Grifols, S.A. (NASDAQ:GRFS) Q3 2023 Earnings Call Transcript

Grifols, S.A. (NASDAQ:GRFS) Q3 2023 Earnings Call Transcript November 2, 2023

Nuria Pascual: Hello, everyone, and welcome to the Grifols Third Quarter 2023 Conference Call. Thank you very much for taking the time to join us today. This is Nuria Pascual, Investor Relations and Sustainability Officer. I’m joined by Thomas Glanzmann, our Executive Chairman and CEO; Victor Grifols Deu, Chief Operating Officer; and Alfredo Arroyo, CFO. This call will last about 60 minutes. There will be a presentation of approximately 30 minutes, followed by a Q&A session. [Operator Instructions] As a reminder, this call is being recorded, and the materials for the call are on the Investor Relations website at grifols.com. The transcript and webcast replay of the call will also be available on the Investor Relations website within 24 hours after the end of the conference call.

Now if we turn to Slide 2. Before we start, I would like to draw your attention to the forward-looking statements disclaimer in this slide deck of the release. Forward-looking statements on the call are subject to substantial risks and uncertainties speak only as of the call’s original date, and we undertake no obligation to update or revise any of the statements. Now I would like to turn the call over to Thomas Glanzmann.

Thomas Glanzmann: Thank you, Nuria. Good afternoon and morning to all on the call. Thank you for joining us today. As you can see from our press release issued this morning, we have reported another strong quarter, further accelerating growth, improving our EBITDA and meeting our commitments. But before we go into our operational performance, I want to address upfront what is and has been the market’s concern about our deleveraging progress. Our commitment to deliver a material deleveraging transaction in 2023 of at least €1.5 billion in cash has not changed nor has our very focused efforts to reach a leverage ratio of 4x by 2024. We continue to give full priority to this. Regarding the in June announced transaction in China, we are progressing and working diligently towards getting the agreement signed and expect to announce it before year-end 2023, in line with our commitment.

As we are dealing with a very highly regulated environment, we expect to get all approvals and closing the transaction during the first half of 2024. Ultimately, this will support the organic results we are currently already delivering to continue deleveraging the company. Let me now walk you through how we are meeting our other commitments. Q3 was another quarter of strong revenue growth, where we also delivered a 25.1% adjusted EBITDA margin, which is a significant improvement of 480 basis points compared to Q4 ’22 margin. The revenue growth was primarily driven by biopharma and our flagship franchises, immunoglobulin and albumin, and we expect that momentum to continue throughout the year. All the measures to achieve the €450 million cash cost savings from our operational improvement plan have been successfully executed.

We are already seeing and will continue to see the related margin expansion throughout Q4 and next year. This is particularly visible in plasma with cost per liter further declining, while our plasma supply levels continue to grow at a double-digit pace. As a result, we are now committing to the top of our adjusted EBITDA guidance to deliver €1.450 million for the full year 2023. Annualizing the operational improvement plans total savings, our adjusted EBITDA margin is anticipated to increase to 28% to 29%, which is in line with 2019 EBITDA margins. Our EBITDA and cash flow improvement are significantly contributing in our organic deleveraging progress with our leverage ratio now at 6.7 versus a peak of 9x last year. As mentioned, and I strongly reiterate, we will continue to lower this ratio and are very focused on meeting our 4x target, including signing one deleveraging transaction this year.

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Q&A Session

And last, but maybe most importantly, we are now stepping up our focus on our growth strategy to ensure the creation of sustainable long-term shareholder value. We are actively accelerating a series of strategic levers to strengthen our industry leadership as a global market maker, which our recent Egypt and Canada projects are strong examples. We have also taken steps to further strengthen the leadership team to drive innovation and digitalization at Grifols by appointing Jorg Schuttrumpf as our Chief Scientific Innovation Officer; and Miguel Louzan as our Chief Digital Information Officer, both bring a wealth of experience and have a clear compass to take Grifols to the next level. We clearly continue to see innovation as a critical strategic value-creating lever for future growth and are, therefore, working towards accelerating our pipeline.

A testament thereof is that all our milestones set for the second half of the year are on track. And having completed the Biotest Fibrinogen trial in Q3, we are confident that we will also there be able to provide top line results soon. Needless to say, we continue to be very optimistic and excited about both Fibrinogen and Trimodulin and the great opportunity they represent for Grifols in the future. Having delivered on all our priorities and with our fundamentals strong, we are now well on the way to truly reposition Grifols for sustainable, profitable future growth. This is a new chapter for Grifols, and we are very excited to embark on it. With that, I will now hand over to Victor to take you through the details of our business unit’s performance in the quarter.

