Earnings Transcript for IPN.PA - Q4 Fiscal Year 2020

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Full Year 2020 Sales Results. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions]. I must advise you that this conference is being recorded today. I would now like to hand the conference over to your speaker, David Loew, CEO of Ipsen. Please go ahead, sir.

David Loew: Good morning, good afternoon, and thank you for joining us for the Ipsen full year 2020 results conference call. I am David Loew, CEO of Ipsen. And it's a real pleasure to be here today to update you on our performance and outlook. Next slide, before we begin, here is our Safe Harbor statement, which outlines the routine risks and uncertainties contained within this presentation. Slide three please, shows the agenda for today's presentation. I will start with a business overview after which, Aymeric Le Chatelier, our CFO will provide details on our financial performance in 2020 and our 2021 guidance. After concluding remarks, we will be happy to take your questions. Next slide. So let me start with the business overview. And I just - on slide four - five, I want to remind you and frame my comments about the performance around the new strategy and vision which we shared in December at our Capital Markets Day. As a reminder, our aim is to be a leading global mid-sized biopharmaceutical company with a focus on transformative medicines in oncology, rare disease and neuroscience. We plan to achieve our goals by executing against four strategic pillars, and those are bringing the full potential of our innovative medicines to patients, build a high value sustainable pipeline, deliver efficiencies to enable targeted investments and growth, and boost a culture of collaboration and excellence. So how do we measure up in 2020 against our new strategic pillars? Slide six, please. Overall, I'm pleased to report that Ipsen delivered a solid performance in 2020, meeting our financial guidance and setting us well on the path to deliver our new strategy. Group sales increased 3% to $2.6 billion despite the negative impact of the COVID-19 pandemic, with good geographic diversification of sales. Growth was driven by a 5.9% increase in sales of our specialty care portfolio, which represented 92% of sales while consumer healthcare represented the remaining 8%. With our pipeline, we advanced late-stage programs for Cabometyx and Onivyde which we expect to deliver growth for these franchises. This is reflected in the increased peak sales forecast we introduced at our Capital Markets Day in December. In addition, we made good progress towards filing our rare disease asset, Palovarotene, and we made a leadership appointment with Philippe Lopes to accelerate our business development activities. On the bottom line, we delivered through reduced SG&A expenses following COVID-19 lockdown. This allowed us to accelerate investment in our pipeline while still increasing overall profitability. As a consequence, our core operating income grew by 6% to reach $829 million, representing a 32% margin, our highest yearly figure to-date. With regard to culture, I want to say a brief word of thanks to all of our more than 5,700 employees who have really risen to the challenges of the pandemic in the past year and delivered for our patients. At Ipsen, we place patient centricity at the heart of everything we do. And I'm proud to say that in 2020 we truly lived that value as an organization. Slide seven. Now looking at our business performance in more detail, oncology sales grew by 8.5% despite the impact of COVID-19 and representing 76% of Group sales in 2020. Somatuline continued to drive specialty care with 13% growth, reflecting market share gains worldwide and slower growth of the SSA market due to the impact of COVID-19. This includes the very strong performance in North America with 17% growth. Sales outside of the U.S. grew by 8%. In Europe, the octreotide generic continues to have minimal impact, and market research data shows Somatuline gaining overall share. Next, Cabometyx sales growth of 21% reflects continued steady launch and market share gains across geographies and indications. Cabometyx is firmly established as the TKI of choice in the EU5 territories with an over 50% share of TKIs in second line renal cell carcinoma and more than 30% share of TKIs in the more recently launched selling of second line hepatocellular carcinoma. Moving on to Onivyde, the 7% decline in sales is entirely due to lower sales to our ex-U.S. partner. In the U.S., we saw continued demand growth despite the impact of COVID environment on new patient diagnosis. As for Decapeptyl, the 3% decline in sales was due to the negative impact from COVID in China and some European countries, as well as the increasing competitive environment in China. However, excluding China, we're seeing market share gains in all other territories. Slide 8, turning to our neuroscience, the 3% decline in sales in 2020 reflects the negative impact of COVID across most geographies as treatment centers administering this board for both therapeutics and somewhat less also for aesthetics, were difficult to access for much of the period. We did, however, see a return to modest sales growth of 