Almirall's (OTCPK:LBTSF) Q3 2021 Earnings Conference Call November 15, 2021 4:00 AM ET
Pablo Divasson - Head of Investor Relations
Gianfranco Nazzi - Chief Executive Officer
Karl Ziegelbauer - Chief Scientific Officer
Mike McClellan - Chief Financial Officer
Conference Call Participants
Matthew Weston - Credit Suisse
Neil Alexander - Deutsche Bank
Peter Welford - Jefferies
Alvaro Lenze - Alantra Equities
Jaime Escribano - Banco Santander
Disclaimer*: This transcript is designed to be used alongside the freely available audio recording on this page. Timestamps within the transcript are designed to help you navigate the audio should the corresponding text be unclear. The machine-assisted output provided is partly edited and is designed as a guide.
00:02 Good day and welcome to the Almirall’s Financial Results and Business Update Q3 Twenty Twenty One Presentation. Today's conference is being recorded. At this time, I would like to turn the conference over to Pablo Divasson. Please go ahead, sir.
0:15 Thank you, Jonah. Good morning to everyone on the call. Thank you for joining us to review Almirall’s Q3 results. I hope everyone is safe and remaining healthy. As usual, you can find the slides to this call on the Investors page of our website at almirall.com.
00:34 Moving to Slide 2. I would like to remind you that information presented in this call contain forward-looking statements that involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially.
00:50 With that, please advance to Slide 3. Presenting today, we have Gianfranco Nazzi, Chief Executive Officer; Mike McClellan, Chief Financial Officer; and Karl Ziegelbauer, Chief Scientific Officer. Gianfranco will review the quarter’s business performance and the growth drivers. Karl will provide you with details on the pipeline before passing to Mike to review the financials. Gianfranco will then make the closing comments before opening up for a Q&A session. I would like to pass you over to our CEO, Gianfranco Nazzi.
01:24 Thanks, Pablo for the introduction, and good morning to everyone on the call. I am pleased to say the business has continued to perform well with a solid performance from the core business and the continuation of the good momentum from our growth drivers and recent launches. Despite the launch July and August impacted by COVID, we have seen recovery in September, especially in the U. S. We are therefore very confident in meeting our upgraded twenty twenty one guidance providing [Indiscernible] range by increasing the base level to two hundred million euros from one hundred and ninety five euros.
02:01 To highlight our growth driver performer, we continue to see strong performance from inventory with excellent momentum from the Anti-IL23 class, very Ilumetri is gained market share and is gaining traction in France, Spain and Italy, which are the contributing to the overall growth. Seysara has a rebound in TRx market share year-to-date based on the new microbiology label. Since launched Klisyri in the U. S. We are receiving positive feedback from dermatologist and patients, and we had the same positive trend in recent weeks with good progress on the coverage. I will provide further details on the growth drivers shortly, but overall, good momentum despite the impact of COVID, particularly in terms of accessing new patients with some geographies.
02:48 The late stage pipeline is progressing well, as you have seen, we provide you the results of Lebrikizumab Phase III data enabled, we continue to work with our partner Eli Lilly towards the twenty twenty three European launch. Karl will explain more in the – this later presentation as well as the detail of the recent European approval and loads of Klisyri in Germany and the UK. Furthermore, Wynzora has been approved in seven countries and we are filing preparation to launch yearly next year. We have strong mid-term sales growth potential from our innovative pipeline to unlock the huge potential to grow in our core medical dermatology business.
03:27 And lastly, as you will see in September, we issued three hundred million euros in new bond that we use to repay the two hundred fifty million euros of convertible bonds that come to due date at the end of the year. Mike will run you through details in a simplified capital structure, later in the presentation. But as you can see, it has been a decent quarter for us.
03:50 So, let's move now to the performance of our growth driver starting with a strong momentum of Ilumetri. As you know psoriasis [Indiscernible] disease burden and patient can have a very significant impacted quality of life. Therefore, it is important that any therapy provide long-term control and treatment strategy to review the disease burden and improve the quality of life. This slide show you the market dynamic in the Anti-IL23 Class in Germany. Here you can see clearly, the strong uptake and the Anti-IL23 Class and increased to thirty nine percent market share of the new patient within the biologics. In our room, this is a reflection of physician believes in the strong efficacy profile with a key attributable to be approval latest less efficacy with convenience dosing and with not significant safely to concern.
04:43 While there is tough competition within Anti-IL23 class in Germany, Ilumetri has a strong market share, has increased to twenty nine percent with the class and logos is achieved in monthly market share. [Indiscernible] momentum is due to Ilumetri and compelling product profile with long-term significant efficacy, very good tolerance and deliver maintain control for real patients and easy to use as a key attribute. This superior profile combined with the quarterly dosing regimen, will continue to support the growth of the product in the winning class.
05:22 As you can see Ilumetri has had a strong performance with sales growth sequentially as the new country launches gained momentum and contribute to the overall growth to achieve a net sales of over twenty million euros. Despite the software or booster due to the seasonality, it resulted in lower growth of quarter three versus quarter two.
05:42 The level of seasonality was not as early as last year, due to a lower level of net sales. I would like to highlight that is September and October as soon as generation and in particular in October, which has the highest level of net sales of eight point two million euros. I have already mentioned the good performance in key market Germany that is continued to drive sales growth. In addition, there has been partly momentum and contribution of new country launches like France, Spain, Italy, Austria, and Switzerland and our latest launch in Portugal, which is really good achievement and validation of the potential of this product.
