Earnings Transcript for IPN.PA - Q2 Fiscal Year 2021

Operator: Good day and thank you for standing-by. Welcome to today's Ipsen H1, 2021 Results. At this time all participants are in a listen-only mode. There will be a presentation followed by question-and-answer session. [Operator Instructions] And I will now like to hand the conference over to speaker today Ipsen Chief Executive David Loew. Please go ahead, sir.

David Loew: Thank you. Good afternoon and good morning everybody. I'm delighted to welcome you to our first half 2021 results call. And it's a real pleasure to be here today to update you on our performance and outlook. Please note that our presentation is available on ipsen.com. Please turn to Slide number 2. This is our Safe Harbor statement which outlines the risks and uncertainties contained within this presentation. I also wanted to mention that the commentary you'll hear today will be on our performance in the first half of the year unless stated otherwise. Please turn to Slide 3. I'm very happy to be joined today by our CFO, Aymeric Le Chatelier to lead as well as Howard Mayer, our Head of Research and Development. Howard will be with us for the Q&A session later. Please turn to Slide 4. Here's the agenda for today's call. I will start our presentation with a business overview after which Aymeric will take you through our financial performance in the first half, as well as our improved full year guidance. After concluding remarks, we'll be happy to take your questions. So let's go to Slide number 5. So let's begin with the business overview. Turn to Slide 6. The headlines. From the first half are that we continue to make good progress with a strong performance that were a result of our new strategy for growth. Total sales increased by 11% to €1.35 billion with specialty care at 92% of total sales, also growing by 11%. This was despite the ongoing impact of the pandemic on rates of diagnosis, treatments, and patient care. Though we do see gradual signs of improvement particularly in China. Our consumer health care business up by 9% also delivered a very encouraging performance. Cost savings driven by reduced face-to-face activity as a result of the pandemic. And first efficiency gains help to reduce the ratio of SG&A costs to total sales down to 36%. While our core operating margin grew to 35.5%. We also generated €291 million of free cash flow in the first half up by 25%. Through this presentation, you will get a sense of how these results were driven by our new strategy and why we have the confidence to raise the full year guidance that Aymeric will take you through. I want to thank all my colleagues at Ipsen who've made these results possible. They have continued to work so hard in trying circumstances to serve patients, and they are the reason we continue to be a growth business. Please turn to Slide number 7. We increase the sales of our oncology brands delivering 9% growth in the first half and increasing market share all against the backdrop of the pandemic. Somatuline sales were up by 5% with a good performance supported by further market share gains. We did observe the very recent launch of generic lanreotide in Germany, and we anticipate further launches in Europe this year. When compared to strong showing was driven by the performance in China, partly reflecting the comparison to last year. We grew the Decapeptyl’s market share in the period and continue to focus our efforts on the six months formulation. Cabometyx in monotherapy delivered strong volume growth mainly in second-line renal cell carcinoma across most geographies. We are pleased with the recent launch of the combination with nivolumab in Germany and we look forward to further launches in due course. Onivyde was particularly impacted by the effects of the pandemic in the U.S., but was helped by higher sales to o Ipsen’s ex-U.S. partner Servier, leading to overall growth of 1.5%. Let’s turn to Slide 8. We also increase sales outside of oncology. Neuroscience dominated by Dysport delivered strong growth of 28% driven by an encouraging recovery from the pandemic in most markets, particularly in the second quarter, reflecting a favorable comparative and the good Dysport performance in the North American and European therapeutics markets. Ipsen and Galderma both did well in