From Annual report 2016, published as company release No 3/2017 on 7 February 2017
2016 was an exceptionally good year for ALK, characterised by events that disrupted the status quo in the existing AIT markets and brought new opportunities so that ALK noticeably extended its market leadership. However, the year also brought challenges. In particular, the need to establish a new business model for North America and the need to upgrade ALK’s product supply to support future sales growth.
2017 will see significant investments and cost increases as ALK seeks to consolidate its market position and advance its long-term growth plans. ALK will also continue to build capacity and secure the robustness of its product supply. By doing so, ALK will be well placed to take advantage of an expected new wave of industry consolidation, largely driven by increased regulatory and quality requirements.
These additional growth investments fall into three main categories:
- The scale-up of ALK’s North American organisation for the repatriated SLIT-tablets: ~DKK 150 million in additional sales & marketing, R&D and administrative expenses. This includes the hiring of approximately 50 additional employees in areas such as sales, medical affairs, market access, clinical development, pharmacovigilance and administration, as well as activities in support of the anticipated launch of the HDM SLIT-tablet in North America.
- Market shaping and expansion: ~DKK 50 million in additional sales & marketing and R&D expenses to fund expansion in existing and new markets, to secure new registrations and market access for ACARIZAX®, initiate the ACARIZAX® Phase III asthma and rhinitis paediatric development, and complete Phase III development of the tree SLIT-tablet. Expenses also cover the expansion and digitalisation of ALK’s patient support programmes as well as transformation work towards evidence-based medicines.
Capacity expansion and Product Supply robustness: ~DKK 75 million of extra costs in product supply (excluding the effect of the recent acquisitions) and additional capital expenditure of DKK 150-200 million to future-proof ALK’s global product supply and establish a robust growth platform. Activities include additional staff and capacity upgrades in Denmark, France and the USA, as well as a general quality and compliance upgrade programme.
Capital expenditure includes ramping-up SLIT-tablet production, primarily for ACARIZAX®, and the API manufacturing plant for the tree SLIT-tablet, further improvements in manufacturing of the adrenaline auto-injector Jext®, and related digitalisation of processes and workflow.
ALK will continue its efforts to improve operational efficiencies and capture cost savings. Costs related to one-off restructuring initiatives will be reported under the relevant item line and not as special items, which has been the custom previously.
In light of the above, ALK expects 2017 revenue of DKK 2.8-3.0 billion (2016: DKK 3.0 billion). Reported operating profit (EBITDA) is expected at approximately DKK 300 million (2016: DKK 642 million), reflecting the significantly increased investments to build ALK’s long-term growth opportunities and a changed sales mix.
Anticipated revenue dynamics
ALK expects European revenue to decline compared with 2016 (DKK 2,434 million) as the markets gradually establish a ‘new normal’ after the market disruptions which contributed positively to ALK’s 2016 sales and earnings. Nevertheless, ALK expects to retain the majority of these gains and anticipates 2017 revenue to be significantly higher than in 2015 (DKK 1,937 million) before the temporary competitor issues emerged. Revenue is assumed to be affected negatively by the temporarily reduced production capacity caused by the 2016 upgrades to SCIT production.
Revenue in North America (2016: DKK 512 million) is expected to increase, driven by sales of allergen extracts and other products, including the effect of the recent acquisition, and by the addition of sales from SLIT-tablets. In-market sales from SLIT-tablets will now be fully recognised in revenue, where previously ALK only recognised sales royalties based on MSD’s in-market sales.
Revenue in International markets (2016: DKK 59 million) is also projected to increase as a result of sales growth in existing markets and expansion into new markets.
No milestone or upfront payments are expected in 2017 (2016: DKK 38 million). Other income from partnerships – product supply, sales royalties and service fees – has been included in the outlook above.
Investments & cash flow
CAPEX is projected to exceed the level of 2016 (2016: DKK 204 million) reflecting accelerated investments in capacity and compliance upgrades and other ongoing projects.
Free cash flow is expected to be down to minus DKK 500 million as a consequence of the accelerated CAPEX-programme and significant business investments as well as relatively high tax payments. The free cash flow guidance also assumes that the recent acquisitions will be paid in 2017 and later as well as a continued inventory build up.
The outlook is based on current exchange rates.
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