06:23 We remain full clarity that with grow potential going forward with [Indiscernible] tender very encouraging, continued good momentum of Ilumetri. With that, I would like to turn next step to focus on two key year term product launches in Europe. Klisyri, for the treatment of the actinic keratosis and Wynzora agrees for the treatment of plaque psoriasis.
06:47 We are very pleased to announce that the UK and Germany are the first European countries where Klisyri is available for prescription. The product has been approved for the treatment of by the actinic keratosis by the UK medicine and then care product regulatory agencies and by the European Commission. Klisyri is very well in Germany and for the first month, we have achieved five thousand two hundred prescription and more than enough of the wholesaler adding already placed over there.
07:18 The amount of Klisyri in Europe analysis our leadership in the European market where we believe, we are the number one player for the treatment of the actinic keratosis. Market growth is anticipated to be the driver for several factors, including the aging population and the rising prevalence of the disease, in part due to the environmental factors such as increased sun exposure. It is estimated that approximately [Indiscernible] from actinic keratosis, this is one of the most common diagnosis made by the dermatologist in Europe with prevalence of approximately eighty percent of the population and [Indiscernible] over the age of sixty. In this context, the commercialization of Klisyri is an important addition to the dermatologist option to treat actinic keratosis and marks and other milestone achieved by Almirall in its mission to bring new and novel solution for our clinical participation around the world.
08:20 And we launched [Indiscernible] in UK, we are on track with rollout in the rest of the European market. Launch meetings have been positive given this the [Indiscernible] option for a short duration and is a good tolerability profile that will significantly improve the actinic keratosis lesion of our patient.
08:39 Now move into another product launch in Europe, Wynzora is the only, it was calcipotriol, betamethasone dipropionate combination cream being developing use PAD formulation technology for our new patients suffering from mild-to-moderate psoriasis. This technology are highly tolerated even in sensitive tissue with an important feature of the product. Preparation of the European launch are in the final stages with the loans expected in early twenty twenty two following approval in Spain, UK, France, Norway, Austria, Denmark and Czech Republic. This is a decentralized procedure which require approval country by countries.
09:27 The product has a clear strategic fit within our portfolio, providing a full range of psoriasis products that covers the patient journey and strengthening our position in the European psoriasis market. Almirall will be the only pharma company with the full portfolio of psoriasis product [Indiscernible] biologic system treatment [Indiscernible] systemic treatment and Wynzora a topical product. With key market introduction, twenty twenty two is a very busy year for our teams, we allowed Klisyri and Wynzora, two very important driver for Almirall with more to follow in the short-to-mid tower.
10:12 Now let's take a look at the U. S. Products starting with Klisyri, which we launched in February of this month. We are pleased with the uptake and where Klisyri continue to make steady gains month after month with a positive trend recent weeks following seasonality in the summer months. We are starting to see better assets after the summer versus the difficulties in accessing position due to the COVID-19, which has challenged the uptake of the new product.
10:43 The product has gained penetration in the actinic keratosis actinic keratosis topical market with more than fifteen thousand prescription having been generated since the launch with the market share above two point five percent. Let me remind you that actinic keratosis is the second most common diagnosis made by dermatologist in the U. S. Where the existing topical therapy are associates with significant side effect such as pain, inflammatory reaction, hypopigmentation and scarring. The strategy has always been to generate a lot of user experience and most encouraging is the feedback from the dermatologist. Patients are experienced the strong immediate benefit by addressing the tolerability limitations of existing treatment.
11:28 Klisyri offers a good product profile, which represents a significant step forward in the treatment of the actinic keratosis due to a short treatment protocol. A one daily application for five days proven efficacy and good safety profile. In this context, we believe that Klisyri is well placed within the market, where more than two thousand [Indiscernible] have been prescribing Klisyri since the launch and the product is asset to more than seventy million capitalized within the commercial space where we are targeting more than one hundred million by the year end.
12:05 This will be a key focus area for our strategy to gain payer coverage to drive sales volume, we are in active discussion with multiple PBMs to increase the commercial coverage to this year. Related to this matter, Medicare Part D is expected in twenty twenty two. Asset is also making good process – progress sorry, as we differentiate Klisyri from what is already available in the market, based on efficacy, tolerability and convenience. Promotional efforts are on the high-decile prescriber, which should be reinforced the acceleration of the performance of Klisyri. Our expectation is that we should be able to gain a good level of market share as dermatologist are sick for new option to treat the actinic keratosis patients and we will continue support the launch in the U. S.
12:55 Now, let's take a look at Seysara. Our strategy remains the same to rebuild the TRx and increase the market share as the rapid increase their face to face interaction with physician while we see normalization from COVID-19. As you can see, the third quarter has continued to make good more but gaining some days on the CRx. We continue to dedicate our resources to further differentiate Seysara, based on the microbiology label, which is an important sector that we are able to leverage with physician and this really product from the older generic they continue to dominate the market.
13:33 We are focusing our efforts on increasing market access as we continue to increase the commercial coverage planned with several PBMs. We are aiming to exit this year with fifty four percent of access. Our strategy for access is making good progress as we focus on increasing our interaction with prescriber that we're actively prescribing pre-COVID. We think this is a very good product with good potential and we continue to work out on our execution plan to rebuild the TRx and market share.