their respective aesthetics markets. And we also saw encouraging potential from newer markets such as Russia and the Middle East. Please turn to Slide number 9. Turning to consumer healthcare, I was very pleased with the strong growth in the first half. It was a very encouraging performance as we gradually began to exit the pandemic with [audio gap] the recovery of the diarrhea and bowel cleansing markets particularly in China and Russia and good Smecta OTC sales. Overall, we saw encouraging signs in our consumer business. As stated before, we are conducting a strategic review of our consumer business which is progressing well. I cannot however, provide more details at this time. Please turn to Slide number 10. Our pipeline is getting stronger. We are excited about the number of potential medicines and indications and here I wanted to draw your attention to several opportunities. Please note that the clinical trials breakdown is contained within the appendix of this presentation. In oncology, we were pleased to opt-in with Exelixis in differentiated thyroid cancer, a small financial opportunity but a big potential step for patients. Regarding the resilient Phase III trial for Onivyde in second-line small cell lung cancer as you know, we conducted an interim analysis and we were pleased we have paused the futility. We cannot provide more details at this stage however. We also announced an exciting pre-clinical oncology licensing agreement this month together with a clinical stage licensing agreements in Parkinson's disease. I take you through these exciting developments in a moment. The first patient also commenced dozing in the first half of the year with the recombinant long-acting toxin in both aesthetics and treatment indications. Lastly, we're making progress in the U.S. and Europe palovarotene in FOP after we received regulatory submission acceptance in the second quarter. Please turn to Slide 11. As I mentioned a moment ago, we accelerated our external innovation efforts in the period with worldwide licensing agreements in both oncology and neuroscience. Our agreement with BAKX Therapeutics is for a pre-clinical oncology program, targeting the apoptosis cell pathway, where we have obtained the exclusive rights to develop and commercialize investigational treatment, BKX-001, currently being evaluated as a potential treatments for leukemia, lymphoma, and solid tumors. We have also obtained the exclusive worldwide rights to develop and commercialize the investigational treatment, Mesdopetam, which is based on a novel mechanism of action. This exciting potential medicine has showed promising improvements for people living with Parkinson's disease who experienced levodopa-induced dyskinesia. And IRLAB will continue to be responsible for the ongoing Phase IIb trial, and we will initiate Phase III preparatory activities. We are very pleased with these agreements. And given the clear strategy and increased focus of a stronger team, we can expect more to come. Please turn to Slide 12. Part of our strategy is to focus on excellence culture and key to our culture is how we can positively impact society. I'm heartened to see how the level of engagement in our CSR agenda has developed across Ipsen. We unveiled the 2024 CSR pillar targets at the Capital Markets Day in December, and I plan to regularly update you on the progress were making against these targets. I won't take you through everything you see on the slide. But within the employees pillar, we decided to establish a balanced gender target ratio for our global leadership team by 2025. A similar timeframe has been established for the executive leadership team at the minimum was 35% of both genders. Turning to communities, you may remember that our revolving credit facility includes a key CSR element. Favorable results Ipsen versus CSR based targets are rewarded with charitable donations. And I'm very pleased to say that one of these was recently awarded to international health partners, a charity supporting people in some of the world's most challenging places to get the medicines they need. Finally, within the environment pillar, I can confirm that Ipsen is now using 100% green electricity across its size in the U.K., Ireland and France. With that, I'll hand over to Aymeric Le Chatelier. Please turn to Slide 13.