2% in the fourth quarter, as the aesthetics market recovered more rapidly than the therapeutics market. Setting aside the impact of COVID, the neurotoxin market enjoys stronger underlying fundamentals and our partner, Galderma has seen only a limited impact from new competition in the U.S. aesthetics market. Slide 9, looking at rare disease with regard to the Palovarotene program following dialogue with the FDA and EMA we are on track to file regulatory submissions in the U.S. and Europe in the first half of 2021. Discussions with other regulatory agencies are ongoing. Our intention is to seek approval for FOP patients, including those under 14 years of age. Most patients aged 14 years and over have reinitiated therapy in the Phase 3 move and Phase 2 extension trials which will serve to gather additional data to potentially support the regulatory submission. Launch preparations are ongoing. These include collaborations to identify treatable patients through predictive analytics, establishment of individualized high touch patient service programs, and disease state dedication to raise awareness and diagnosis. Beyond Palovarotene, the FOP Phase 2 program for our ALK2 inhibitor is planned to be initiated in 2021. We remain strongly committed to serving the FOP patient community and look forward to keeping you updated on our progress. Slide 10, finally for our consumer healthcare business, sales were down 21% in 2020, mainly due to a one-third sales decline in Smecta reflecting the impact of COVID. Furthermore, in the prescription segment, we have seen the continued impact of the central procurement system in China, as well as competition from a generic launch in France. The strategic review of the consumer business which we have declared as non-core is ongoing, and we have no news to share at this time. Slide 11, in 2020, we conducted a comprehensive portfolio prioritization exercise following which we made the decision to terminate or externalize a number of programs. This progress has allowed Ipsen to focus only on the highest value potential opportunities in our pipeline in our three core areas of oncology, rare disease, and neuroscience. This slide shows the status of our advancing pipeline with a significant number of late-stage registration trials. We're excited by the number of these opportunities, notably potential new indications for Cabometyx and the Onivyde as well as the potential launch of Palovarotene. Beginning with Cabometyx, following the compelling CheckMate-9ER results in the first line renal cell carcinoma, we expect a regulatory decision latest around the middle of this year. And we also expect the unblinding of the COSMIC-312 study in first line hepatocellular carcinoma in the first half. In addition, in 2020, we opted in for additional studies in non-small cell lung cancer and metastatic castrate resistant prostate cancer, and both are planned for submission in 2023 assuming positive results. Given the emerging clinical profile in December, we raised our risk-adjusted peak sales for Cabometyx to above $700 million. For Onivyde, there is an interim analysis for the second line small cell lung cancer indication in the first half of this year, with the potential for an accelerated approval. And as for the first line, pancreatic indication, we expect to submit the dossier in 2023 if successful. Based on those two new indications, we now assume risk-adjusted peak sales of above $300 million. For Palovarotene, we're working towards potential approval in the U.S., at the earliest by the end of this year and at the beginning of 2022 outside of the U.S. The precise label will be a review question and we will determine the ultimate patient population. Slide 12, while we are excited about the potential of our late-stage clinical programs, we recognize that we are unbalanced in our pipeline with relatively fewer earlier stage clinical and preclinical assets. Rebalancing our pipeline to deliver growth in the short, medium and long-term is a key objective for Ipsen that we plan to achieve this through our external innovation strategy. In December, we announced a number of fundamental changes in our approach and our level of commitment to external innovation. Our goal is to significantly accelerate and improve the number and quality of external innovation candidates across each of our three core therapy areas in order to strengthen our pipeline. In oncology, for example, we [indiscernible] a focus on solid tumors that we will expand for the first time to hematological tumors, given the clear synergies. We will ensure we are entering areas in which we can compete effectively by targeting niche tumor types or biomarker segments of broader tumor types. And we will also favor drugs with lifecycle management potential. We have similarly precise disease area targets for neuroscience and rare disease. Our ambition is to bring in assets across all stages of developments, supported by an organization, we are in the process of strengthening with a focus on excellence in execution, and we will support this strategy with substantial firepower, which already reached $1.3 billion at the end of 2020. With that, I will hand over to Aymeric to walk you through the financials and our 2021 guidance.