14:06 With that, I will pass over to Karl to update you on the pipeline.
14:11 Thank you, Gianfranco. Here, you will see that we have made excellent progress on the pipeline. Firstly, we are very excited having announced the top line readout of the Phase III clinical trials of let to keep them up, which I wanted to take you through later in the presentation. Furthermore, yes, Gianfranco Has already discussed the approval of applied here in Europe and the successful launch into the UK and German market. In parallel, we are preparing the launch of Wynzora which I will elaborate on shortly. For Seysara, China, we will work towards the start of the Phase III trial at planned, having already received the acceptance of our clinical trial application. We think this is an interesting opportunity and we will update on how we go to market as this develops. And finally, if in [Indiscernible] Europe having already been approved in other countries, the plan is to use as much as possible existing studies for example, the U. S. Phase III data to get approval in Europe. We have already – we are already working towards the pre-submission meeting with regulatory authorities in the coming months and will update you on the feedback from those meeting.
15:36 Finally, we will initiate the Klisyri largely study this quarter to make it even more competitive product. We expect to have a submission in mid-to-late twenty twenty three. Once we have the large field approved This will be the second inflection point for growth will be one we have the large field approved this will be the second inflection point for growth and will be even more effective in competing with generics such as size few.
16:07 Furthermore, we are looking as additional indications, we will update you when we have solid plan. As you can see, we are making good progress on the pipeline, and we are on the right track to strengthen our leadership position in medical dermatology. While we continue to look at external opportunity within our key markets, which complement our portfolio. We have a strong midterm sales growth potential for sorry, our innovative pipeline to unlock the huge potential to grow in our core medical dermatology business.
16:51 With that, I would like to turn the focus on our exciting opportunity we have with lebrikizumab in atopic dermatitis. Atopic dermatitis it's immune-mediated chronic skin condition with a significant impact on the wellbeing and and quality of life of patients. Patients with moderate to severe atopic dermatitis have reported have a large impact on quality of life than patients with pruritus with the condition occurring at any age but typically starting in childhood and then changes its severity over time.
17:46 Prevalent of at atopic dermatitis is very high in pediatric population and it could be as high as twenty percent with all rates of severity. The atopic dermatitis market is expensive, growing and diverse despite recent treatment advantage there remains a lot unmet need to provide new options to patients that provide effective and very tolerated treatment options.
18:18 The patient numbers with moderate-to-severe disease are large and growing and the penetrations of biologics is still extremely low. It is estimated that in –it is estimated that it should tap over five million patients suffering with atopic dermatitis in Europe by twenty twenty six of which nearly four million will receive treatment. We estimate about eleven percent to fourteen percent of this population is growing together new treatment. They about one million euros of these patients will be treated with new therapeutic modality. This remains significant market opportunity with high unmet medical needs.
19:07 We expect the market to grow going forward. And we believe let keep them up will be an important medicine for patients and there is a clear need for new and differentiated therapies as several currently available treatment options are abroad that related of inflammatory pathway, which can often retire in significant side effects for patients. With let keep them up in our pipeline are potentially best in class, IL-13 antibody, it gives the unique opportunity to help these patients live a better life. The development schedule remains on track with ignition to the EMA expected in twenty twenty two and subsequent approval and release estimated be obtained in twenty twenty three in the [Indiscernible].
20:01 Let me now explain in more detail at significance of the top line results from the two monotherapy studies. The Phase III trial is an important milestone in our clinical development program for lebrikizumab medicine that we believe has the potential to be best in class Il IL-13 treatment and reaffirmed our steadfast commitment to the dermatology, community worldwide.
20:34 ADvocate 1 and ADvocate 2 are ongoing fifty two week randomized double blind plus placebo controlled parallel group Phase III studies, designed to evaluate lebrikizumab at monotherapy in a diet and adolescent patients. Adolescent patients means it shows to less than eighteen years of age invasive rating at least forty kilograms. Both with moderate-to-severe atopic dermatitis, the primary efficacy endpoints may assessed at week sixteen in the two studies and were measured by an investigator global assessment IGA score of clear or almost clear skin with a reduction of at least two points from baseline at least sixteen and at least a seventy five percent or greater change from baseline in the eczema area and severity index EASI score at week sixteen.
21:42 The full study results from ADvocate 1 and ADvocate 2 will be disclosed at future scientific congresses in twenty twenty two. Data from a Phase III combination study with topical steroids called ADhere of lebrikizumab in patients with atopic dermatitis will be available later this year. These studies are part of the lebrikizumab Phase III program which consists of five key ongoing global studies, including two monotherapy studies and the combination study as well as long-term extension caused ADjoin and adolescent open label trials for trail is called ADore.
22:29 Let me keep them up have the potential to be best in class therapy for treating AD in [Indiscernible] has been published that ID is an IL-13 dominant disease. Let's keep them up is designed to block IL-13 signaling but does not blocked into genius IL-13 regulation, which we believe is an important future as for its known anti-inflammatory properties. Finally, Almirall is starting now various options for Phase III trials for lebrikizumab, and we will communicate this to the market once we have made a decision.
23:13 With that, I will pass over to Mike to run you through the financials.
