ALK-Abello A/S

CSE:ALK B

Earnings Call Transcript

[Per Plotnikof]

Welcome to this presentation of ALK's first quarter results and full year outlook. Please turn to Slide 2 for the agenda and today's presenters. My name is Per Plotnikof, I'm Head of Investor Relations. And with me today are Carsten Hellmann, President and CEO; and Søren Jelert, Executive Vice President and group CFO. During this presentation, we will take you through the main highlights from Q1 as well as reviewing quarterly sales, market trends and financials. Then we will provide an update on our business priorities, followed by the full year outlook. We will end the presentation with our customary Q&A session. With that, I will hand over to Carsten Hellmann for a summary of ALK's performance in quarter 1.

[Carsten Hellmann, CEO, President & Member of Management Board]

Yes, please turn to Slide 3. Thank you, Per, and thank you all for joining this call, which I will kick off with a couple of highlights. In essence, we did well and better than we expected ourselves in Q1, both statistically and financially. We made good progress on our primary focus, the new growth strategy, which saw advances with all 4 pillars. The ODACTRA launch in the U.S. goes as planned, although actual sales are still modest. We also have an excellent initial uptake for ACARIZAX in the key market of France. All R&D activities are progressing well. We have kicked off work to expand ALK's presence in the allergy space for customer care products and patient engagement activities with the launch of klarify.me in Germany. It's our first trial market. And finally, our efficiency program is showing good initial results, including the work to improve production robustness and gross margins. Financially, we also did better than expected mainly due to the better capture of efficiencies and savings from the fourth pillar of our strategy. The waterfall graph on this slide illustrates the development in reported Q1 revenue year-on-year. The revenue declined to DKK 652 million, which, of course, by product pruning and last year's lag of initiations, due to supply issues in currencies. Disregarding currencies, revenue declined with only 2% in local currencies. This was better than expected. Tablet sales were strong and grew 22%. Combined SCIT and SLIT-drops sales were down 7%. However, this was less pronounced than expected. The EBITDA result of DKK 92 million was ahead of plans. Earnings benefited from the slightly higher-than-expected revenue and again the faster capture of operational efficiencies and savings. To reflect this performance, we have raised the full year outlook slightly upwards. We'll detail all this during the presentation. First, I'll leave you with Søren, and a summary of European sales on Slide 4.

[Søren Jelert, CFO, Executive VP & Member of Management Board]

Thank you, Carsten. European revenue was down 2% in local currencies to DKK 601 million. And this was better than expected. Sales were impacted by 2 opposing trends. On the plus side, we reported a 26% growth in tablets, driven by ACARIZAX and GRAZAX where we estimate that close to 125,000 patients are now in treatment. ACARIZAX is doing much better than expected in France. At the end of Q1, a little more than 1 month after launch, 2,500 patients were estimated to have initiated treatment. That is the best initial uptake in any market so far. Combined sales of SCIT and SLIT-drops were down by 10%. However, this decline, which was mostly due to the ongoing effect of the capacity constraints and planned product rationalizations was less pronounced than anticipated. Sales of other products declined slightly. We saw a 10% growth in Jext, offsetting a decline in sales of diagnostics, which has been affected by the capacity constraints. Market conditions were generally stable with no significant changes to the pricing and reimbursement. In France, an independent committee has recommended to the Ministry of Health that the reimbursement schemes of AIT should be updated and harmonized. At this stage, we don't know how and when the Ministry of Health will respond to this proposal. Please turn to Slide 5, North America and International markets. Turning to the other regions. Revenue in North America was down 2% to DKK 131 million. SLIT-tablets sales was low in quarter 1, and impacted by stockpiling and wholesalers in quarter 4, ahead of the ACARIZAX/ODACTRA launches in Canada and the U.S. Sales were also impacted by the release of final GRASTEK and RAGWITEK stocks from our former partner into the market during quarter 4 of 2017. Sales of SCIT bulk allergen extracts increased 14%, while sales of other products fell by 12%. This decrease was due to a spike in ALOK sales in quarter 1 of last year, where ALOK acquired companies -- the ALOK acquired companies and resolved ongoing issues, which then allowed ALOK to fulfill a large number of back orders. Revenue in the international markets was DKK 20 million, an increase of 2% in local currencies. Please remember that sales in this region fluctuate from quarter-to-quarter and can be influenced by shipments to the largest market, China as well as product supply to Torii in Japan. We saw an increase in contribution from Japan, and we continued to -- the buildup in the Middle East, which is progressing well. With these sales and market trends, let's turn to Slide 6 and the financials. Revenue of DKK 752 million was slightly ahead of expectations. The DKK 37 million decline in reported revenue was predominantly caused by exchange rate movements of the U.S.-DKK leading to an underlying performance slightly better than expected. The gross profit of DKK 440 million yielded a gross margin of 59% versus 62% last year. This decline came as no surprise, and was due to the revenue developments, change in product mix as well as increased costs for the compliance and efforts to build a robustness in product supply. All factors we have previously flagged. Capacity costs were unchanged in reported currency, but increased by 3% in local currencies to DKK 393 million. R&D and administrative expenses decreased, while sales and marketing expenses grew by 13% in local currencies, illustrating the effect of our expanded operations in the U.S. and in the consumer care division. Generally, we were in good -- we were good at capturing operational savings and efficiencies in quarter 1. So EBITDA ended at DKK 92 million, a result which was better than expected. Unrealized losses and intercompany loans gain -- gave a net financial loss of DKK 21 million. Tax on profit was DKK 2 million, reflecting that we expect the effective tax rate for the full year to be approximately 10% due to the geographical distribution of earnings. And net profit was hence, DKK 24 million. Free cash flow was an outflow of DKK 75 million and better than expected. Cash flow from operating activities was an outflow of DKK 38 million, reflecting the earnings development and the planned increase in working capital. Cash flow from investment activities was an outflow of DKK 37 million, relating to the buildup of production capacity for tablets and upgrades to production for the legacy products. Finally, I would like to point out that we have strengthened our financial resources with an extended credit facility of DKK 600 million, which runs until 2022 and which replaces the previous credit facility. And with these updates, I will hand you over to Carsten and Slide 7.