Aymeric Le Chatelier: So thank you very much, David. So I will now present more in detail our 2020 financial performance and 2021 financial guidance. So as mentioned, Group net sales have grown by 3% at consultation rate in 2020, exceeding our guidance that we published in July, which was greater than 2%. As you can see currency had negative impact of 2.4 percentage points on the reported sales, including a weaker U.S. dollar, but also impact from emerging markets, currencies. Moving down to the P&L and looking at the operating expenses, cost of goods sold as a percentage of sales was stable as a favorable product mix shift towards our growing specialty care business was offset by increased royalties, mainly paid for Cabometyx. Selling costs decreased by 6.5%, a reduction of 2.3 points as a percentage of net sales, thanks to the travel expenses and medical meetings costs which were lower due to COVID-19 related lockdowns, but also due to efficiency generated through smart spending across the year. R&D costs increased by 0.5 points to 15.6% of net sales, reflecting a significant investment to support the advancement of our internal pipeline program in oncology, in neurotoxins and for Palovarotene with a limited impact from COVID-19. And finally, our G&A expenses increased incrementally by 0.2 point to 7.2% of sales, with more limited COVID-19 related savings. As a consequence of our efficiency initiatives and the significant cost savings from COVID-19 our core operating income grew by 6%, despite lower other revenue, mainly from Dysport and also from our product, ADENURIC in consumer healthcare. We also delivered a strong operating leverage in 2020 with a margin expansion of 1.6 points to hit a record core operating margin of 32%, exceeding our guidance of greater than 30%. This was driven by the performance of the specialty care business, and we were able to leverage the sales growth and the COVID-19-related savings and SG&A while continuing to invest to support our commercial product and to advance our internal R&D pipeline. As you can see, the consumer healthcare had a negative 0.6 point impact to the Group margin, due to its lower profitability as compared to the Group margin. Our focus for consumer healthcare, has been on preserving its profitability with limited commercial investment and some restructuring actions. Finally, currency had only a positive 0.2 points impact on margin, thanks to our costs base in local currency and importantly our hedging policy. Overall, we are very pleased with the margin announcement, which take us to the highest level to-date, as indicated by David, which is reflecting our growth strategy and our ability to effectively manage selling expenses during the pandemic while continuing to invest in R&D to advance our pipeline. So now turning to some of the main item below operating income. As you can see, our operating income of €521 million, includes an impairment loss of €154 million, before tax mainly related to the termination of the MO-Ped trials for Palovarotene, but also the de-privatization of our systemic radiation therapy, and other solid tumors program and the adjustment of the value of other intangible assets relative to non-core commercial product. Our consolidated net profit of €549 million include an accounting gain from the Clementia CVR fee evaluation following the MO-Ped termination and also the positive effect of tax resulting from losses generated by Group legal restructuring. Finally, as you can see, our core EPS is growing by 8% to reach €7.31 per share, which is 2.4 points better than the growth of our core operating income, which is due to a lower effective tax rate at 22%, and also lower financing costs. Next, I would like to highlight our strong cash flow generation. In 2020, we generated free cash flow of €646 million, which was nearly 40% above the prior year level of €468 million. This was really driven by first, growth in EBITDA of 7% to reach €933 million, together with a good control of working capital, decreased level of CapEx, mainly due to COVID-19 and also lower financing cost. As a consequence, our net debt reached €525 million at the end of 2020. And our ratio of net debt-to-EBITDA was as low as 0.6 time, which is providing us an increased firepower as indicated by David of €1.3 billion of potential business development activity. And this calculation is based on the two times debt-to-EBITDA. So we are clearly on track, as indicated at our Capital Market Day in December, to have a €3 billion of cumulative firepower by 2024 to finance our external innovation strategy. Lastly, the Ipsen Board that met yesterday is proposing a net dividend of €1 per share for 2020, which is consistent with prior year, and recognizes the good prioritization of capital allocation to building - to accelerating external innovation, a sustainable long-term pipeline. Now turning to the outlook, our 2021 guidance is assuming first, a progressive recovery from the COVID-19 pandemic by the second half of the year. Regarding octreotide generic, we assume the phased launch of [indiscernible] generic in Europe by the middle of 2021. And the limited impact in case of a potential launch of activity all octreotide generic in the U.S., in 2021. On this basis of both COVID and octreotide generic, we expect group sales grows in 2021 to be greater than 5.4% at constant currency, knowing that the impact of currency is expected to be a negative 3 percentage base based on the level of exchange rate at the end of January 2021, and the impact is mainly coming from a lower U.S. dollar. For Cabometyx margin, we expect our margin to be greater than 30% of net sales in 2021. This is going to be despite the negative impact of currency reflecting a continued investment in R&D, the progressive investment, post pandemic to support and prepare for Cabometyx and Palovarotene launches and a focus on continuing to deliver efficiency across the globe. As you can see, we remain committed to executing our external innovation strategy. However, these 2021 guidance exclude any potential impact of incremental investment from potential transaction. So now I will turn back the code to David for the conclusion.