23:19 Thanks, Karl. Looking at slide eighteen as Gianfranco mentioned in the introduction, we've seen a solid performance with showing growth from the core business through Q3. And we're very confident in meeting our upgraded twenty twenty one guidance with a tightening for EBITDA outlook. We've have seen good momentum in Q3 for our recently launched products including in the U.S.
23:41 Year-to-date, core net sales increased six percent and core EBITDA increased over twenty percent year-on-year, driven by positive contribution from growth drivers and a strong EU dermatology performance. In Q3 we saw a gross margin of sixty seven percent which we see as a good proxy for the next few years based on our current mix and the fact that our recently launched products have royalty commitments to our partners.
24:06 Year-to-date with the addition of one off divestments and other milestones received during the year, we achieved a core gross margin of sixty eight point five percent. In terms of OpEx, SG&A has increased in line with our expectations to support recent launches of place in the U. S. and EU markets to elementary rollouts and some normalization of spending post COVID.
24:31 The overall outcome is strong growth of our core EBITDA year-to-date of one hundred and sixty four million euros. We've also seen very strong operating cash flow reaching one hundred and sixty one million euros year-to-date, resulting in a very healthy balance sheet as we finished the quarter at one point three times net debt to EBITDA ratio.
24:49 This quarter, we've also successfully completed the issuance of three hundred million euros in seating due twenty twenty six. I will elaborate on our simplified capital structure later in the presentation. Let me now move on to give you more detail behind these numbers.
25:06 On slide nineteen, here you can see the dynamics of the core business in the EU and the U. S. markets year-to-date. The European dermatology businesses had a very strong performance, while there's also been an increase of our non-dermo products compared to twenty twenty. As you can see, the other EU line year-on-year is increased, but this has been influenced by the flat divestments earlier in this year, offset by lower cough and cold product sales.
25:35 Moving to our U. S. Business similar to many of our peers, we are still seeing a negative impact from COVID, particularly in terms of capturing new patients. As previously communicated the generic impact of Aczone has been annualized. However, we expect to see additional competitors by the end of this year, which will erode most of the remaining sales in twenty twenty two.
25:57 Overall, our portfolio has limited patent expiry risk going forward in the near term outside of [Indiscernible] In Spain, which will be impacted in late twenty twenty two. Additionally, rest of the world General Medicine has seen the decline year-on-year, mainly driven by immune Nordics and other products that had higher demand during the pandemic in twenty twenty.
26:19 While we've seen some improvement in doctors consultations and better patient flow COVID continues to influence the business and we will continue to monitor the situation as we move forward. Similarly, we are monitoring interactions between reps and doctors to see how it will evolve has been slow for reps getting back end to see positions, which will take a little longer to get back to pre-COVID levels to things start to normalize.
26:45 So moving to Slide twenty, looking at the year-to-date dermatology sales. We registered a strong performance in Europe driven by the growth of Ilumetri as well as strong trends for Ciclopoli and our [Indiscernible] franchise. The U. S. Business continues to be impacted by COVID with a slower impact of new launches and softer demand in some areas. However, we've seen some improvement in recent months. Most notable safe sell versus last year where we will continue to work hard to rebuild the TRX and increased market share.
27:16 While COVID related restrictions are easing in the U. S. we anticipate a slow but steady progress of patients visiting their doctors at a normalized rate. The other U. S. Products were affected by returns accrual adjustment in the twenty twenty numbers. I would also like to highlight that consignment and royalties least from authorized generics that are included in the brand sales for twenty one and twenty twenty two. Consignment in income is not a large influence factor and the common strategy for managing patients with little lower limited payer coverage.
27:49 So as we move on to slide twenty one. The core net sales evolution here a couple of things I'd like to pull out for you. The existing portfolio net sales increased by around fifteen million dollars year-to-date, and you can see the growth drivers had a good contribution there in year driven by elementary in Europe and Seysara in place here in the U. S. However, the rest of our U. S. Business took a hit of nearly twelve million dollars year-on-year.
28:17 Moving to slide twenty two, I've already highlighted the key factors of the sales performance, so let me continue with our focus on the core business by running you through the rest of the P&L. SG&A is increasing in line with our expectations as we continue to invest in product launches and especially comparing to the first nine months of twenty twenty where there was low spin due to COVID restrictions.
28:40 The percentage of R&D versus net sales is low but will accelerate as we start to play siri large fuel studies and prepare for reimbursement related trials for lebrikizumab. R&D spend will accelerate not only in Q4 but going forward into twenty twenty two. Year-to-date, we achieved the gross margin of sixty eight point five percent which benefited from the contribution of a favorable product mix, and one offs. As mentioned earlier, going forward, excluding one-offs, the sixty seven percent we saw in Q3 standalone is a pretty good proxy for the gross margin in the coming years. Overall, the increase in core sales and the overall spending led to a core EBITDA increasing twenty percent from last year, reaching one hundred and sixty four million euros for the nine months. The reconciliation at the end of the P&L adds to the deferred income, which is fifteen million euros year-to-date and other income of one million euros from AstraZeneca.
29:39 Slide twenty three continuing down the P&L, the normalized net income excluding the impairment impacts results with slightly down versus last year finishing the nine months with the normalized earnings per share of zero point three four euros. The negative net income is affected by the impairments announced at the half year results.
