ALK
Dec 4, 2017

ALK launches ambitious, transformational growth strategy

Copenhagen, 2017-12-04 07:30 CET (GLOBE NEWSWIRE) --  

ALK (ALKB:DC / OMX: ALK B / AKABY / AKBLF):

ALK today announced that its Boards of Directors and Management have adopted a corporate strategy to redefine ALK's position in the global allergy market and stimulate a new era of growth for the company. 

Today, ALK is the global leader in allergy immunotherapy (AIT), a unique and broadly approved, disease-modifying treatment which addresses the underlying cause of allergy as well as reducing patients' symptoms and their use of medications. ALK's product portfolio, protected via biological manufacturing and sourcing processes, currently helps around 1.5 million people suffering from severe respiratory allergies and asthma. However, this constitutes less than 1% of the total number of people affected by allergic rhinitis world-wide and ALK captures less than 2% of the overall spend in the global allergy and allergic asthma market. 

The strategy aims to transform ALK into a broader-based allergy company, by expanding its core allergy immunotherapy (AIT) business — especially in North America — and using its expertise to grow especially the tablets franchise and introduce new, complementary products and services that reach even more allergy sufferers. At the same time, ALK will engage with these allergy sufferers earlier in their disease journey via digital platforms and other initiatives, smoothing their path to AIT treatment, and partnering more closely with prescribers to treat more patients. 

The new ALK will support patients across a wider spectrum of allergic disease — from early intervention, through symptom treatment, specific diagnosis, AIT and anaphylaxis treatment. 

Carsten Hellmann, ALK's President & CEO, says: "The paradigm for ALK has changed from two years ago. In that time, we have significantly grown our European business, we have invested heavily in North America, and also in our legacy, non-tablet business. We believe that we can build further on these foundations to establish a bigger, more robust ALK, which is why we are evaluating, with support from our principal shareholder, how to strengthen our financial resources to sustain the required high investment levels, predominantly in the USA." 

He continues: "We have successfully developed a new generation of oral allergy vaccines in tablet form, and we believe strongly that these products have the potential to make a major difference for people with severe allergies and related asthma. However, it is a fact that today the vast majority of people with allergies never receive AIT treatment while, for those who do, our products are typically a last resort after years of trying other solutions. In light of this, our goal is to build an effective future growth platform for these core products and to leverage our profound expertise more effectively, engaging with patients earlier in their disease so that we can service many more people than we do today." 

Lene Skole, CEO of principal shareholder Lundbeckfonden and Vice Chairman of ALK's Board of Directors, says: "This new strategy marks the beginning of a new era of investment and growth for ALK under the leadership of CEO Carsten Hellmann and has the potential to transform ALK from a niche player, into one with a wider presence across an entire disease area. As the company's principal shareholder, we fully endorse this strategy and understand that the next two-to-three years will likely entail negative cash flows as additional investments fuel the company's transformation. Our clear expectations are that these additional investments will establish a new, long-term growth platform, raising ALK's revenue growth to attractive levels and lifting earnings in line with those of the wider specialty pharmaceutical industry." 

The updated strategy — which builds upon ALK's successful European business and recent investments in North America — places succeeding with the tablet portfolio at its core, and has four key components: 

1) Establish and succeed in North America
North America is the world's largest allergy market, with over 50 million allergy sufferers, and it offers ALK the greatest medium-term growth potential. For example, there are around 10 million AIT-eligible allergy sufferers in the USA alone, just one-third of whom actually receive AIT today. 

Nevertheless, current industry dynamics offer ALK a unique window of opportunity. A trend towards allergy self-medication such as over-the-counter (OTC) symptom-suppressants, along with patent expiries for other important treatments, has resulted in large pharma companies choosing to de-prioritise partnering with allergists. However, ALK is perfectly positioned to fill this void via its newly formed commercial organisation and strong business to business (B2B) sales model in North America which has long fostered strong relationships with specialists. 

Central to success will be using ALK's expertise and shared interests with allergists to drive better access and outcomes for all AIT-eligible patients, reaching out with support, disease information and treatment options via specialist sales representatives, digital platforms, and via referral systems that encourage them to consult an allergist. ODACTRA™/ACARIZAX® will play a pivotal role in this strategy. 