David Loew: Thank you, Aymeric. I want to close summarizing a few key messages. For a global midsized biopharmaceutical companies trying for leadership in life cycle and underserved diseases in oncology, rare diseases and neuroscience. With our distinctive positioning and our portfolio of transformative medicines we delivered growth in 2020, despite the pandemic and looking ahead, we expect to continue growing even with potential changes in the competitive environment. In 2021, we will execute against our four strategic pillars to continue our growth path. And this commitment to growth stands not just for the short-term, but also for the medium and long-term. Our number one goal, of course, is to strengthen our pipeline to sustain our growth for the long-term. We have a robust late-stage pipeline today but we will make our pipeline stronger across all phases of development through external innovation. We will support growth investments in our innovative medicines and our pipeline by driving efficiencies across the Group. Last but not least, we are in the process of building a distinctive organization and culture with a strong focus on CSR and what truly makes a difference for patients. This will allow us to deliver on our promise, focus together for patients and society. We're now happy to take your questions.

Operator: Thank you. [Operator Instructions] So the first question comes from the line of Matt Weston from Credit Suisse. Please go ahead. Your line now is open.

Matthew Weston: Thank you very much. And good afternoon. Two questions, please. The first on the commentary around SSA generics included in your guidance. I'd just be very interested to understand whether or not there's any change in your competitive intelligence, particularly on the environment for lanreotide generics, or whether you would simply characterize this as caution at the beginning of the year? And then secondly, on the submission of Palovarotene, I guess the real question is, what are we waiting for? We've been talking about it for some considerable time. There are only a couple of 100 patients in the studies, as I recall. But it seems like we're still looking for that to be a number of months away. And I just wondered whether there were any issues that we weren't thinking of, whether it's the timing of CMC data or animal tox studies, whether there were things behind the scenes that were stopped in the original pause for futility, that maybe have taken longer to restart than we had imagined when obviously the opportunity to refile this reemerged? I'd just be very grateful for any commentary. Thank you.

David Loew: Thank you. Matt. So let me start on the SSA generics, is there any change in CI? Of course, you know, we are continuously performing CI. As I always say, we have to take it with a grain of salt, the CI because you can see that already listening to the Novartis call and the Teva call of yesterday, that they are actually in a way contradicting each other. So we have also our CI information. And so I would say this is the best guidance we can give you which, of course, includes also a certain caution. But we want to be prudent, because it's really hard in this environment to get very, very reliable data. I remind you Advance in December 2019, stated that the launch is imminent. So that came directly from the company, and they're still not on the market. So given that environment, it's hard to give you much more details. On the second question, palovarotene, we have always plans to actually file in the first quarter. And just as a reminder, if we actually submit until we have a press release, of course, it takes typically one to two months until FDA confirms the acceptance of the filing. And so we are completely on the timelines that we have had always in our internal planning. The reason is that, we took this over from Clementia and in terms of the database we have in the interactions with FDA and EBA to dig into the data on several aspects with several data cuts, that has taken some time. But we are now really in the last preparations for the filing. So we are advancing well. So no change.

Matthew Weston: Thank you.

Operator: Thank you. And your next question comes from the line of Michael Leuchten from UBS. Please ask your question. Your line now is open.