30:00 We move on to slide twenty four. Taking a look at the balance sheet, there are quite a few comments provided on the slide, so I will discuss, and I will discuss the high yield bond issue shortly. So I would just highlight one of the most important factors. We have a very healthy balance sheet and finished the quarter with a leverage of one point three times EBITDA to net debt which gives us flexibility in the current environment for additional licensing and potential M&A activity.
30:30 Slide twenty five taking a look at the cash flow statement, we delivered very strong operating cash flow results generating one hundred and sixty one million euros due to strong operating results after adjusting for the impairments, which is also aided by good control over working capital and net tax refunds.
30:48 We have made key investments during the year, including the milestone per U. S. Commercial launch of Klisyri and the upfront costs for the acquisition of European rights at Wynzora. The divestment receipts referred to milestones and royalties are collected for AstraZeneca, these have been classified as investing activities due to the reduced focus in our operations. Additionally, we had the disbursement of almost twelve million euros for a cash dividend in Q2 of zero point one nine dollars per share, with home investors choosing the script dividend option.
31:22 On try slide twenty six, as you may have seen in September, we issued three hundred million dollars a new unsecured senior bonds that we will use to repay the two fifty million dollars of convertible bonds that come due by the end of the year. The new volumes were an annual interest of two point one two five percent payable semi-annually. Additionally, this quarter, we have repaid one hundred and fifty million dollars of bank loans using existing cash balances. The high level of interest from investors for our bond issuance resulted in orders of multiple times or request, which we see as an acknowledgment of a sign that the investor community recognizes our strong performance and the significant growth prospects of the company in the coming years.
32:05 We are pleased with the successful outcome which gives Almirall simplified capital structure by the end of this year with no risk of future equity dilution. This gives us flexibility and a strong balance sheet to support options for [Indiscernible] growth opportunities in the future.
32:25 Finally, to conclude the financials, we are tightening our core EBITDA Guidance to arrange two hundred million dollars to two fifteen million dollars based on our strong results so far in twenty twenty one. We aim at the top end of the range but leave some room for continuing COVID uncertainties. This is aligned with the strong operational performance as our core business continues to perform well, driven by recently launched products. We will continue to monitor the COVID impact and see how the possible variance are going to play out, We expect COVID-19 to continue to have some impact but have a progressive normalization through next year. And with that, I hand it back to Gianfranco to conclude the presentation.
33:07 Thank you, Mike. So as you have clearly hear from us this morning, we are delivered strong operational performance as the core business continue to perform well and in line with our expectation. We are therefore for a confident meeting our upgraded guidance for twenty twenty one and that tightly the core EBITDA range. This comes has excellent momentum to continuously to quarter four, where we are confident in Almirall growth drivers, will continue the strong growth trajectory as we continue support the recent launches. Furthermore, as detailed by Karl, we are progressing well with our existing innovative lazy stage pipeline as we will continue to execute on our transformation of the company by preparing the business for important launches to support the future prospect. The coming will be very busy for us. Our team will be very important clinical trials in key markets introduction.
34:03 Additionally on the execution, I am pleased with the performance of our European growth drivers adding achieved record amount of eight point two million euro net sales for Ilumetri in October and continue its acceleration for Klisyri in Germany where five thousand two hundred prescription have been made in the first month with more than half of the wholesaler having already placed order and ninety five percent of them already placed three orders. Finally, Almirall is very positioned for the long-term growth by unlocking the value of the late stage pipeline.
34:40 This growth will come from the increase contribution from the Q1 and future growth guidance as well as opportunistic inorganic growth by leveraging our strong balance sheet and flexible capital structure. With that, Pablo, I am back to you for the interaction of the Q&A.
35:00 Thank you very much Gianfranco. Jonah, back to you for Q&A please.
35:21 Thank you. [Operator Instructions] Your first question the line of Matthew Weston from Credit Suisse.
35:27 Thank you. Good morning. Two questions to start with please. Mike, it's around cost trends, and you highlighted the expected acceleration of R&D into 4Q going into twenty twenty two. But also the SG&A spend in 3Q was clearly a surprise to investors. So can you just out how we should think about total OpEx costs going into next year relative to 3q spending, so we can understand the balance of R&D and investment in growth drivers. And then the second question is around gross margin. I think you said that the sixty seven percent level seen 3Q was a good guide for next year and the medium term. I previously recall you discussed improving to seventy percent as a target. Has that changed? Has that been pushed further out? Or had I misunderstood previously? Thank you.
36:22 Yes. So thanks. First of all, I'll take the gross margin first, and I'll come back to the rest of the coast. What we're seeing of the sixty seven percent is a good proxy going forward. Our near term, especially given the growth of Ilumetri and the other products is products that are heavily weighted with royalties from partners and in the case of something like the elementary the better we do the higher that percentage should go up. We do target to get eventually to seventy percent, but I think it's going to be later out there it's going to take well into the launch of lebrikizumab to get there and in the difference and why this is kind of shifting is as we've seen that Seysara is not going to be what we originally thought, that was one of the drivers, we're also seeing that the overall mix and the pressure on cost is just going to continue. So sixty seven percent at least in the next two to three years is probably a good proxy of what we can do with our existing portfolio. When it comes to the other cost trends, clearly, we are starting to ramp up the SG&A, we need to invest in the new launches. You're seeing a little bit more of ability to have activity with the physicians and other promotional activities. We are launching quite series where we've ramped up france and in terms of the elementary launch. As we go into next year, we're going to have spent on Wynzora, we are going to launch Klisyri in more markets, we need to continue to do pre-launch activities for lebrikizumab. So, I think we're in a great period of opportunity and we have a lot of launches in front of us.