During the past year, ALK has built a local pharma organisation in North America on top of its existing allergenic extracts business — almost quadrupling its field-force to 80 people — and has gained a deep understanding of the overall allergy and respiratory market and its structural barriers. Using a highly targeted, commercial approach building on an understanding of the businesses of the most relevant allergy specialists, ALK will demonstrate how the tablets can expand the number of patients who benefit from AIT, reinforcing and revitalising the role of allergy specialists.

Key initiatives:

Key metrics for initial success in North America are

2) Complete the tablet portfolio for all relevant ages
ALK is committed to offering a full portfolio of tablets for all relevant ages, covering the five most common global respiratory allergies (>80%). ALK will invest to complete the remaining clinical development, secure registrations, build market access and gather evidence for the tablets' use in asthma, children and adolescents. In particular, ACARIZAX®/ODACTRATM is key to expanding the use of AIT for allergy and asthma — something that is already happening in Europe.   

Key initiatives:

Consequently, over the next five years, annual total R&D costs are expected to be in the range of DKK 400-600 million.

3) Patient engagement systems and adjacent business
ALK will establish a new commercial consumer care division to drive digital patient engagement with the ultimate aim of creating new value from ALK's expanded allergy presence. ALK already has more than 2.5 million unique users on its web-platforms and this audience will be expanded and leveraged to engage with patients earlier in their disease journey. 

Market research shows that there is a clear trend towards self-medication for allergies, using over-the-counter remedies. Meanwhile, the internet has become the principal source of disease information for people with allergies, around 60% of whom rarely see a doctor. This makes it more relevant than ever for ALK to engage directly with patients, both to raise awareness of the full range of allergy treatment options, and to encourage consulting an allergist who can prescribe AIT. 

As well as smoothing the path for more patients to initiate AIT treatment, ALK will help allergists to ensure a greater number of AIT patients complete their treatment by launching a new range of support tools. At the same time, ALK will position itself to penetrate the non-AIT market which today represents around 95% of allergy market revenue, worth more than DKK 120 billion with the aim of supporting allergy sufferers earlier in their disease journey. ALK will do this by looking at adjacent business opportunities, via partnerships, in-licensing or product acquisitions. 

Key initiatives:

4) Optimise and reallocate ALK's resources
ALK will improve efficiency by strengthening its competencies and structures as well as simplifying processes — particularly within Product Supply, which in future will work more closely with Sales & Marketing to support ALK's commercial objectives. The goal in Product Supply is to improve ALK's gross margin, while across the whole organisation, ALK will identify and free up resources which can be reallocated to better support the strategic growth initiatives.

Key initiatives:

Financial implications
This strategy aims to transform ALK, over a maximum period of three years, into a business capable of delivering sustainable, high revenue and earnings growth. 

Revenue
2018 revenue is expected to be slightly below 2017 with strong growth in tablet sales which will be offset by expected price reductions in Southern Europe, and the consequences of supply constraints following needed upgrades to the legacy business, as well as significant product rationalisations. 

Beyond 2018, and dependant upon tablet sales — particularly in North America — ALK expects to deliver attractive organic revenue growth of 10% or more annually from its existing business. These revenue expectations build on a base case that assumes a minimum viable sales uptake of tablets in North America. 

In addition to the forecast growth for its current business, ALK aims to increase its relevance to patients and become the preferred partner for doctors, translating these relationships into income from new, adjacent, complementary products and services, starting in 2018. Due to timing uncertainties, any revenue from these adjacent products and services has not been included in the above stated growth expectations. 

Earnings
During the transformation period, the strategy will require significant business investment to deliver the key priorities, predominantly for clinical trials as well as sales and marketing costs associated with the build-up in North America, where ALK expects to invest approximately DKK 1 billion over the next three years. These investments, along with upgrades for the legacy business and product rationalisations, are expected to subdue ALK's earnings over the next three years, although the impact will be offset to some extent by efficiencies.  

Longer-term ambition for profitability
After the transformation period, ALK aims to raise earnings margins as quickly as possible to levels that are in line with the wider specialty pharmaceutical industry. 