[Carsten Hellmann, CEO, President & Member of Management Board]

Thanks. We launched and financed our new transformational growth strategy in December, and we made very good progress with 4 focus areas, which formed the pillars of the strategy. I'll take you through some of the headlines now, starting with Slide 8 in North America. Our objective in North America is to partner with allergists to establish scalable business model for our tablets. This year it's all about ACARIZAX, branded ODACTRA in the U.S., and we hope to generate a halo effect similar to what has been seen in Europe so that the product will eventually also lead to higher sales of the seasonal pollen tablets. Focus on Q1 has been on building the prescriber network and on improving the ecosystem. Our sales force engages frequently the target group of close to 2,000 allergy specialists in the U.S. The number of active prescribers are currently around 400. So 20% of those targeted currently prescribe ODACTRA, which is ahead of our own plans. In Canada, 110 out of the 150 allergy doctors are actively prescribing the house dust mite tablets too. With the number prescribing doctors -- while the number of prescribing doctors is ahead of plan in the U.S.A., we are focused on getting more scripts per doctor. Consequently, we're adjusting our selling tactics to more firmly establish the treatment among existing prescribers to do so. We receive the results of these activities over the coming quarters. At the end of Q1, we estimate that between 1,200 and 1,300 patients have initiated treatment with ODACTRA in the U.S. along with a similar number in Canada. These are relatively small numbers as expected and are reflecting the need to continue working to remove structural barriers and convince the allergist, that tablets can help grow the practices and retain some of the many patients who refuse SCIT. And undoubtedly, many doctors are telling us that we are doing the right thing and we are convinced that we can meet our longer-term targets. We still project around 5,000 patients to be initiated in the U.S. of this year, with a similar number in Canada. Work to improve patients' access to treatment continues to be another key priority. Around 55% of potential patients in the U.S. have unrestricted access to reimbursement via commercial insurance schemes, and a lot of work goes into assuring that our national product coverage is translated into local availability. Our patient support programs are making progress and we follow scripts all the way from doctors via pharmacists to patients and reimbursement. It is of great importance that patients have easy access to treatment and that doctors and patients experience no difficulties or barriers to adopting the tablets. Our market access improved further when a well-respected integrated health care provider and one of the largest health care plans in the U.S. has recently accepted ODACTRA onto its formulae listing in the Western U.S., where it serves around 5 million patients via its own hospitals, clinics and pharmacies. It would be interesting to see what this will mean to the acceptance of ODACTRA in this region going forward. So all in all, the rollout progress is as planned. But it's still very early days and I've said -- and as I've said before, we have to wait until Q4 before we get a better indication of the uptake. But so far, we are on track. Slide 9, please. The second of our strategic priorities is to globalize our tablet portfolio for all relevant ages covering the 5 most common respiratory allergies with particular focus on ACARIZAX. All R&D activities in support of this priority are on track. Since the turn of the year, we have launched the house dust mite tablet in the U.S., Spain and France and the rollout has continued in Canada and the Netherlands following the recent introductions. The product is now available in 16 markets globally. Further to these launches, Torii, our partner in Japan, gained approval to expand the use of the product to young children, and we continue to see good traction for the product in Japan but Torii has established a clear market leadership. We are also pursuing approval for children in Europe and North America. And in Q1, we started recruiting the patients for pivotal clinical trial in children with allergic asthma in Europe, while the U.S. part of this trial will be initiated as soon as we get the FDA's approval of the study protocol. A few words on the other tablets. Torii will launch the tablet against Japanese cedar pollen allergy shortly under the brand CEDARCURE and ALK here will soon submit a regulatory filing for the tree tablet in Europe followed by a filing in Canada later on. Now onto Slide 10, please. Strategic priority #3 is broadening our strategic scope by transforming ALK from an AIT company targeting only severe allergy sufferers into a broader based allergy company addressing the needs of many more patients. To do so, we are reaching out to patients and prescribers with a new digital engagement program, e-commerce platforms and adjacent products and services. Our new -- consumer concern -- sorry, our new consumer care division has launched the first version of ALK's consumer care platform, offering relevant products and solutions for people with allergies. The platform is called klarify.me by allergy lab of Copenhagen. The full launch will take place in a few months, only once a meaningful portfolio has been screened and sourced. It will initially be targeting a well-established audience of close to 2 million unique German users on our current Internet platform. And our new platform will eventually be launched in the U.K., North America and other key markets within the next 12 to 18 months. Currently, we are launching 16 new products and concepts within avoidance, prevention and relief of allergy. In the digital space, we also continued to make good progress in the Nordics. For instance in Sweden, social media and digital campaigns were launched offering patients a diagnosis via a skin prick test, prompting them to see an allergist and building their awareness of AIT. Q1 sales in the Nordic region grew by 40% driven by tablets and the [indiscernible] range. Finally, in line with our efforts to expand into adjacent products and services, we entered into a partnership with the Chinese biotech company, granting ALK exclusive rights to market an innovative allergy diagnosis system for Chinese hospitals. We expect this system to help improve China's underdeveloped diagnosis and treatment infrastructure, which in turn will benefit our sales of our 6 existing AIT products and pave the way for ACARIZAX. Also, we have a new number of very potent business development projects that we expect to materialize in the next 6 months. All in all, things are moving at high speed and we expect to progress further soon. Slide 11, please. Our fourth strategic priority comes under the optimize and reallocate umbrella. Our short-term focus is on product supply robustness, product portfolio rationalizations, operational efficiency gains and cultural change. Within product supply, op rates for our French facility are progressing according to the plans agreed with the French health authorities. Around 90% of the corrective actions have been implemented by the end of April, and we still expect supply to normalize during 2018. And moving to the SCIT production, output is now normalizing and adequate inventories are being replenished, we expect to have inventories fully restored later in 2018 in due time, ahead of the important Q4 high season for new treatment initiations. To reduce complexity within SLIT-drops to SCIT production, we're well underway with a program to further focus on the portfolio on fewer products. These changes are essential to improving efficiency, quality and compliance, and will allow ALK to benefit from the regulation led market consolidation that is sweeping Europe. The portfolio pruning will negatively impact sales and earnings in the short term, but we'll try to minimize the impact by replacing discontinued products with standardized, registered products wherever possible. That's it for me. The overall picture is that execution of this strategy has got off to a good start and we will continue to update you on this progress in the future earnings calls. I will now hand over to Søren and Slide 12.

