Laboratorios Farmaceuticos Rovi (Madrid:ROVI) Q1 2026 Earnings Call

0:00 Hello everyone. This is Martha Campos, Head of Finance for Rovi. Welcome to our company's review of business results for the first quarter of twenty twenty six. Before we begin, let me remind you that today's presentation and associated documentation are available on the Investor Relations section of Rovi's website. Please note that the information presented in this call contains forward looking statements based on our current beliefs and expectations. Actual results could materially differ due to known and unknown risks, uncertainties and other factors, and we undertake no obligation to update or revise any of the statements.

0:48 Moving to today's agenda, Juan Lopez Belmonte, Rovi's Chairman and Chief Executive Officer, will discuss our business performance for the quarter. Javier Lopez Melmonte, Rovi's Deputy Chairman and Chief Financial Officer, will then review financial results. The presentation will be followed by a Q and A session. Therefore, if you want to ask any questions during the presentation, please do not hesitate to send them through the question button on the platform. With that, I thank you for your presence here today and will now turn the call over to Juan. Thank you, Matta, and thanks to everyone for joining us today.

1:36 Let me start by addressing our outlook for 2026. In light of recent developments and greater visibility in key business drivers, we have revised our expectations for the full year. I will provide the strategic context, and Javier will then take you to the detailed financials. Let me continue what we have seen in the business during the first quarter of twenty twenty six. Operating revenues reached €152,500,000 representing a 1.5 percentage decrease compared to the first quarter of twenty twenty five, mainly due to the performance of the heparin division.

2:23 The contract manufacturing business continued to perform well, growing by 5% during the period. Gross profit increased by 5% to 95,000,000 reflecting an improvement in the gross margin of 3.8 percentage points to 62.3%. Based on recent developments, we have updated our outlook for 2026 and now expect operating revenue to increase by a low to mid single digit percentage compared to 2025. I will walk through the key drivers behind this revision over the course of the presentation. Before moving on, I would also like to highlight the full integration of our Pfenex facility as of April 1, which strengthens our U. S. Manufacturing footprint and CDMO capabilities.

3:23 Moving on to the Specialty Pharmaceuticals business. It declined 3% year on year in the first quarter due to Vipram. Within this segment, growth was driven by Ogedi, hospital products, neopalin, and enoxaparin biosimilar. I would now like to focus on the performance of the heparin business, a key area that accounted for approximately 40% of the group's operating revenues in the first quarter of the year. The heparin division decreased 12, mainly due to lower bromifeparin sales driven by high inventory levels from international partners.

4:10 This was partly offset by a 2% increase in our suffering biosimilar sales, supported by higher order volumes in certain markets. The performance of the heparin business may exhibit significant quarter to quarter variability depending on the timing of orders and inventory levels held by our partners. International sales of amifiparine have shown a weak performance in the first quarter of twenty twenty six. However, for the full year, we anticipate a more moderate decline. Regarding low molecular weight heparin sales, we expect them to decline by a high single digit percentage in 2026, reflecting lower order volumes from international partners and an increased pricing pressure in the market, particularly from Chinese players.

5:06 In response, we are driving cost efficiency initiatives and continuing our progress toward vertical integration and crude heparin self sufficiency. Turning now to Okeedi. The product remains a key growth driver with sales of $17,200,000 up 37% year on year and a further 10% growth versus the fourth quarter of twenty twenty five, which was the strongest quarter of last year. Its differentiated clinical profile continues to support a strong uptake, and we remain excited to reach potential sales of between 100,000,000 to $200,000,000 in coming years.

5:58 Moving on to our CDMO business. The contract manufacturing business delivered positive performance during the quarter, with revenue increasing by 5% to $37,400,000 in the first quarter of twenty twenty six. However, based on the most recent information available, we have revised our expectations for the CDMO business for 2026, reflecting a more moderate growth scenario. This adjustment is driven by lower revenues forecast under the Refilled Strange Manufacturing Agreement with a global pharmaceutical company announced in April 2024, mainly due to a delay in the initially expected commencement of routine manufacturing operations as well as increased uncertainty regarding anticipated demand.