Michael Leuchten: Thanks very much. Two questions for me. One on the clear data trial abstract that came out the other day, that could potentially be a competitive setting in first-line renal cell to the CheckMate -9ER data. Just wondered your reaction to it, where you see the differentiation, where you see competition and where not? And then a question for Aymeric, very strong margin in 2020, the 32% as you outlined. Can you quantify how much of that was COVID savings that are not attainable? You outlined qualitatively what the moving parts were. But I wondered if you can give us a steer on how much of that very strong performance was just the pandemic, not allowing you to spend the money, as we go into 2021, would you say more than 30%? Thank you.

David Loew: Thanks, Michael. So let me start with the clear data. So we have of course all only seen the abstract, right. So we have to see in the full top line data the details on the weekend to come. I think what we can say is that the overall survival looks really very similar with a very similar follow-up. And on PFS our overall response rate, it appears to be somewhat better, but this has not translated apparently into an overall survival benefit. And we have also not seen any quality of life data. We clearly are going to look very carefully at the risk distribution in these studies to better understand what has happened. Why did this not translate into overall survival? Is it linked to the patient population? Or is it linked perhaps to the tolerability because we have seen 71% grade 3 adverse events. So we need to really see the full data to come to grips with that. So far, I think we have seen with a couple of people that we are well tolerated. With our regimen, we have improved the quality of life. And we have seen very strong overall survival benefits. So I think we have competitive regimen. But as I said, of course, cross study comparison that we have to be very careful here. And we have to really look at the data. And that's the reaction also of the KOL. So I'll let Aymeric answer on the margin question.

Aymeric Le Chatelier: Yes. So regarding your margin, it is true that I mean, savings related to COVID-19 in 2020 have been quite impressive, and have represent a large part of the improvement of SG&A as a percentage of sales. This has been also generated thanks to efficiency, especially I mean, our consumer business has also implemented quite a number of restructuring, and we have started to generate efficiency. Now turning to - it's very difficult, by the way to quantify exactly what is really COVID-19. What we know is that for 2021, which was the second part of your question, as we are assuming a positive recovery in the second half of the year, we believe that there will be some investments, especially in terms of travelling expenses, but also related to medical and marketing activities that we expect. And we're going to continue and accelerate on the level of efficiencies in 2021.

Michael Leuchten: Thank you.

Operator: Thank you. And your next question comes from the line of Emily Field from Barclays. Please ask a question. Your line now is open.

Emily Field: Hi, thanks for taking my question. I was just wondering, aside from the one filing in Finland for generic lanreotide, are we aware of any other filers for a generic version with any other global regulatory authorities? And then also, I had a question on Decapeptyl. Do you expect that asset in constant currency to grow in 2021 over '20? Or do you just give some commentary on kind of how the asset is performing, both in China and ex-China? Thank you.

David Loew: So on your first question on filing lanreotide, outside of Finland, so we have heard at one point that it was filed in Belgium but then withdrawn again. So it's not entirely clear where it is. So that's on the first one. On Decapeptyl, the competitive environment in China is still going to stay tough because it's currently a one-month market. We are moving that market and the other competitors are as well, especially the international ones to three months and we will eventually launch six months injection which is much more convenient. So I think we can recover in China in the mid-term. Outside of China, it's really going to depend also on the COVID environment. We see that in some markets, we are growing, in some other markets, it was more impacted by COVID because the patients didn't really access to the urologist that frequently. So it's going to be a bit of a mixed bag at Decapeptyl.

Emily Field: Thank you.

Operator: Thank you. And your next question comes from the line of Sarita Kapila from JPMorgan. Please ask your question. Your line now is open.

Sarita Kapila: Hello, Sarita here from JPMorgan. Thanks for taking my question. And David, could you talk about the commercial potential for Cabometyx in China, given recently, Roche commented that they're unlikely to launch [Indiscernible] in China? And could you also remind us how much or if any of the $700 million sales guidance for Cabo is driven by China? Thank you.

David Loew: I would just like to remind you that since we don't - we have announced at the Capital Markets Day that we don't have a patent on Cabometyx in China. We have actually not modeled sales in our guidance for China. So in that sense, the comment from Roche is not really changing that. And in the $700 million we have not really built in any China sales. So it doesn't change in any way our guidance.