[Søren Jelert, CFO, Executive VP & Member of Management Board]

Thanks, Carsten. We have revised revenue earnings and free cash flow outlook slightly. Total revenue from the existing business is now expected to be more than DKK 2.7 billion, previously approximately DKK 2.7 billion. We still expect a decline year-on-year caused by currency developments and 3 factors, product discontinuation, the tailing effect of previous capacity constraints and expected pressure on pricing and reimbursement mainly in southern Europe. This [indiscernible] will partly be offset by a continued strong double-digit growth in tablet sales. Earnings-wise, we now see an EBITDA result around DKK 0 versus the previous outlook of minus DKK 50 million, following the better-expected earnings in quarter 1. The business investments associated with the transformation of ALK will increase over the remainder of the year, driven by sales and marketing spending. Free cash flow is now expected to be negative at DKK 600 million or better, where we previously anticipated around DKK 600 million. Factors influencing free cash flows are the subdued earnings, cost for capacity expansion and production upgrades as well as working capital requirements. Notably, this outlook does not include any revenue from adjacent products and services or acquisitions and new partnerships nor does it include any payments related to in-licensing or M&A activities. We continue to see 2018 as the toughest year in the 3 year transformation of ALK with a pressure on our top line and our overall financial resources due to the remedial actions and significant investments. However, we remain confident that we are on the right track to deliver double-digit revenue growth from 2019 and onwards. With this, I'll hand you back to Per and Slide 13.

[Per Plotnikof]

Thank you, Søren. This concludes our part of the presentation and we are now ready to open -- for the Q&A session. Operator, please go ahead.

[Operator]

[Operator Instructions] And our first question comes from Michael Novod of Nordea Markets.

[Michael Novod]

It's Michael from Nordea Markets. Two questions, one to the double-digit growth from 2019 and onwards. So what are the most, say, important drivers? I know, of course, that you have put in some targets for tablet penetration in the U.S. But is it -- the tablet penetration for ODACTRA in the U.S. or is it just as well that you actually see that your European strategy is delivering better than expected and you see this very significant uptake of ACARIZAX and other drugs in Europe. And then the second question to Jext and also some of the delivery problems we are seeing, some of -- one of your global competitors announced. Do you start to see an impact? Is it spreading? Or is it something that just had, say, impacts for a few months and then it's fading?

