Financial outlook
From three-month interim report (Q3) 2021 released on 5 May 2021
Outlook for 2021
ALK is updating its financial outlook for 2021 based on solid Q1 earnings, and a stronger full-year outlook for tablet sales, which is still partly offset by continuing uncertainty around COVID and its ongoing impact on sales of ALK’s legacy products:
- Revenue is now expected to grow 9-12% in local currencies (previously: 8-12%).
- Tablet sales are now expected to grow by ~25% (previously: >20%).
- Operating profit (EBITDA) is now expected at DKK 375-425 million (previously: 325-425).
- Free cash flow is now expected to be at ~DKK minus 200 million (previously: minus 200-300), reflecting the revised earnings outlook.
The updated financial outlook is based on the following assumptions:
Revenue
ALK assumes that COVID will continue to be a factor in patients’ ability and willingness to visit healthcare professionals in selected countries over the coming months. This is likely to continue to impact sales of treatments that rely on more frequent clinic visits, while tablet sales are expected to be resilient. In H2, ALK assumes that patients will gradually be more able and willing to visit healthcare professionals again without significant limitations.
As before, the continued tablet sales momentum will remain key to overall growth in 2021, while ALK now expects muted sales growth across its legacy product portfolio. Discontinuations of legacy products are still expected to impact growth negatively by ~1 percentage point.
Operating profit
The gross margin is still expected to increase by 1-2 percentage points, driven by efficiencies and higher sales – especially from tablets. Capacity costs will as planned be influenced by a significant increase in R&D costs to complete the clinical development of the tablet portfolio. Estimated R&D costs remain at around DKK 650 million, of which, around DKK 100 million relates to activities originally scheduled for 2020 but postponed due to COVID. Sales and marketing activities are expected to gradually return to normal in second half of 2021.
Free cash flow
Free cash flow will still be impacted by changes in working capital, including a one-off repayment of up to DKK 175 million in accrued rebates and a deadline extension for the settlement of around DKK 50 million related to 2020 tax payments for Danish employees. The CAPEX projection is unchanged at approximately DKK 300 million.
Other assumptions
The outlook does not include any revenue from acquisitions, new partnerships, or in-licensing, nor does it include any sizeable payments related to M&A or in-licensing. The outlook is based on current exchange rates, resulting in a negative effect of approximately 1 percentage point on reported revenue growth and an immaterial effect on reported EBITDA.
From annual report 2020 released on 10 February 2021
OUTLOOK FOR 2021
ALK expects growth across all sales regions in 2021, and revenue is projected to increase by 8-12% organically in local currencies, with the tablet portfolio expected to remain the key growth driver.
As a consequence of significant R&D cost delays from 2020 to 2021 due to the impact of COVID, and a gradual normalisation of capacity costs, operating profit (EBITDA) is expected to be close to that seen in 2020, despite revenue growth and an improved gross margin, attributable to tablet sales growth, and efficiencies.
ALK’s working assumption is that the first half of 2021, and especially Q1, will continue to be impacted by COVID, especially in relation to allergy patients’ ability and willingness to visit healthcare professionals. This is likely to continue to impact the sales of treatments that rely on more frequent clinic visits, while sales of tablets are expected to remain resilient.
Consequently, and as a result of the quarterly variations in 2020, fluctuations in revenue growth and earnings are likely from quarter to quarter during 2021.
Revenue
Organic growth is projected at 8-12% in local currencies. Discontinuations of legacy products are estimated to impact projected growth negatively by approximately 1 percentage point.
ALK expects broad-based growth across all sales regions. The mid-point of the projected revenue range assumes that sales in Europe will increase by around 10%. Sales in North America are expected to recover from the impact of COVID during 2021, growing in double digits, while sales growth in International markets is projected to temporarily slow to high single digits. This is mainly due to growth in Japan becoming more incremental following the extraordinarily high rates seen when Torii converted patients from an outgoing legacy product to the CEDARCURE™ tablet, and built up its inventories of CEDARCURE™ and MITICURE™.
Tablets, ALK’s single largest product category, will remain key to growth in 2021. ALK plans for strong, double-digit tablet sales growth in Europe and North America, while growth in Japan will be slower for the reasons stated above. Taking these factors together, ALK estimates that global tablet sales growth will exceed 20% in 2021, continuing their strong positive trajectory.
In addition, ALK expects low single-digit sales growth from the remaining, non-tablet product portfolio, mainly driven by SCIT products, and double-digit sales growth from the Jext® adrenaline auto-injector.
The higher end of the projected revenue range assumes accelerated sales growth across all regions with tablets leading the way and faster market share gains, supported by a continuing regulatory transition towards evidence-based AIT products in key markets. The lower end of the revenue range incorporates pricing pressure, particularly in southern Europe, and/or more pronounced, ongoing negative effects from COVID.
Margins
The gross margin is expected to increase by 1-2 percentage points versus 2020, driven by efficiencies and higher sales – especially from tablets, with higher volumes absorbed by existing capacity. ALK will continue to allocate significant resources to the execution of its portfolio and site strategy, which designates each production facility as a centre of manufacturing excellence and is consolidating the number of active pharmaceutical ingredients used across the portfolio. These activities – in combination with increased sales and efficiencies that come from utilising higher-volume production lines – are expected to lead to substantial, long-term margin improvements.
Operating profit
Capacity costs will be influenced by a significant increase in R&D expenses in order to complete the clinical development of the tablet portfolio and gather further evidence for the tablets’ use in children, adolescents and to secure registrations in new geographies. R&D costs for 2021 are estimated at around DKK 650 million, a significant increase over 2020, of which, approximately DKK 100 million relates to activities that were originally scheduled for 2020 but were postponed due to the impact of COVID on patient recruitment for clinical trials.
Sales and marketing activities are expected to gradually return to normal as the impact of COVID eases, particularly in the second half of the year. For the full year, costs are expected to rise in line with support for growth initiatives, although ALK will continue to seek to leverage its existing sales and marketing platforms to drive margin improvement.
On this basis, ALK expects the operating profit (EBITDA) to be in the range of DKK 325-425 million, which is largely level with 2020's EBITDA of DKK 395 million.
Free cash flow
Free cash flow is expected to be negative, in the region of DKK 200-300 million. Free cash flow will be impacted by changes in working capital, including a one-off repayment of up to DKK 175 million in accrued rebates, which was originally scheduled for 2020, as well as a deadline extension for the settlement of around DKK 50 million related to 2020 tax payments for employees in Denmark. CAPEX is projected at approximately DKK 300 million with investments focused on streamlining the manufacturing footprint and further specialisation at ALK’s production facilities.
Other assumptions
The outlook does not include any revenue from acquisitions, new partnerships or the in-licensing of adjacent products and services, nor does it include any sizeable payments related to M&As or in-licensing activities. The outlook is based on current exchange rates, resulting in a negative effect of approximately 1 percentage point on reported revenue growth and an immaterial effect on reported EBITDA.
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