38:18 But that means we're going to have to invest. The same thing on R&D, R&D has been very slow this year, but we will now start to ramp that up I remind you that lebrikizumab because it was a partner deal. All of the R&D has been done by or by Lilly and Jeremy before them up till now. But now we're going to have to start investing in the reimbursement trials for Europe and they're not going to be inexpensive. We need to give everything we can to this product to make sure that it's the biggest success as it is. So if we take a lot of these trends, I think we've confident in our upgraded guidance for this year. But as we move into next year, we're going to have limited gross margin opportunity to grow in the next couple of years and pressure on SG&A and R&D. So, we'll give you the guidance for twenty twenty two when we get into February. But if you take all those trends into consideration, it's going to be a year or two where we're really going to have heavy investment needs in the next couple of years.
39:31 Thank you, Mike. We'll jump back into the queue. We'll come back later.
39:37 Next question comes from the line of Neil Alexander from Deutsche Bank.
39:42 Hi. How's it going. Can you guys hear me.?
39:45 Yes, just well.
39:47 Just one question for me. I know new prospects on elementary and I'm just wondering if you can give us an update on the e-roll out in a bit more detail. I know you mentioned France and Portugal thoughts and we can get bit more information, more granularity at such and a bit more detail on the progress and market outside any other market outside Germany? Thank you.
40:17 Thank you, Alexander. I will take it. This Ilumetri as we said is doing very well. So we got the recommend in October with the eight point two million euros. Of course, Germany is the main driver with four point eight million euro, and we got the fantastic market share performance on the IL-23 Class with a record of twenty nine percent. Good news is also good at the IL-23 class is growing very well. The year market share of thirty four percent. Nevertheless also, across Europe, we are doing quite well. You were mentioning other countries for instance Italy, we sold more than million Spain, we sold more than up millions of strength that, we sales more than six hundred thousand in both in the UK with almost five hundred thousand units. If you look at the market share across all those different marketing in company is growing quite well. The only difference that’s in Germany, is that in Germany, the IL-23 Class outgrow in the market and so that there is a why you will not see the spike doesn't got in Germany, but we are very pleased with the performance. We have very good feedback from the [Indiscernible] community and most important report for the patient that they really found in Ilumetri, a very good rag that towns there are unmet needed. So very pleased to see the performance here today and more to come. Thank you, Alexander.
41:37 Thank you.
41:39 And your next question comes from the line of Peter Welford from Jefferies.
41:46 Hi. Thanks for taking my questions. But a first of all, just coming back to the margin. Just curious if you can give it all the trends you outlined in terms of our R&D, SG&A, and gross margin, and obviously given also the exceptional if you like one off sort of the income that we had in the first quarter of this year in sales.
42:06 Just coming back to your you made about twenty twenty two. Is there any reason why we shouldn't be assuming the margins are presumably going to decline EBITDA margin next year? But then, just curious if could give us some sort of idea when you think about it what sort of timeframe we should be thinking about to get back to this year's margin? And sort of, I guess longer term trajectory than you think for the margin and what sort of EBITDA margin perhaps longer-term you believe is achievable for our business? And then just program on R&D a little bit R&D does – I appreciate your comments in terms of all different studies that are ramping up, is there any way you give us I guess some sort of bidding in terms of how you think longer term, that's how we should think about R&D perhaps the percentage of sales for your business? Given how we seeing some of the volatility you would see recently. And then can just as the lebrikizumab, is it possible to give any timing with regards to what we could see the maintenance results from those studies and then could you just then outline with regards to your plant timing once those maintenance data are in house is that then – does that trigger you then buy or some of these other studies that you are mentioning, are any of these going to be required as part of the regulatory package? And how should we think about the sort of hiring side lebrikizumab in Europe. Thank you.
43:34 Okay. Thanks, Peter. I'll take the first two and then we'll let Karl into the lebrikizumab. So in terms of the margin profile, with all those pressures I talked about, I think you're just going to have to expect that the core EBITDA margins is going to be in the low to mid-twenties the next two, three years. And then starting to ramp up post lebri. We still like to target in the outer years getting towards a thirty percent but it's probably going to be quite a few years before we get there because we need the bulk of lebrikizumab sales. So, clearly, there a ton of opportunity in the short term, but because of the gross margin and the need to invest it's going to be tough to replicate the current year margins, which of course aided by some still a little bit of deferred income that we had trailing and someone off like the product divestment. So, before we start getting back to that upper 20s, it's probably going to be in the twenty twenty five and beyond.
44:39 Second, when it comes to R&D, historically, we've been in the ten percent to eleven percent of sales. This year has been a little bit lower just because we didn't have a lot of projects in the early part of this year, but it start to ramp up. So I would expect in the next two to three years us to probably even go a little bit above that ten percent to eleven percent of sales. Just because we have that crunch of investment on the criteria large field the lebrikizumab reimbursement studies, we're still doing some lifecycle management for some smaller products. And clearly, the company is very interested in innovation. We want to continue to find assets to license in in the early stage. We want to continue to really build a leader in medical dermatology going forward. So, I would say R&D is going to become more prominent in the coming years in terms of investment pattern. It will inch up slowly but will probably already start above the historical ten percent to eleven percent in twenty twenty two.