[Carsten Hellmann, CEO, President & Member of Management Board]

Thank you, Michael. This is Carsten. For '19, in double-digit growth is actually a little bit of both. Remember that just by mathematically calculations, 5,000 patients this year, becomes 15,000 next year in the U.S. So just there -- it doesn't take much actually to have a good traction on the tablet sales in the U.S. Secondly, we are doing well on most areas, both in the legacy business but also in the tablet business. And if our ability, I mean, was -- as I was -- it was noted in the press, that I said that the hole in the bottom of our ship gets smaller and smaller, we are adding a lot of business every single day and every single month. But the leakage of our business is under control right now and is very -- I think it's well managed by the teams. So we don't have so many surprises. So it's going to be a little bit of mix of everything. And I think we will be doing well and my hope is, of course, that this signal we send out right now is that the variability in our messaging is gone now. We put a flat bottom on how bad it can go, we say we're not going to make a loss this year. We are saying, we are at least going to have this type of turnover. We're going to have maximum this spend in our net working capital and cash out. Shows that the things are progressing well, and we have a lot of upsides we are working on, but it's too early to materialize and into our guidance. Oh, yes, and Jext. It's true that we'll see good sales in Jext, and I think we're supplying everything we can. And whether EpiPen is coming back sooner or later, we don't know. But I can confirm that the adrenaline space as such, it lacks treatment, it's something we are going to stay within, and we have a lot of good things in our pipeline.

[Michael Novod]

Can I add just one follow-up question? Just to the financial guidance. And you do see, say, a smaller negative free cash flow this year compared to your previous assumptions. So do you still stand by the DKK 1 billion negative free cash flow in the next 3 years? So do you think it's just going to be differently distributed or are we also going to see the better financial performance that you see this year, potentially also the better financial performance on the bottom line and also on cash flow in '18 thereby, that we are not going to see DKK 950 million but rather perhaps DKK 850 million or DKK 900 million in free cash flow guidance?

[Carsten Hellmann, CEO, President & Member of Management Board]

I think, Michael, it's too early to say that. We have made a 3-year plan and we're off to a very good start. Of course, if we see 2 to 3 quarters from right -- from now, that things are progressing as we see right now and some of the things that Søren mentioned that are not even in the plan, all the adjacent stuff we're doing. Of course, it will materialize to the positive side. But right now, we stick to the 3-year plan and we just guided you to say that it's not so -- there's not so much sensitivity in our managing of it and thereby, you can calculate whether you see we will make our targets early and we spend less money. Of course, we are doing everything every day to maximize our results and make sure that we don't spend as much and we make more money.

[Operator]

Our next question comes from the line of Thomas Bowers of Danske Bank.

[Thomas Schultz Bowers, Analyst]

Yes, so a few questions for me. I'll just kickoff with the reimbursement in France. I'm just wondering, if reimbursement were to be harmonized between the products, should we see this as a possible higher-public reimbursement for the tablets, so increasing from the 15% potentially. And then, secondly, in regards to pricing, is this something that is run in parallel? So could we still expect some price cuts in France due in 2018? Also given that it's not really part of your adjusted revenue guidance for '18. And then just one small more question in regards to your sales in France in Q1 for the SLIT-drops. Did you see any increased demands from any possible impact from -- compare these injunctions that happened here in the beginning of the year? I think I'll stop there.

[Carsten Hellmann, CEO, President & Member of Management Board]

Okay, thank you, Thomas. For France, there's many, many rumors out there. And a lot of discussion between doctors, authorities, the health minister, the House and the industry and also a lot of interested organizations. I think it could go many ways. I think, we are well-positioned to where we are right now. I don't know. We don't know. We are waiting and waiting like everybody else for the facts to come out. Remember, we did put in, in our numbers for 2018 already DKK 100 million loss from price/reimbursement issues in Southern Europe. So whatever happens in France, if it happens to the positive side, by any reasons, it's an upside to us because we have already in our numbers factored in that something would happen either on price cuts or reimbursement in Southern Europe. So I think we are well covered there. I personally met with the advisor to the Prime Minister, saw our competition and doctors and so forth. There's a lot of dialogues going on in the French market, how to mitigate the situation. We are very confident there will be no effect for whatever discussions in -- affecting our guidance for 2018. And I do believe that having a portfolio as the only one with well-documented products, should there be any harmonization, we will win from that. I'm sure. But I won't speculate right now. Q1 results in France is mostly affected from our own ability to catch up our backlog -- our businesses in France. We had severe -- as you know last year, problems with supply. And fortunately, we managed to keep our customers even though we sometimes had up to 16 to 18 weeks of delivery times, which is very good news to us. We don't see as such the injunction from the competition to affect us positively. We're, of course, watching out for the prick test situation where we managed to get our product on the market again and -- but let's see. We don't see -- that's not why we have so good results in France, that's the launch of ACARIZAX and now catching up of the backlog. And we are, as I said in the script, almost done with everything we need to do for the authorities and the productions are running very well right now.

[Operator]

Our next question comes from the line of Peter Cecil (sic) [ Peter Sehested ] of Handelsbanken.