Sarita Kapila: Okay, great. Thank you.

Operator: Thank you. And your next question comes from the line of Thibault Boutherin from Morgan Stanley. Please ask your question here. Your line is open.

Thibault Boutherin: Yeah, thank you for taking my question. Just want to look into your operating margin in just in Q1. So it is 32% this year, obviously helped by some savings from COVID-19 on SG&A. And if we look at 2021, I mean, you're going to lose some of these savings. But if no generic [indiscernible] in a scenario where we don't have generic competition, additional generic competition for Somatuline, do you think the level of margin that you achieved in 2020 is realistic or do you think - because you lose some of the COVID-19 savings, you could not achieve [indiscernible]. My second question on Somatuline we saw gross acceleration in the first quarter both in the U.S. and Europe in spite of second COVID situation. So does it mean that you are able to grow Somatuline again, in the current environment despite the headwinds you had in terms of patients being - lower diagnostic of patients and more complicated physical access for oncology patients. Thank you.

David Loew: Okay. So the first question is being answered by Aymeric.

Aymeric Le Chatelier: Yes. So maybe to provide a little bit more clarity, we won't quantify exactly the margin in case it will be non-generic. But it is true that we are getting further, the margin in 2021 is going to be greater than 30%. So there will be a negative impact from currency that you have to factor. Clearly there will be additional costs as compared to the baseline COVID-19. We will continue to invest in R&D to support the existing programs. And what you are implying is that if they were to be no generic this will be an upside to the sales of Somatuline, and Somatuline being a very profitable product there is a strong likelihood to be able to exceed more significantly the 30%.

David Loew: Regarding your second question on the growth acceleration in Q4 on Somatuline, I would be careful not to over interpret this because we have seen that under COVID it's still hard for people to get diagnosed correctly. So in that sense we are continuing to gain market share. So there is growth, there is no question. And Somatuline keeps on being a growth driver for 2021 for sure. But the problem is really to model so precisely the new patients and how much COVID is going to impact is very hard, because it's about 10% to 15% of the patient pool is going to be new year-over-year. So I would not make too much out of the Q4 but we will continue to gain market share.

Thibault Boutherin: Thank you.

Operator: Thank you. And your next question comes from the line of Delphine Le Louet from Societe Generale. Please ask a question. Your line now is open.

Delphine Le Louet: Thank you. Hi, good afternoon. Two questions if I may. Aymeric, one question for you regarding the consumer healthcare margin. We've been reaching 7.4%, which is the lowest level ever and I was wondering compared to the historical level in the range of the 20%, if that is something that is still targetable and achievable, or shall we consider more 15% margin as being a floor for this division regarding the growth? Second question for you, David, regarding the firepower of $1.3 [ph] billion, I'm very much afraid about the valuation of the biotech asset, and especially in the U.S., since two years now. So how do you see this firepower being put into motion? Do you see that entering into two or three assets, and can you be more specific regarding the timelines, because as you see, time is definitely money out there? Thank you.

Aymeric Le Chatelier: So thank you for your question, Delphine. Regarding the consumer healthcare business, I mean, you're right that the level of margin that we have achieved this year is really low and it's reflecting, I mean, the conjunction of both additional generic impacting the business, especially Smecta in France and also Smecta in China, and the very significant impact of COVID-19 impacting the diarrhea markets and many other markets of the consumer business. So we have adjusted I mean our costs base in the consumer business to limit the impact on the profitability. And clearly, we are targeting the business to return to profitability, which is more towards the 20% that you are mentioning, through a combination of recovery from COVID-19. And we are still assessing what will be the time for recovery, but also the full outcome of all the restructuring action that we have taken and the repositioning of the business to be able to recapture growth through the OTC, where more and more the business is exposed.