Aymeric Le Chatelier: Thank you, David. Good morning, good afternoon, everyone. We will now go through our financial performance in the first half of the year, as well as the detail of the Q2 full year guidance. Next slide please. As you see we didn't close strong quarter in the first half across sales, margin and cash. Best part of our business specialty care and consumer healthcare performed very well, despite the ongoing effects of the pandemic, while our of core operating margin grew by more than 3 points supported by our strategic focus on growth and [indiscernible]. It was this performance in the first half that give us the confidence to guide our full year guidance. Our financial focus is also on cash generation it is strong EBITDA growth of 16% in the top line driving 25% increase in free cash flow. Our [indiscernible] business, we are determined to maintain or discipline of working capital and CapEx so that we can further boost the full [indiscernible] top line for external innovation. Please turn to Slide 15. Looking at our core operating performance, you can see that we were able to improve our operating margin by leveraging top line growth improving our gross margin and managing our cost base. Sales growing at even percent at constant exchange rate were aggressively impacted by foreign exchange rates, mainly from the U.S. dollar and the currency from emerging markets. On the gross margin, it grew by 2.2 points driven by favorable movements in mix and manufacturing variances, as well as the growth of other revenue reflecting increase royalty on one path reaching for partners mainly for Dysport and some one-off revenue from outlet functionaries. Turning to R&D expenses, we mainly focus on long-term growth of the pipeline, and the investment in lifecycle management palovarotene and [indiscernible] had to grow R&D investment to 15.4% of the total sales. As David mentioned, we are pleased to see the ratio of SG&A costs to total sales to fall by 1.1 points to 35.8% of total sales. In the next slide, I will take you through the detail of the performance. Please next slide. In the total, we continue to invest to support the growth of the business. Further investments were made in the launch of Cabometyx combination in first-line renal cell and in the preparation of the potential launch of palovarotene in FOP. There was also a progressive recovery of activity impacted by the pandemic and inflation and performance compensation we played our part. We are however leveraging top line growth to generate sales. H1 was also impacted by some other savings and incurred expenses and face-to-face medical meetings given the persistence of the pandemic. We also began to deliver some efficiency gains across procurement, project prioritization, digital and manufacturing initiatives. These savings, the decrease in SG&A costs to total sales to 35.8% as compared to 37% in the first half of 2020. Also, this level is still impacted by the pandemic, we are confident that through our efficiency program we will further reduce structurally the ratio of SG&A to total sales over the [indiscernible] to be more in line with a specialty care pillar. Please turn to Slide 17. Ipsen continues also to improve the cash flow generation of EBITDA. The gross income operating income drove a similar increase in EBITDA, while the free cash flow increased by 25% to almost €300 million thanks to a strong management of capital expenditures and working capital. Our strong balance sheet with a net debt reduced by €189 million to €337 million underpin our ability to built firepower for external innovation opportunities. Today, we have around €1.7 billion of capacity available for pipeline expansion. And we are confident in our target of delivering around €3 billion by 2024. And as you remember, all of this is based on the conservative ratio of 2 times net debt to EBITDA. Next slide. I would like to provide further detail on the upgraded full year of 2021 guidance. Given the strong performance in the first half we now believe that total sale should grow by at least 8% as compared to previous guidance of sales growth greater than 4%. It is really important to recognize the higher level of [indiscernible] of the year as compared to the first half. And also that we need to anticipate further launches of generic lanreotide in Europe in 2021. You know that we do not have anticipate any launch of generic FSA, whether it is [indiscernible] in the U.S. for this year. On top of these sales guidance, we still expect an adverse impact from currency on total sales of around 2% based on the level of exchange rate at the end of June 2021. Given the high level of operating margin in the first half and assuming the continued progressing global recovery from the pandemic, we have raise our cost operating margin guidance to around 32% of total sales instead of greater than 30% previously. To be clear, and to remember this guidance excludes any potential impacts of incremental investment from external innovation. And now I will hand back to David for the conclusion. So please turn to Slide 19.