[Peter Sehested, Research Analyst]

It's Peter from Handelsbanken. I have 2 or 3. I can start with a follow-up to Michael's questions on the guidance for next year. You are maintaining double digits even though the base for -- the 2018 base has been raised. So that's good. But -- 10% which is the low end of the double digit, that's roughly DKK 300 million up from this year. And you say that tablets are an important driver of this. You also talk about the U.S. But the U.S. is -- still is very, a little small. It's the large unknowns that could -- it could grow, it could be DKK 100 million, it could be DKK 10 million, it could be DKK 20 million. But you seem very firm. So to us, it would suggest that a large part of your guidance -- for the DKK 300 million in incremental saves for next year. If related to tablets, it must come from Europe, where you have more visibility on where things are and how things are developing. So your flavor or -- sorry, your thoughts on that line of arguing. And furthermore, in your guidance for this year, roughly DKK 100 million you say is due to -- or the negative -- of the DKK 300 million negative or so impact, you say roughly 1/3 comes from supply constraints. Is that factor something that we should expect reverting in 2019, i.e. so that we could add this amount, roughly DKK 100 million, onto your 2019 expectations for sales. And just briefly touching upon the 2,500 patients in France. What do you expect for the year as a whole of patients to be treated in France. I think I will stop with those and jump back in the queue.

[Carsten Hellmann, CEO, President & Member of Management Board]

Yes, I can kickoff and then I'll give it to Søren. Who can go through the different math. But the thing is that we have both ins and outs. So you know that if you start with 2.9%, you can start taking DKK 300 million out and then to rebuild back from that. It's not only tablets, and not only tablets here but U.S. It's a lot of things where we can see on every market, on new market and so forth. We are slowly both catching our backlogs. We are stabilizing our production and we're having a good entry in the market share gains in the different markets. So I think from there on, it is a mix of a lot of different things. And also I think that DKK 300 million is nothing. Especially if we go from 5,000 to 15,000 patients in the U.S. plus you see in the entry in France and ACARIZAX, plus you see the -- that the enrolled and market share gains we do in Germany. I think there's a lot of coming things coming our way. And we are doing everything to maximize of course. I don't know, Søren, if you want to add anything to this.

[Søren Jelert, CFO, Executive VP & Member of Management Board]

No, I think it's of course evident, Peter, that the tablets will be our continuous vehicle of growth. And I think the reason the early launch in France will add to that growth. It's a big market. And again, depending of course on the harmonization, let's see what comes out of that in France. And then in the U.S., let's all agree that the 5,000 patients in the U.S. is a modest growth. And so that we'll have 12 more months to -- as a run rate. So I will concur with the fact that tablets are for sure the stuff that will drive the growth. But I think also on our legacy business, we are still seeing actually growth in -- or expect growth in some areas going forward. And I think that DKK 300 million as such is not a scary growth scenario for us at all.

[Peter Sehested, Research Analyst]

Okay. But just to get some flavor on the capacity buffer you put in your guidance. The decline in revenue due to the strained capacity. Is that a figure we should add to 2019 revenues? And then just a comment on the French number of patients.

[Carsten Hellmann, CEO, President & Member of Management Board]

You have to remember that when you miss a season, for example, last year we had capacity constraints and that meant that you missed the initiations in the seasons last autumn. And that is a carryover effect you have for 3 years. So that's sort of half of it, right? So you just have some connected dots from early years, will still carryover. So that's either -- and then I said we also had this progress put in this price and reimbursement pressure in south of Europe. We know -- if that going to be 100, that is going to be 50. So there's a little bit of flexibility there as well. But what you mostly see here is not that our capacity are into trouble again. We are today producing as we have ever done as well as we ever done, we are building up inventory. And at the same time, the cleaning up of different products is a huge project because it's not just about pruning, because we also have patients out there we want to take care of. So we are trying to convert the patients of course all over to other products. There's a lot of registration issues. It's done very, very close relationship and contact with the different markets. And at the same time, you can also see some competitors on local markets are getting squeezed by authorities and with their old products. So we see actually also upsides and opportunities there. So in essence, I think that's pretty much it. But just remember, there are some carryover effects from the other years. We just have to accept, we have till next 3 years.

[Peter Sehested, Research Analyst]

Any expectations for patients in France?

[Carsten Hellmann, CEO, President & Member of Management Board]

Our patients in France...

[Per Plotnikof]

The expectations -- the question was, how many patients do we expect to see on ACARIZAX in France this year?

[Carsten Hellmann, CEO, President & Member of Management Board]

I don't want to comment on that. But I can say that it depends a lot on all the things that are up in the air right now on the reimbursement and pricings. That's one thing. The same thing is we are off to such a good start, so I will be afraid of say what I think right now. But it looks good.

[Operator]

And your next question comes from [ Taskon Momansen ], SAB.