45:50 With that, I'll let Karl take over the lebrikizumab question.
45:55 Yeah. Thanks a lot for your question, first of all, we have very exciting out the results for the first results from the ADvocate 1 and 2 where we saw that seventy five percent came year more than half of the patients and we met and achieve the primary and all key segment endpoint business study. This were, the sixteen bit data and now the study is still ongoing with the so called maintenance and space until be fifty two and here we will see the readout in the first half of next year followed them by filing to the EU in the second half and hopefully approval one year later.
46:41 We also will have still this year the result of the tier study, the combination with the topical steroids that is forthcoming and will be another data point and as already mentioned, we are currently discussing so called phase IIIB studies that we need for market access specifically in Europe. This is an ongoing discussion taking into consideration the data we already have and as well as forthcoming data and will keep you informed as this develops.
47:19 That's right. Thank you.
47:22 And your next question comes from the line of Alvaro Lenze from Alantra Equities.
47:30 Hi. Thanks for taking questions. I wanted to have some update on the market size potential of Lebrikizumab and maybe if you could provide some detail on how the see that recent developments with other competing classes like [Indiscernible] and whether you could try some more when you expect the provide update on the potential exchange.
47:57 I'll take Alvaro. I will start with the potential in fixed this and then Karl will comment on the – Jackson we on the, the profile of our competitor. So let me make you a very simple calculation that the give update on how we are building our model So if you look today in the European market the patient, the potential in their topic as the dermatitis, we can say five million point five. If you just focus on the one, you can arrive it to almost twelve million dollars out on this up million the we are patient, we can say that that forty percent will go under the biologics the diesel at one thousand and then the remaining sixty percent will go into the oral [Indiscernible]. So if the class of further the biologics, that is worth at almost two hundred thousand patients. We are going to take twenty percent market share that means that we are going to achieve something like forty thousand patients for lebrikizumab.
49:02 Our calculation are coming and that's where we put our peak sales of four fifty. Again, this is aligned with our phase II clinical data, and we are waiting for the final result of our Q3. But let me now and let me give the chance to Karl to comment on the profile of our competitors.
49:21 Yes. Thank you, Gianfranco and thanks for the question. As you know, with respect to the JAK inhibitor, the European and the U. S. Regulatory Authorities taking slightly different spend, but independent from that, there is a clearly concern on the safety side of this class of inhibitors and we'll have to see how this is exactly expanding out being aware this dermatologist are very concerned about safety topics in General, we believe that the biologic and specifically will slippery key them up with the potential being a best in class IL-13 inhibitor. We have a great opportunity based on a compelling combination of efficacy safety and tolerability, which we believe will be a very competitive profile.
50:22 Okay. Thank you very much.
50:32 [Operator Instructions] Your next question comes from the line of [Indiscernible] from Morgan Stanley.
50:38 Hi. It's [Indiscernible] from Morgan Stanley. Thank you for taking my question. My first question is on Ilumetri. I mean, we are seeing the in introduction of new strong competitor [Indiscernible] class with lebrikizumab. So just wondering if asking any change in the markets right now in Europe and your view on the evolution of the market share or IL-13-17 going forward given that this is quite first competitor. That’s the first question and the second one just one criteria. You could give us just a bit more color on the timing for the inclusion [Indiscernible] and the type of impact you expect for growth are we going to see material step change in gross of and this happen? Eligible more an incremental type of progression?
51:39 Thank you, Both. I will take it. So in terms of Ilumetri, we are very confident on our profile safety profile and easy to use and we see several good result across Europe. So as I said I'm very confident on the future upgrade and growing being inside the cost of IL-33. The cost of IL-17, we saw at across Europe that is the declining in favor of the IL-23 and I think that this will be the price that is going to continue also for the future. In terms of Klisyri you were asking about the market access, so we are very pleased to see an increase in market access. In this quarter we saw a market of thirty seven percent that account or almost a seventy million of patient life. And also, we made some team road some Medicare but will go by now two million patient for Medicare that represents almost three percent of the total Medicare class. Our claims of course is to continue work very and our strategies mainly focused on gaining assets and the goal is there to achieve buyer and something closer to fifty percent in market access in the U. S. With almost one hundred million patients lives. So, that’s enough what we are expecting for Klisyri. In terms of sales we saw the last three weeks doing in particular as well, we achieved the market share of two point four. With a weekly patient of eight forty seven in the last week. So we see a nice trend in growing the number of patient So we pretty confident that this trend is going to continue also for the remaining part of the year and most important will further month to come.
53:26 Thank you both.
53:28 Thank you.
53:29 And your next question comes from the line of [Indiscernible].
53:36 Hello, Good morning. Thank you for taking my question. Just a small one, if I am, when you announced – when you announced the lebrikizumab, you mentioned that and there sections four five [Indiscernible]. You were taking consideration that biologics should have fifty five percent penetration maybe within the new aesthetic. Now you're dropping this percentage to around forty percent where you mentioned in the past, that efficacy environment had improved in this from development across chats, that back debt. What's the main explanation for that?