David Loew: Thank you Aymeric. So let me sum up today the key messages and let's turn to Slide 20. We’ve remained focused together for patients and society. This is why we're making excellent early progress. And I'm pleased that our strong results were seen in double-digit sales growth, cost efficiencies, and improving operating margin and excellent cash generation. We're delivering against the strategy, maximizing our brands and strengthening our pipeline to provide a platform for sustainable long-term growth. We're in the initial phase of our efficiencies program designed as Aymeric said, to ensure our ratio of SG&A costs to total sales is more in line with our peers. The CSR progress we're making is because our positive impact in society is central to our culture. And finally, our full year guidance has been raised across both the top line and operating margins, illustrating our positive outlook for the business. So Slide 21. Thank you so much for listening to our presentation. Aymeric, Howard, and I will be happy to take your questions. Operator, over to you. Thank you.

Operator: Thank you. [Operator Instructions]

David Loew: Operator, we see some questions on our system.

Operator: Yes sir. Your first one comes from the line of Elizabeth Walton from Credit Suisse. Please ask your question.

Elizabeth Walton: Hi, good afternoon. Elizabeth Walton from Credit Suisse. Thank you for taking my questions. I have two. Firstly on Somatuline we see that the U.S. sales are starting to plateau. Can you help us here what are the key drivers of return to growth in this region? And secondly, on Dysport, we saw nice sales there this quarter. Historically, there's been lumpiness as the aesthetic sales to Galderma. Is Galderma currently saturated with supply or should we think about it as real time inventory and the sort of sustainable growth?

David Loew: Thank you, Elizabeth. On your first question on the Somatuline U.S. sales, well that’s always perhaps thing a little bit too much. We are in the Q2 growing quite nicely. We have seen however, somewhat a little bit of slower growth triggered by the pandemic impact as we have seen in many oncology indications. And since you know, the new patients are constituting 10% of the total patients you see that effect relatively slow on Somatuline much lower than for example, Onivyde. And so what we are observing right now is that we have seen that since the pandemic started, less new patients were diagnosed. And we have also seen some patients skipping doses because they were afraid to go to the center to get the injection. We also see some patients when they are progressing. For example, on [indiscernible] that the physicians say, you know, you can wait a little bit until the pandemic has slowed down and then you come to our center. So we have a bit of -- if you want a jam in terms of patients now is starting to turn-up again to the centers and being put on the drug correctly. So our assumption is, it's going to start to recover with more people getting their vaccinations and with more people starting to show up in the hospitals again. On Dysport, yes, our production is having an off supply. So, aesthetics, for sure will continue to grow. We see it in the Galderma territories and also in our territories are performing very well. But we also see that the market on the therapeutics has also started to recover well. Operator next question.

Operator: Next question comes from the line of Sachin from Jain. Please ask your question.

Sachin Jain: Sorry I’m Sachin Jain, Bank of America. Thanks for taking questions. Two please, one on margins I don’t know more specific guidance for next year but only to discuss high level progression into next year. The background for questions obviously very strong margin this year you've reported for guidance at 32%. Just trying to understand how the balance of reinvestment versus sort of COVID cost coming back, versus how -- some actual generic impact next year where the margins can be flat up or down. ‘22 versus ‘21. The second questions just on palovarotene, David wanted to provide any color on ongoing FDA debate. I think there's been some commentary on roadshow contents as you're confident the product is approved when you expect when come to debate really to be around age cut-off. So any updates there? Thank you.

David Loew: Very good, thank you. Aymeric you want to take the first one.

Aymeric Le Chatelier: Yes, thank you Sachin for the question. So I am not going to comment on the margin to be expected in 2022. And as you know, we're going to provide early next year guidance visibility I will maybe further comment on the performance H1 and how we see the performance in H2 and the profitability. So clearly, the outstanding performance of 35% margin in H1 this year, is not we want to bring the business, there is a clear level of savings that is generated by COVID. At the same time, we are progressing very well on our efficiency program. And we expect that once we're going to start to be impacted, especially at the gross margin level, because you remember on that part of what is driving also, the lower profitability expected in your guidance for H2 as compared to the 35% delivered in H1. We will be able to implement those efficiency to maintain profitability and to be able to lower our SG&A most [indiscernible] to deliver that we have achieved in H1.

David Loew: Then on your second question Sachin, perhaps I can actually ask Howard Mayer to comment on this.