[Unknown Analyst]

[ Taskon Momansen ] speaking. In the European markets, you see a 10% drop in SCIT/SLIT, mainly because of your own portfolio pruning. But what do you, sort of, expect the underlying market volume growth or value growth, whatever you like to look at, being in here right now? It's still an important market for you in terms of revenue. And then in terms of the U.S. market, it's fine, you're on track with ACARIZAX scripts. But when we're looking at GRASTEK scripts, how do you characterize the trend we are seeing right now? We are in the middle of the pre-dosing season. It doesn't feel like there's a lot of action going on in terms of the new weekly scripts for GRASTEK. But maybe this is also what you're planning for. And then finally, the contract renew ahead of the reimbursement win you had. Can you confirm that it sounds like Kaiser Permanente? Was there anything you had to offer in order to get in this payers list in terms of large discounts or why didn't Merck win this one when they were selling GRASTEK and, of course, not ACARIZAX, but only GRASTEK?

[Carsten Hellmann, CEO, President & Member of Management Board]

Okay, let's start from the back. I will not comment on that contract because there would be more to comment. When we have something full we want to show you, then we show you that. And what Merck did was what Merck did. We do something different right now. For your first question around the market growth on the legacy products. It's a two-sided thing. Because one thing is that we are doing well also in local markets to gain market share from competition. So that's growth to us even though the market is flat. And on the other hand, it's not a market where we expect big growth going forward. We think that we probably be -- have smaller 1-digit growth in our legacy business in the years to come in a combination of new markets, market growing, new market entrances, product changes, price differences, and then also, of course, beating competitions on markets. So that's where we stand. But it's actually a combination of all 3 things. It's not a market that in general are growing. That will come from the tablet, as Søren, he alluded to. The second question at this regard that -- was that?

[Unknown Analyst]

It was more about the prescription trends you're also seeing for GRASTEK in the U.S. market, whether you're satisfied with the current trends in new patients every week. Is it somewhere between maybe 140, 120 depending on which week we look at. Doesn't seem like, considering that we are in the middle of the dosing season that this is particularly encouraging trend.

[Carsten Hellmann, CEO, President & Member of Management Board]

No, I meant, and then of course we are putting a lot of the incentive schemes on the reps right now to make sure that we get the depth in the prescription of ODACTRA right now. I think what's important to understand is that we could easily we get a lot of scripts if we just went to a lot of doctors to get one 1 script per doctor and gave an incentive scheme to the reps. What we're doing right now is to build this practice around ODACTRA with the clinics one by one and get the depth in the prescriptions. And yes, you're right that I would've loved to see a little more GRASTEK pickup right now, it's to the slower side. But I also -- I must admit that the focus on the reps on making sure that we get an enroll into ODACTRA. We have seen in the other market, when we did that tactically, it was just one season they did in the whole halo effect. We need to get the U.S. doctors to accept tablets as such. It's not easier for us to fight with the ODACTRA tablet as such and when they buy into that only assuming other market that carries on the GRASTEK. Yes, we get the scripts. It is as good as Merck did when they did that. But we are -- right now only about this 400 prescribers we are focusing on right now. Expanding every week. And I saw the April data and it looks good. I mean, it's not fantastic. But it's according to what we expected ourself. But you're right that if you look at the forecast from 4, 5, 6 years ago, it should have been different numbers. But as we see today it looks good in our view.

[Operator]

And your next question come from the line of Peter Welford of Jefferies.

[Peter James Welford, Senior Equity Analyst]

A couple of questions left. Firstly, just on the cost lines and CapEx. Both R&D and CapEx were relative low in the first quarter. Is this just phasing or are there efficiencies or things that you can -- that you're seeing? I guess, it sort of comes back to the other comment on the free cash flow. Given the EBITDA is anticipated to be of at least DKK 50 million better. And also I guess CapEx is running light. I guess, why isn't the free cash flow likely to be substantially better, potentially than the DKK 600 million outflow that you're talking about? And then just on the U.S. market trends that we're seeing there. You've commented that you think it will be about 5,000 patients by year-end. You've already got, I guess, after the launch period, only a few months, 1,200 to 1,300 peers. I guess, why are we just, sort of, looking at that number and multiplying by 4? Is that because you think it's getting incrementally harder find new patients and they weren't -- and they were sort of easy wins? Or why shouldn't it be the case that you should actually gain more patients in the second quarter than you did in the first? And then just with regards to GRASTEK, RAGWITEK. By using any evidence at the moment of -- a sort of portfolio effect? And are there any patients who are taking more than one tablet? I guess in the past we sort of thought about -- it could a benefit of having a different allergens available in tablet form. Is that really not proving to be the case and these are really being treated as separate products by the doctor. Or perhaps if you like just the way at the moment in the initial stages that you see things panning out?

[Søren Jelert, CFO, Executive VP & Member of Management Board]

Okay, Peter. This is Søren speaking. It is of course -- a pleased result with the cash flow and that we have seen here after quarter 1. And it's also correct that we do see a lower R&D cost than what we anticipate. And it is actually linked to this efficiency measures we have put in place where we see capacity cost being lower than anticipated sort of the yielding results off the programs we have put in place. So that's actually what you see. On the CapEx, it is correct that it's a little slow start of the year on the investment side. So it is lower than what we normally would anticipate. And we are expecting that, that will regain as we continue to invest in the tablet side of it but also the -- creating robustness on the legacy. So you should expect that to return to normal as we currently see it. But adding everything up, it is correct that we are expecting at the DKK 600 million or better on the cash flow for the full year. When it comes to the patients, Carsten, on the -- and the halo on the group effect on this -- the portfolio revenue, you -- as you know you are probably the best one to...