Victor Grifols Deu : Thank you, Thomas. Good afternoon or good morning, everyone, and thank you for joining us today. Now turning to Slide 6. Our revenue growth throughout the previous quarters has been remarkable. As we have been mentioning consistently, the sequential progression remains exceptionally strong and positive. Grifols stand-alone delivered a 9.1% growth in Q1, followed by a 6.5% in Q2 and a 9.6% in Q3, all of them at constant currency. All in all, revenues grew 8.4% for the first 9 months of the year. For these first 9 months of 2023, we achieved revenues of more than €4.8 billion, up by 11.7% at constant currency. This was primarily driven by performance of Biopharma and our key proteins as well as Biotest contribution.

Please bear in mind that we are consolidating 9 months of Biotest in 2023, while only 5 months in 2022. Now turning to Slide 7. Our Biopharma performance was remarkable, driven by growth in our immunoglobulin flagship product, which further accelerated in Q3, with 17.4% sales growth in the quarter and close to 15% year-to-date at constant currency as well as our albumin franchise. IG continues to be driven by a strong underlying volume demand and favorable pricing, especially outside U.S. Our subcutaneous immunoglobulin Xembify continues to see a strong volume up peak especially in Q3, backed by higher demand in the US. Xembify continues to offer a vast commercial opportunity, and we plan to further capitalize on this growth with launches in some European countries in Australia starting in this quarter — in this Q4 2023.

Grifols strategy to continue strengthening its immunoglobulin franchise in the U.S. and other selected countries is robust. We are focused on the immune deficiency market, including the highest growth primary and secondary indications while remaining leadership in neurology and acute care. Earlier this week, we received FDA approval for a new IG purification facility, which will increase Grifols Gamunex total capacity to 60 million grams per year. This approval was not only obtained in record time, but it will enhance efficiencies in terms of yield, recovery and cost per gram. In albumin, we achieved a strong revenue growth year-to-date, delivering close to 18% increase with higher demand in China and solid price increases in some key markets.

Alpha-1 and specialty protein segment revenue was relatively flat, mainly driven by lower demand of plasma-derived factor VIII and to a lesser extent, lower alpha-1 volume due to industry dynamics in some European countries. As alpha-1 demand improves on the back of the solid underlying improvements in our successful commercial model, the current lower growth is expected to be temporary. At the same time, I would like to highlight in this segment, the good performance of our more recently launched products, such as Tavlesse, fibrin sealant and thrombin, which are growing significantly. In addition, hypers and antithrombin III are also delivering a positive evolution. Now turning to Slide #8. As a result of the successful execution of our operational improvement plan, cost per liter continued to reduce this quarter, declining by 22% as of September 2023 versus each July 2022 peak.

This has been driven by decreasing donor commitment compensation, plasma center network and staff rationalization and reduction of other plasma-related costs, such as overheads. After a stabilization of donor compensation in Q2, it continued to decline slightly in Q3. Going forward, we are targeting additional operational efficiencies through process optimization, streamlined operations and overheads, lean processes and digitalization. Plasma supply growth remained solid at 10% year-to-date versus last year. This plasma supply growth positions the company to continue meeting the growing underlying demand for our products. In parallel and since the beginning of the year, our R&D, manufacturing and quality teams have been working on a project to significantly improve our yield in gamma globulins.

So far, we have seen very good results in pilot scale production, and we are beginning to implement it in full scale production as we speak. In our next quarterly call, we hope to be able to provide more details of this project and its results. We expect these improvements to further improve our margins as it is fully deployed. Now moving to Slide 9. This year and for the first time ever, the company made a strong commitment to accomplish 12 innovation milestones. And I am proud to say that we have made very good progress so far. Out of this 12, we have completed 9 and are on track to be achieved the remaining in the coming months. Among others, during these 9 months of 2023, we have finalized the enrollment, both the PRECIOSA and SPARTA trials.

The latter ahead of schedule, advanced from single to repeat dose phase in alpha-1, a 15% subcutaneous study and progressed in trials across our different phases such as the IVIG-PEG study, the Xembify bi-weekly study and the Xembify secondary immune deficiency CLL study. Worth mentioning is that in Q3, we signed a collaboration agreement with the National Cancer Institute for our GIGA564 project, whose IND preparation has been submitted this October, which sets the stage for GigaGen’s first oncology asset to enter clinical development. Also, in the GigaGen front, we have received positive feedback from the FDA in a pre-IND meeting held in September concerning the GIGA2339 development in hepatitis B. We recently made important inroads in Alzheimer’s space through our company, Araclon, on the Phase II trial of its vaccine candidate, ABvac40.