Cash flow
Free cash flow is expected to be negative during the transformation period because of subdued earnings and relatively high tax payments, working capital requirements and CAPEX investments. Based on the above-described plans — which include maintaining high production capacity for the tablets to facilitate long-term sales growth — ALK estimates that the accumulated negative free cash flow will be approximately DKK 1 billion over the transformation period, with the greatest effect in 2018-19. This estimate does not include any potential significant future downpayments in connection with the in-licensing of products or any M&A activity. Nor does it include earnings upsides from such activities or from other new complementary products and services. 

Capital structure
ALK is currently evaluating the most optimal way to finance its growth strategy, including the ability to raise debt and/or new equity. New financing together with existing credit facilities, are expected to allow ALK to adequately fund the expected negative free cash flow during the transformation period. ALK's principal shareholder, Lundbeckfonden, holding 40% of the shares and 67% of shareholder votes, has informed ALK that, in case of a capital increase, it will subscribe at least its proportional share of the new equity. Danske Bank A/S is assisting ALK with evaluating its financing options. 

In support of the strategy implementation, ALK is temporarily suspending dividend payments. The Board of Directors will revisit the dividend policy regularly during the transformation period. 

ALK will provide annual updates on the progress of the strategy as well as its sales and earnings projections. 

Unchanged financial guidance for 2017
The updated strategy does not change ALK's financial guidance for 2017. ALK continues to expect full-year revenue at around DKK 2.9 billion and an operating profit (EBITDA) of DKK 225-250 million following accelerated investments to consolidate European market share gains and to build up the organisation in North America. Free cash flow is still expected at approximately minus DKK 700 million. As a consequence of the updated strategy, ALK will discontinue certain non-strategic development projects as well as scrap some obsolete equipment, leading to a one-off write-down of assets worth approximately DKK 150 million. The write-down will be recognised in Q4 2017 and does not impact ALK's EBITDA guidance. 

Risk factors
This announcement contains forward-looking statements, including forecasts of future revenue, operating profit and cash flow as well as expected business-related events. Such statements are naturally subject to risks and uncertainties as various factors, some of which are beyond the control of ALK, may cause actual results and performance to differ materially from the forecasts made in this announcement. Without being exhaustive, such factors include e.g., general economic and business-related conditions, including legal issues, uncertainty relating to demand, pricing, reimbursement rules, partners' plans and forecasts, fluctuations in exchange rates, competitive factors and reliance on suppliers. Additional factors include the risks associated with the sourcing and manufacturing of ALK's products as well as the potential for side effects from the use of ALK's existing and future products, as allergy immunotherapy may be associated with allergic reactions of differing extents, durations and severities.

ALK-Abelló A/S

For further information please contact:
Carsten Hellmann, President & CEO, tel +45 4574 7576
Investor Relations: Per Plotnikof, tel. +45 4574 7527, mobile +45 2261 2525
Media: Jeppe Ilkjær, tel. +45 7877 4532, mobile +45 3050 2014 

Webcast
Today at 11.00 a.m. (CET), ALK will host a webcast for analysts and institutional investors, at which Management will review the strategy and answer any questions. 

The meeting will be audio cast live on ALK's website at http://ir.alk.net, where the related presentation will be made available shortly before the meeting begins. Participants in the conference call are kindly requested to call in before 10.55 a.m. (CET). Danish participants should call in on tel. +45 7022 3500 and international participants should call in on tel. +44 (0) 20 7572 1187 or +1 646 722 4972. Please use the following participant pin code: 91052319#

 

About ALK
ALK is a research-driven, global pharmaceutical company focusing on allergy prevention, diagnosis and treatment. ALK is a world leader in allergy immunotherapy — a treatment of the underlying cause of allergy. The company has approximately 2,300 employees, with subsidiaries, production facilities and distributors worldwide. ALK has entered into partnership agreements with Torii, Abbott, and Seqirus to commercialise sublingual allergy immunotherapy tablets in Japan, Russia and South-East Asia, and Australia and New Zealand, respectively. The company is headquartered in Hørsholm, Denmark, and listed on Nasdaq Copenhagen. Find more information at www.alk.net.