answer.

The biggest issue is really related to the Adenuric product, which is one of our products 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 €40 million spread between 2019 and 2020. Outside of that, you should not anticipate Etiasa and Galderma, which are the 2 biggest lines 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] [ph] 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.

Many thanks, indeed.

Thank you. I think there is a last question.

Yeah, absolutely. Thank you for taking my question.

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 adjustments 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 Exelixis? And maybe one last question on operating margin for OTC.

What is the assumptions that you are retaining your guidance for 2022? What would be the landing point for operating margin in OTC business?

Thanks.

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 detail. But clearly, there is ways to address both in the U.S.

and in Europe of 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 9ER 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 will say around 20%, that’s the level of operating margin that you should expect from Consumer Healthcare OTC business.

Thank you.

Okay. Thank you, everybody, for your attention and for all the questions.

And have a good day.