Howard Mayer: Okay, great. Thanks. Thanks, David. So, regarding palovarotene just to recap, as you know, the the NDA was accepted for priority review by FDA at the end of May. And the action date, as at the end of November, the review is progressing as expected, and we're cautiously optimistic with FDA, you know, asking questions and requests for additional information in areas where, you know, we expected them to ask, based on discussions with FDA, we believe it is likely that there will be an advisory committee meeting later in the cycle and the team is actively and intensively preparing for one, we think the most likely questions to the advisory committee members will be around the comparison of the Phase III move study to a natural history cohort. And that comparison and the statistics there. And also, as expected, the lower limit of age accessibility in terms of benefit risk and the inclusion of skeletally immature patients in the label.

Sachin Jain: Thank you very much. Aymeric, can I just take a follow on perhaps just to clarify the margin question. I will ask in a different way. [Full year] guidance is 32%. consensus doesn't model margins beyond ‘21 being higher than 30%. We're just trying to understand how much of the 32% for this year is one -off? Or would you just frame this as a sustainable uplift maybe ask it that way.

Aymeric Le Chatelier: Yeah, so maybe to add a little bit, I'm not going to provide you a mid-term guidance, I think we provided the Capital Market Day, the direction where we want to go and that R&D investment is going to be also one of the big components. So again, as I said, gross margin, which we see actually be impacted by potentially and generic on the Somatuline market. I think SG&A where we are progressing, what you see some of that it could be related. They're going to be ongoing efficiency to be generated, which will offset the cost of the [Technical Difficulty] investment. And then R&D, as you know, we still have a pretty significant level of Phase III. And now external innovation isn't going to play a significant role to the long-term profitability 2022 and beyond that we see.

Sachin Jain: Okay, thank you.

David Loew: Thank you, operator. Next question.

Operator: Come from the line of [technical difficulty] from [Kepler Cheuvreux]. Please ask your question.

Unidentified Analyst: Good afternoon. Thank you. Good afternoon, and thank you for taking my question. [indiscernible] from [Kepler Cheuvreux]. A follow up question to the previous one, what part of the cost saving do you think you will be able to keep in the future in a world post-COVID with [indiscernible] a face-to-face meeting? The second one is on Dysport. I would like to understand what led to this significant growth during the first quarter – sorry. Okay, from my second question. I just would like to know, do you think these sales are only cash-out sale? Or do you think this is [indiscernible] in the future?

David Loew: Yeah, thank you [indiscernible]. On the cost savings I think -- Aymeric you can comment a bit further?

Aymeric Le Chatelier: Yes. So on the cost savings, you are right to say that they are both I mean part of the cost savings are clearly [indiscernible] savings that we expect to retain, there will be some reinvestments. And clearly we know travel expenses are going to progressively restart as we recover from the pandemic. And I think that there is also a new way of working and we know that face-to-face interactions are going to be reduced. Attendance to [indiscernible] are going to be different, and there is a lot of initiative within the group where we expect to be able to drive efficiency, who more digital to be more efficient, and also to adapt to this new environment, a lot of that will have to be compared to the cost base 2019 because as you know, the level of travel expenses and activity was very, very, very limited in 2020. So when you compare results in 2021 this is more additional costs that we expect to be able to spend as we progressively recover from the pandemic.

Unidentified Analyst: Okay.

David Loew: And then on Dysport. So the growth during the quarter is of course, having a significant component of low base comparison versus last year because we have seen in Q2, patients coming back to treatment centers, whereas in Q2 last year, they were all confined and the market was significantly depressed. Now, we have to keep in mind. So the growth is going to start normalizing again over the coming quarters. Because, we're starting to come back to more normal levels. We're not fully back yet. So there will be still a bit of a catch up. But the underlying growth is also there in aesthetics, you know aesthetics is a strong growing market and the treatment space is also growing very nicely. So you're probably not going to say the exact same growth rate that you have had in the Q2 because of the very low base comparison but we will see further growth on Dysport also in the future.

Unidentified Analyst: Okay. Okay. Thank you.

David Loew: Thank you. operator. Next question, please.

Operator: Come from the line of Delphine Le Louet from Societe Generale. Please ask your question.