[Carsten Hellmann, CEO, President & Member of Management Board]

Yes, I mean for the 5,000, 5,000 is a number. The thing is that in Q2, mainly the U.S. doctors are focused on patient coming with pollen as sort of effects. So they are a little more focused in issuing a lot of shots on people coming with that type of allergies, pollen allergies. So they're not so much focused on the dust mite allergy. However, we are off to a good start and if we can get 10,000. It's good. Just so you understand exactly what I meant by -- what I said before, what we are doing right now is making sure that the -- our reps are making sure that we have a depth at the doctor level. And not necessary thousands of doctors will launch with each. We need to get into a regime where we work with the different players. We do have the Blue Cross, for example, they might have 400 different company plans below that. And for each one of those, there might be, with or without, allergy and some allergies and others not to. So we need to make sure that for the scripts we start out with the doctor, that we get more and more script per doctor, and we track each script making sure that it gets reimbursed, it gets handed out at the pharmacy level. The coupon working, if there's a delay in their approval from the insurance companies and that there also is adherence afterwards. And that's what we are focusing on right now, making sure that that is working on a patient level. So I'd rather have 100 doctors with 50 each than I would have 1,000 with 5 each. So that -- so we -- I don't know exactly how that will be playing out. But what is very important for us right now, that we get over and above and away from, once and for all, this doctors' mindset that was prevalent before where they said that you're going to cannibalize our money-making shot business. So what we're doing right now, we are having patient initiation programs. We have patient retention programs. And all these things at the doctor level to show them and prove to them that actually by, the fact they're taking the tablets in, they increased their revenues and profits by 15% to 20%. And those doctors we -- each initiated now. They see that. And now we're working on getting more and more patients there. How fast that will grow, I don't know. And that's why we are sticking to the 5,000 patients as you saw it. So I think it's a plan and we are following that plan. And looking at other markets, you could argue, why wouldn't you get much more? I think we're just cautious because we have had Merck as a big partner and not being that successful in doing it. So we believe that sticking to this one us is what's going to pay off and that's why we have asked for a 3-year plan and that's why we have communicated and financed the 3-year plan because it will take time. The mathematics here on the U.S. market in terms of what it could be -- it's really interesting, but I think it's early days to start doing that. Let's just do our work. Right, with sales. I mean, I haven't looked at that in long time. It doesn't look good and I don't see that as a potential blockbuster to be very honest. And the -- so I haven't paid attention to it. It's not really interesting at this point in time.

[Operator]

Our next question comes from the line of Morten Larsen of ABG Sundal Collier.

[Morten Larsen, Lead Analyst]

Two questions if I may. First of all, when I look back to the announcement of the new strategy plan, I seem to recall some commentary made that if there were some extra room financially, you could easily find more projects to initiate on. So with that in mind, why, with this extra room you have from the guidance upgrade, do you not sort of choose to reinvest this into more projects? You probably have a big book of projects you can initiate on. Why not? You already are pretty loss making. So why give them the extra DKK 50 million? Second, it's actually on the U.S. doctors for ODACTRA. The 400 that we're talking about, Carsten, could you provide some granularity into those 400? How many are high prescribers? How many are just random one-offs? And have we seen any increase in the number of high prescribers amongst the 400 through the months here, given, it's early days but could you provide us with flavor on that kind of detail, please.

[Carsten Hellmann, CEO, President & Member of Management Board]