David Loew: So Delphine, to your second question on the firepower, $1.3 billion at the U.S. valuation, I mean, obviously we completely agree that the U.S. valuations are very high. So one needs to be very careful that one doesn't overpay in such a market. Our strategy is going to be more on several assets and it goes across the whole pipeline. So it can be preclinical Phase 1, 2 and also Phase 3. And we will not just look at the U.S., obviously, but also outside of the U.S., like in Europe, for example, also with private companies, even Chinese opportunities to license in. And so we are going to distribute the money across several deals. That's our goal. As I said, we have just recruited the new Business Development Head, Philippe Lopes, who came on board. We have just reshaped the strategy. We are recruiting more people to really have more muscle to analyze it. We have also adapted our hunting strategy, as I have laid out in Capital Markets Day. So it's going to just take a little bit of time to work through that. We prioritize what we have been looking at and then starting to make deals.

Delphine Le Louet: Thank you.

Operator: Thank you. There are no further questions at this time. Please continue.

David Loew: So if there are no further questions…

Operator: I'm sorry to interrupt. There are another question from [Indiscernible]. Please ask your question. Your line now is open.

Unidentified Analyst: Yes, thank you, Eric Tobago [ph]. Two questions on the 2021 guidance if I can. First is on Somatuline. Maybe if I can push to understand, based on your various assumptions, if you are assuming that Somatuline is able to grow in 2021 versus 2020. And similarly, any chance to get a split between CHC and specialty care in terms of contribution to the 4% growth in sales. Any chance that CHC can grow in 2021 versus 2020. Thank you.

David Loew: On your first question regarding Somatuline, you might have missed my answer before. Yes, we assume that we are going to continue to gain market share still in 2021. On your second question, is there going to be potential sales growth in CHC, it heavily depends of course on what's happening on COVID. I mean it's a bit preoccupying to see that there are different variants coming in, there's a little bit of delay, I would say in the vaccination. So our initial assumption to think okay, things are going to come back to normal by the summer, might be delayed a little bit towards more autumn. So then having said that, since the GI of CHC is of course heavily exposed because you have much less travel, you have social distancing, et cetera, the growth is rather going to come more from specialty care than from CHC very clearly.

Unidentified Analyst: Sorry, David if I can. I didn't miss your comment about gaining market share, but if you assume in the second part of the year, especially some generic competition in Europe, there could be some pressure on prices. Should we assume that negative pricing should not offset positive volumes? That's what you mean.

David Loew: Well we're not guiding on geographies. What I'm saying is that we anticipate still growth on Somatuline worldwide.

Unidentified Analyst: Okay. Thank you.

Operator: Thank you. And your next question comes from the line of Matt Weston from Credit Suisse. Please ask a question.

Matthew Weston: Thank you. It's just a quick follow-up on business development. And I realize it was a slightly unusual example. But just before Christmas, we saw Agios sell its oncology business to Servier. And I just wondered whether actually acquisitions of in-market drugs is also something that you would consider within your BD footprint, or whether it's very much focused on trying to bring in pipeline across all levels of development? Thank you.

David Loew: I would say acquisitions of in market drugs is an option, but I would rather go on a co-promotion deal, short-term, because when they are on the market, often they don't have that much patent life left and they can be pretty expensive and potentially you overpay. So we would look very, very carefully on these kind of opportunities. There are not that many, obviously. We are - but we are looking at co-promotion opportunities. So it's rather going to be focused on the pipeline drugs.

Matthew Weston: Thank you very much indeed.

Operator: Thank you. And your next question comes from the line of Chris Ganet [ph] from Oddo. Please ask your question. Your line now is open.

Christophe-Raphael Ganet: Thank you. Yes. Good afternoon. This is Christophe-Raphael Ganet from Oddo. My question is simple as relates to the 2021 guidance in terms of margins. What is the assumption in terms of R&D budgets, whether we talk in absolute value or in related value? Thank you.

Aymeric Le Chatelier: So regarding R&D, as we communicated the Capital Market Day, we do not expect the ratio to move that much as compared to the level we achieved in 2020 as a consequence of our continued investment in our later stage assets. And so outside of any external innovation transaction, the level of R&D as a percentage of sales should remain between 15% and 16%, as you've seen in 2020.

Christophe-Raphael Ganet: Thank you.

Operator: Thank you. There are no further questions at this time. Please continue.

David Loew: I think, if there are no further questions, we are wrapping up this conference. Thank you very much for your attendance and wishing you a very nice day. Thank you, everybody.

Operator: That's does conclude our conference for today. Thank you for participating. You may all disconnect.