54:22 Thank you. I will take it. So the last estimation was about that the Jack didn't got [Indiscernible] and seventy say problem in the U. S. While we saw that we have a competitive approach from the European regulatory environment in Europe. So for this reason and we also think that dermatologist is although at the moment that they are scale with a same effect the JAKs, but the long term maybe they will start to work in the expanding our checks work. And so we said that we are want to be in a very prudent way and that improved we put on the forty percent but is still the potential is on the four fifty million like we said at the beginning. Maybe Karl, you want to comment something on the side of a profile of the JAK source, what do you think the majority are are going to think about that being?
55:12 I would say I would ask you what you said, I think at the moment, given the safety profile, there is of course concern, yes as we see from the FDA, basically discussing the whole class with respect to the safety profile that could be also then situation whether individual dermatologist get used to it maybe in more severe patients or patients for whatever reason sounds like I don't want to biologics, that is always very difficult to predict and that's why I think the market share prediction is more on the conservative side and makes sense at this stage.
55:52 Thank you, Karl.
55:56 And our last question comes from the line of Jaime Escribano with Banco Santander.
56:03 Hello, hi Good morning. So a couple of questions from my side. Regarding the pipeline, I remember there was one for alopecia, I think you license out one of them, well, just to have an update on what's happened with this to you have sold them or what are your plans on them? And then another question in terms of strategy in the last call. I remember you were talking about taking a decision with a U. S. Franchise whether to make it bigger or even certainly depending on the scale of this franchise going forward. And then also in terms of strategy, you also mentioned a potential acquisition of our commercial platform in the Nordics or Eastern Europe in order to the European franchise and also finally, the introduction in China. So on these three topics, maybe can you give us an update if you have taken a decision or where how should we think about these three strategies? Thank you very much.
57:20 Thanks, Jaime. Let me answer the first one. I think you're referring to the Finasteride and terbinafine products that were the legacy poly products. We have not launched those products, but we are licensing them out. We do see some small incoming milestone income for this Finasteride and Eastern Europe as well as a few countries within Europe and the same thing for terbinafine. But these are not going to be significant movers of the company. We're just trying to maximize the value we can get out of them. I'll pass over to Gianfranco for the strategy question.
57:58 Yes. Thank you, I mean so in terms of U. S. The strategy is the first to fix the foundation of the business. So we are working with our team and in order to make a sustainable business for this. We are not in any discussion about selling as franchise, like, you were mentioning. The goal today is fixing and making the bigger. And then we always looking for some opportunity that may arise, but there should be in something that we can afford and make this like something that could in way. In terms of potential expansion, expansion in Europe yes, you are up to right that we said that we want to go at the European region. So we have working in order to expand our presence in the Nordics and CEE with a very clever more they're focusing on biologic And that will be more exhausted maybe demand in the months to come. Unfortunately there is concern, so we have started you remember the phase III clinical trial of Seysara, we are waiting for the first patient in and any day soon, and that go-to-market model different. So if you are going to have on Seysara for sure, you need to add partnership, but we’re also working very in order to build the portfolio in China. Again very early days I will be more precise in the months to come. Thank you, Jaime.
59:29 Thank you very much.
59:31 We now have a question from the line of Matthew Weston from Credit Suisse.
59:37 Thank you. It's a big picture question and you may say I'm fishing too much for twenty twenty two guidance, and that's not really the intention, but I'm aware that after today's call, there's going to be a very strong focus on the cost trends in the medium term, but it also comes on a quarter where revenue missed. Expectations by maybe four percent and I know you've laid out the strength in October and the seasonality, But the question is a big picture one about consensus revenue expectations into twenty two and twenty three. I wondered if management basically were comfortable with those numbers or whether or not, you felt there was more of a revenue story than the market was giving you credit for, which gave you the confidence in the cost investment that you're making that obviously you've outlined so clearly mike. I don't know whether you can give us any comfort on the top line or maybe even outperformance on the top line to address some of the concerns that will emerge around costs?
60:41 Yes. So, I think you're probably reading a little bit too much into everything. I think we had a Q3 which had a normal summer period. I'm not sure the market saw the summer. The normal way we were seen it. Especially when you look at last year, last year's Q3 was a little bit better but Q2 was horrible, but some of that was COVID impact. We're not uncomfortable with the consensus revenue out there. We do expect to continue the a good trend for the core net sales. I would remind everyone that we will have the deferred income dropping off completely next year. So keep that in mind. So headline sales will not grow as fast as the core sales, but we should be able to maintain a reasonably similar trend into twenty two that you see in twenty twenty one. For the core sales. What we do have is the need to invest more we've got all of these launches and opportunity and we don't want to start them and we're coming up two years of lower expenses because COVID restricted the activities, not only us, but all of the companies could do. I think you may see that in other companies trends as well is that you'll get back more to a normalization as we go forward. Whereas the last eighteen months have been really severely impacted by COVID restrictions in terms of your ability to invest. The R&D situation is unique to us, and it's just because of an inflection point in the way we have to finance our pipeline particularly as lebrikizumab has been a milestone deal up till now and hasn't really run through our R&D part of our P&L. So I don't think there's necessarily a big revenue issue here. I do think that the product mix in gross margin is probably not what the consensus expects. And there we do have to expect there'll be some adjustment of that.
62:50 Very clear Mike many many thanks an indeed.
62:54 We have no further questions. I will now hand the conference back to Pablo Divasson for any closing comments.
63:01 Thank you. We are now going to close our Q&A session and with this, we will conclude our conference today. We want to thank you for your participation. You may now disconnect.