Yes, I try not to be a little cocky but I can tell you that we have a number of [ BD ] projects and products and they are all fully financed. I haven't stopped anything. I would like to make the teams do in order to give DKK 50 million more to the stock market after Q1. And we are focusing on all the projects. We should be focusing on and investing where we need to do. Maybe that's why we didn't give more. But we have a lot of opportunities out there in the whole patient engagement and consumer care division area, which we are working on right now. And it looks very potential. But when we have something concrete, we will tell you about that. But I definitely do not feel that we are holding ourselves back in order to not invest because we wanted to show this today. Because as you see, our goal from minus DKK 50 million to DKK 0 why would I do that? Yes, I mean, for me a small -- for you -- a signal to you that now we have a flat -- not it's that it'll happen any longer things are under control. It could be better. I wish it would be better and faster. We're working on that. But that's where we are right now. In terms of granularity of the doctors. I mean yes, we do see -- in North America we have even doctors who are rapidly expanded their prescribed prescriptions. And some are more tough to get to go from 2 to 4 to 10 scripts. I don't -- I won't talk so much about -- I would rather do that on the next call versus we are 6 weeks into the launch. And everybody is all over the place right now mostly to make sure that when we get a script it actually turns out to be a box in the pharmacy. And it is complicated. And as I said before, with all these different plans and couponing and making sure that, that works. Because if you have a very poor customer experience, both from the allergy sufferer and the doctor, then we know that we'll be very much uphill. And then we'll probably be able to show good numbers in 2018 because I just get 1 or 2 to make a prescription per doctor. 1 or 2 scripts per doctor it will sort of half fail and then we'll show 10,000 scripts or 10,000 patients end year, but there's no sustainability in it, there's no -- nothing to build on. So right now, it's doctor by doctor. We have what we call our [ 555 ] program, where we reinitiate them in a very structured way. We step it up step by step. We do all these other adjacent things around it and that's where we are right now. So 6, 7 weeks into it is may be a little bit too early. But we can see that the profiling of the doctors, it looks like it's the younger profile doctors, it's typically female doctors as well that are very adapted to it. It's all to the chains, the allergy chains where you have maybe 30, 40, 50 clinics in 1 group that are -- looks adaptive but then are also some of the bigger peer groups who have millions of lives and do not have a specific financial incentive. They are very adaptive to this. And it's actually very few doctors comparing to GRASTEK that are -- they are not interested at all. Most doctors now want to see us, they want to hear about it, they want to learn about it and they do now understand that they are leaking too many patients every single day, which they could actually keep in their clinics with ODACTRA. And also because -- and we are looking in different programs as well where you might even look at combination treatment and so forth, in a lot of different angles and we need to make sure that we get that right. So it -- I know it was a long answer. It's early days. But I -- it's a very, very structured work. We see it's picking up every single day, every numbers are better than March numbers. So things are progressing well.

[Morten Larsen, Lead Analyst]

And I guess, I cannot get you to provide some sort of number on like the 80-20 rule about 20% of doctors prescribing 80% of the volumes. Any sort of hot data that we can follow in the coming quarters?

[Carsten Hellmann, CEO, President & Member of Management Board]

No. But it's not like that.

[Operator]

[Operator Instructions] And we do have one further follow-up question coming through. That's from Peter Cecil (sic) [ Peter Sehested ] of Handelsbanken.

[Peter Sehested, Research Analyst]

This is Peter Sehested. Pushing my final question just relating to the tax payments for 2018, what should we bake into the number there for this year?

[Søren Jelert, CFO, Executive VP & Member of Management Board]

I think it's -- Peter, it's a very good question. I think actually at the -- when we concluded the 2017, we also were -- back then stated that there you should anticipate that the actual payments would be going down by approximately DKK 200 million. Because we have it up normal high payments in '17 of DKK 350 million. So I think currently we're low on that number at least. So we are back to normal or not normal but should go down in the DKK 200 million that's what we at least have said early on.

[Carsten Hellmann, CEO, President & Member of Management Board]

Peter, are you referring to the pay taxes or the profit and loss taxes?

[Peter Sehested, Research Analyst]

Yes. I was actually referring to the profit and loss taxes.

[Søren Jelert, CFO, Executive VP & Member of Management Board]

Okay. Yes, but that's -- I mean, we have said that it's 10% for us. Of course, when you are guiding around a 0, it seems like what is the actual tax there. It's difficult. We've said 10%. But it depends on in which countries we will see the profit so far. So it'll be a low number.

[Operator]

And we've had one further question come through, that's from Anastasia Karpova of Kempen & Co.

[Anastasia Karpova, Research Analyst]

Two questions if I may. I might have missed that. But can you disclose a relative proportion of ACARIZAX versus GRAZAX sales in Europe in general? And second, more on long term, relating to your asthma trial with ACARIZAX. Do you see a significant preference towards tablets over SLIT in European markets due to the evidence of beneficial impact of asthma outcomes? Is it recognized in the medical community?

[Carsten Hellmann, CEO, President & Member of Management Board]

Okay. ACARIZAX/GRAZAX. Yes, I mean, if you look in Germany, you can see that for example, ACARIZAX is now the most prescribed allergy product in Germany right now as we speak. So it's something that -- we have had GRAZAX on the market for several more years than ACARIZAX. But the growth are very rapid on both and it's very, very early days for both tablet regimes so I don't think it's relevant to see the proportions there. Both products will grow fast in the future, I believe. If you look at the asthma indications, remember that asthma indication became on the GINA guidelines last year as something you should look at when you look at an asthma patient. And then we do see in some European markets that the uptake of ACARIZAX is actually influenced positively by that. That we have doctors who knows that there is a relationship between your allergies, your respiratory issues and then asthma. And when we get the children studies done, I -- you know that we will most likely be the only company in the world with a product that has a disease modifying product for asthma in children. And that's what we're looking at right now. And it is not something we think we can do because we can see the trials in Japan and the first ones are down to early ages that is happening in Europe. That's going to be the strategy.

[Per Plotnikof]

Okay. Thank you. This rounds up our presentation. Thank you very much for your good questions. And if you look at Slide #14 you will see that we have a couple of presentations lined up for the next weeks to come. Please refer to the slide for additional information. And we certainly hope to see you at some of these events. Meanwhile, do not hesitate to contact me, Carsten or Søren, if you have additional questions. Thank you very much for today and have a nice day. Goodbye.