Delphine Le Louet: Hi, good afternoon, everybody. Delphine Le Louet speaking here. Aymeric sorry for that. But just a quick clarification regarding the gross margin scenario. Back in 2013, we were close to 80% gross margin. And we had revenue of Somatuline in the range of the €280 million. We are close to -- I mean 86.2% right now in H1 and you already know the number for Somatuline. Most of the margin was driven -- the gross margin was driven not only by Somatuline but also by very good increase in Decapeptyl. And in this [indiscernible] these two drugs are at least not changing anything regarding the scenario. So, out of the 7% increase in terms of gross margin, how secure do you are regarding the loss of revenue of Somatuline? Do you think about 50%, 60%, 70% and so [indiscernible] in reconciliating, the gross margin -- not the gross margin, but the operating margin lending scenario you're talking about for this year even if not talking about ‘22? So first question on that. Second question regarding China. And can we get an especially any more comments regarding the Decapeptyl? Excellent performance over there, just trying to understand, have you done anything new regarding the targeting in some of [indiscernible], any change in marketing approach? Or anything we should know any phasing any stock issue or an inventory building up? Can you let us know about that? Thank you.

Aymeric Le Chatelier: Okay, thank you. Thank you, Delphine. So maybe if I understand correctly your question I mean there is a lot of elements in your question. So clearly, any [indiscernible] on the Somatuline market will have an impact on the overall gross margin of the business. And it is true to say that as we anticipate the impact of generic Europe for the European Somatuline, there will be a negative impact, both by the fact that there will be volume loss, and there will be pricing impact. So we anticipate in our guidance for H2, which is embedded in your 32% of the gross margin of the group, we clearly not stay at the same level as it is today. And this is combined with additional SG&A that we plan to spend given both, as we've seen in H1, but we will -- another magnitude, the recovery from COVID, where we're going to be more, as I said travel expensive, there will be more activity that we expect to be able to do and not to be back to the same level pre-COVID, but also to support some of the [indiscernible] activity, like preparing for the potential launch of palovarotene, also supporting the launch of Cabometyx in [indiscernible] first-line combo study -- combo indication. So all of that will clearly impact the level of profitability in H2, which explain the underlying guidance for 132%. of corporate income.

David Loew: And Delphine to your second question regarding China Decapeptyl most of it is driven by the recovery of the markets. And of course, we are present in many territories. So we haven't really changed the targeting off the hospitals, we're focusing on getting the three months version list. And also to start to prepare it the six months indication that we should get soon next year to come. Ex-China, we had market share increases in several markets. So that was also helping the Decapeptyl sales.

Delphine Le Louet: Thank you.

Operator: Next one comes from the line of Emily Field from Barclays. Please ask your question.

Rosie Turner: Hi, good afternoon. Hey – Hi, good afternoon. Sorry, this is Rosie Turner from Barclays. I'm not sure why that's coming out as Emily. But anyway, just a couple of questions from me about this lovely pipeline chart we've got on Page 10. And then the kind of, I guess, external innovation. I am just wondering if you could give us a little bit more color around [technical difficulty] neurotoxins, what the plan is moving forward between the two and kind of how quickly we can expect them to progress kind of through something, Phase III and potentially registrational. And then on [indiscernible]. Does that -- with that coming into kind of Phase IIb and then you're obviously working on Phase III preparation is that -- do you now kind of fills your later stage pipeline? Or are there going to be kind of further near-term plans continue to bolster the pipeline? Thank you very much.

David Loew: Yeah. So on the lands, just to set the expectation we're not providing the launch dates yet. We are in Phase I, in both in aesthetics and in treatments with, we have two candidates. And perhaps I asked Howard to elaborate a little bit more on the science because it can be quite interesting.

Howard Mayer: Yeah, so we have two land programs. One is land A, which is recombinant land A. And one is recombinant land AB, that contains it's a climber of the heavy chain of land of recombinant toxin, botulinum toxin B, and the light chain of A and both of those pre-clinically showed evidence of an extended duration of activity. Right now, as David said, we have three ongoing Phase I studies, two with A and AB and aesthetics and one with AB in treatment in spasticity. And so those are progressing quite well. And we hope to have some data by the end of this year, early next year to be able to select A or AB to move forward with aesthetics.

Rosie Turner: Great, thank you.

David Loew: And on your question, on the recent deal that we just did, we have said that we are hunting in oncology/hematology rare diseases and neurology. So this is -- these two deals were actually spot-on on what we have announced. And we are going to be looking thing really for great opportunities, which are exciting from a scientific point of view, but which are also reasonable in terms of field terms. So we will stay very disciplined on the deal terms, go for the right opportunities in one of those three areas that we have determined as being strategic.

Rosie Turner: Perfect. Thank you very clear.

David Loew: Thank you, Rosie. Operator, next question, please.

Operator: Comes from the line of a Ayaz Ebrahim from JP Morgan. Please ask your question.

Ayaz Ebrahim: Yeah, Ayaz Ebrahim, JP Morgan. Hello, Ayaz Ebrahim, JP Morgan. Just two questions for me to. The question is on Cabometyx. Just following the disappointing ATC data, just wondering how you see the past to peak sales of €700 million. I mean if you can give us an update on expectations for non-small cell lung cancer, and prostate cancer, in terms of your confidence in those indications and the timing of any data laid-out? And my second question is on the BKX-001 just if you could talk us through the [indiscernible] process behind in licensing that asset in terms of what you've seen in the profile that differentiates it from lung cancer?

David Loew: Thanks a lot Ebrahim. Great questions. Hepatocellular is not going to influence the guidance that we have given with the above €700 million peak sales. Reason is, you remember that we stated before that we don't have a patents on [indiscernible] in China that we were looking in -- okay, what is achievable there, of course, you don't have hepatocellular as a very high incidence in China. And so, therefore, in our forecast model, HCC was actually not having a very large weight in addition, that is quite an ironic effect. Of course, if you do not bring a new indication your price is going to stay where it is with the renal cell indication. So, short-term, it will be actually slightly accretive. Of course, longer term, we will lose a little bit of sales, but it was not so meaningful that, we have to change the guidance. So we're going to stick to our guidance there. In terms of non-small cell lung cancer and castrate resistant prostate cancer, you remember that we have had good Phase Ib results and so we are believing that this is a good combination and we expect to filing still 2023. On BKX-001, perhaps I can ask Howard to elaborate on the differentiation question.

Howard Mayer: Sure, thanks. Thanks, David. So, BAKX is actually a member of the BCL-2 gene family, which is an activator of apoptosis. So it's the downstream a sector of BCL-2, which as you know, is a pathway that has been validated by the net of class. But this has been a relatively difficult target to drug until the BAKX team. And what we've seen is very good single agent activity in vitro and in vivo, in distant refractory hematology models and actually synergy within [indiscernible]. So the whole benefit from [indiscernible] is actually to get a drug candidate that we can move forward to actually address resistance to BCL-2 inhibitors.

Ayaz Ebrahim: Right, thank you that make sense. Thank you.

David Loew: Thank you, same. Operator, next question.

Operator: Next question is from the line of I have a line of [indiscernible] from Morgan Stanley. Please ask your question.

Unidentified Analyst: Hi, this is [indiscernible] from Morgan Stanley. Thanks for taking my question. I have two please. So the first is on Somatuline generic competition in Europe. Could you help us understand what hits in your guidance in terms of the number of countries you are expecting the generic to launch in, in the second half of the year? And what volume share you're expecting and some of the key markets? And then secondly, on Cabometyx the Q2 was flat versus Q1 and how do you [indiscernible] could help us understand how the launch in first-line is progressing? And as we're seeing new patient flow there and any feedback you're receiving from the physicians?

David Loew: Yeah. Thank you, [indiscernible]. On Somatuline generic, I mean, we're not giving the -- such detailed guidance on number of countries and the volume share by key markets. What we are hearing is that [indiscernible] seems not to have had their logistics optimized to the degree that we were expecting, we were expecting their entrance earlier, in fact. So it certainly [indiscernible] for us. They have also not been able to translate their centralized approval into all the markets. So you know, because they had 20 countries in the decentralized process, they only got 14 countries so far registered. And, there is only one country so far, where it actually has basically launched. So far, we see no impact of that launch. But it has also to be fair, extremely reasons it was like one and half weeks ago. So in that sense, I think we have to see what's going to happen in the coming months. And if they are actually able to get more registrations and actually also able to deliver an out drug into the market. We do know that they have pitched in the Norway tender. Then for Cabometyx, in terms of patient flow and market shares and volumes. So you have seen that our sales kept on increasing. And we see good gains in volumes. Second-line and we see also the first-line launch in Germany starting to pick up. It's a bit early in terms of market research data, you know we have -- very recently launched. So we need a little bit more distance, but the feedback from the [indiscernible] is very positive. They see that Cabo vivo it’s bringing a very good balance of very high efficacy and good safety combined with an excellent quality of life. So I think it's a very competitive regimen. Thank you [indiscernible]. And then operator next question.

Operator: Comes from the line of Sachin Jain. Please ask your question.

Sachin Jain: Thank you. [indiscernible] another question on -- sorry, thanks for taking the additional question. I just had a follow on palovarotene to post the FDA comments [indiscernible] you just talk to any commercial sort of work you're doing ahead of potential [indiscernible] year-end and to next year around patient numbers and pricing, if you could update us on any of those metrics from the commercial perspective, as we think about how to forecast sales for next year, and peak [indiscernible] consensus when actually is running, I think €50 million and peaks around €150 million at the moment. So any comments, you can make. Thanks.

David Loew: Yeah, in terms of patient numbers, so as you know, the incidence figure, the [indiscernible] incidence figures, which exist are from [indiscernible], which has a very good registry of patients in France. And they estimate that is 1.34 patients per million inhabitants. So if you run the math, that gives you roughly 1,000 patients in theory for the U.S. and Europe for the key countries. So therefore, what we're doing now is to really focus on trying to identify those patients, because by far, not all patients are being diagnosed. In the U.S., you know, we are doing deep analytics on databases, with certain markers where we believe that can be predictive for FOP, our experience shows that we are able to identify patients based on that and working with the physicians and also with patient groups. We are starting to identify more and more patients. So that's certainly in all the [indiscernible] now one of the key activities that we are entertaining. Because, as you know, in ultra-orphan diseases, identifying the patient is a bit the search for the needle in the haystack. And it's a very important activity to bring patients on __. So but these preparations are going fairly well, I have to say. Regarding pricing, of course, we can't really say the price, it depends what's going to happen in terms of the label that we're going to get within the U.S. are also ex-U.S., it's going to depend on payer discussions. So you can expect that we're going to price it in the vicinity of other ultra-orphan disease drugs, which of course, mathematically speaking, since it's such a rare disease is going to be relatively high per patient, but the total budget impact is not going to be so significant for society. So I think it's a price, which is going to be sustainable for society. And it's going to also have patients really benefiting from the drug. Regarding peak sales, we're not giving a guidance, as I have said in the past and we're not changing that at the moment. As I said, we need to first know what the label is going to look like and also what the payer discussions are going to give us a feedback.

Sachin Jain: Thank you very much.

David Loew: Thank you, Sachin.

Operator: No further questions, please continue.

David Loew: Thank you very much. Operator, we see no more questions. So I would like to thank you everybody. Thank you for attending. Looking forward to seeing you at our Q3 results and have a nice vacation if you haven't taken them yet. Wishing you all the best. Thank you.

Operator: This concludes today's conference call. Thank you for participating. You may all disconnect.