6:57 We believe this is a conscious and responsible adjustment, one that reflects the current moment and that we will continue to reassess as the year progresses. Importantly, this adjustment does not change our long term view of the CMO division. We remain committed to our investment plan to strengthen our stabilized fill and finish capabilities with ongoing capacity expansions and the recent integration on the Fenics facility into our industrial network. Rovi is very well positioned to capture long term opportunities in high value injectable manufacturing. Finally, our iCEM platform continues to progress well.

7:46 Lethrosol SEER has received FDA approval of its investigational new drug application, which allows the initiation of clinical development in The U. S, with Phase III recruitment expected to start in the third quarter of twenty twenty six. Cisperidone Quad delivered a strong Phase I results and is advancing into Phase III. Together, these programs reinforce the long term value and innovation potential of ISM technology. Thank you very much, and I pass the floor to Javier. Thank you, Juan.

8:33 Good morning, everyone, and I will now turn to financial performance. Total revenues reached EUR154.7 million, broadly flat year on year. Operating revenue declined 1.5% to €152,500,000 mainly reflecting lower international sales of beniparine. This was partly offset by CDMO business, which increased 5% during the quarter. I will now walk you through the reminder of our P and L.

9:21 So gross profit increased by 5% to EUR95 million in the first quarter of twenty twenty six, with gross margin improving by 3.8 percentage points to 62.3%, partly reflecting the recognition of R and D grant income related to the Laos Elite project. Excluding other income, gross margin increased by 2.5 percentage points to 60.8%, mainly driven by a higher contribution from Okedi, lower low molecular weight heparin raw material costs and the growth of the contract manufacturing business, which contributed higher margins to the group revenues.

10:16 SG and A increased 18% to EUR63.6 million in the first quarter of this year, mainly reflecting higher personnel costs due to the wage adjustments and the addition of CDMO personnel, as well as higher other operating expenses. The increase in other operating expenses, excluding R and D, was partially driven by a lower cost base in the first quarter of twenty twenty five. Following the temporary closure of the Madrigi facility to upgrade Annex I GMP requirements for sterile manufacturing, and by non recurring items, mainly related to the write off of assets that are no longer operational.

11:12 Excluding non recurring items, other operating expenses, again excluding R and D, increased by 21% year on year. For 2026, Rovi expects SG and A expenses, in this case excluding Roy's Phoenix from the group, to increase by between a mid to high single digit percentage compared to 2025. As for the R and D expenses, these increased by 79% to $11,200,000 in the first quarter of this year. These expenses are related to the preparation for the development of the Phase III clinical trial of Letrozole SIA.

12:04 Moving to EBITDA, EBITDA net profit. EBITDA totaled EUR 20,300,000 in this first quarter of twenty twenty six with a margin of 13.3%. EBIT amounted to €12,100,000 in the first quarter of twenty twenty six with a margin of 8%, while net profit reached €9,400,000 in the same period. I won't go into Slide 15 in detail. You have the figures and that shows the pre R and D basis and we can move to the next slide please. So let's now move to CapEx and cash generation.

12:53 In the first quarter of twenty twenty six, Rovi invested 7,700,000 allocated as follows: €5,600,000 dedicated to investments and €2,100,000 allocated to maintenance CapEx and other items. Turning to cash flow. Operating cash flow came in at EUR13 million in the first quarter reflecting two main factors: lower profit before tax compared to the prior year and adverse working capital movements. Free cash flow amounted to €5,600,000 in the first quarter of twenty twenty six.

13:44 As of 03/31/2026, Rovi's total debt amounted to EUR 114,400,000 with gross cash of €99,600,000 resulting in a net debt position of €14,900,000 This solid financial position is fully compatible with our shareholder remuneration policy, under which we target a 35% payout of consolidated net profit and will propose therefore to the General Shareholders' Meeting a €0.9594 per share dividend to be charged against 2025 results and distributable reserves.

14:41 To conclude, I would like to summarize our outlook for 2026 and the key strategic drivers. Based on the current evolution of the key business variables and the most recent information available, Rovi has updated its guidance and now expects operating revenue to grow by low to mid single digit compared to 2025, reflecting a more moderate growth scenario than previously communicated. This update is mainly driven by lower revenue forecasts for '26 under the prefiltration manufacturing agreement entered into with a probable pharmaceutical company announced in April 24 due to a delay in the initially expected commencement of routine manufacturing operations, which remain subject to the regulatory authorization, as well as an increased uncertainty regarding anticipated demand.

15:51 In addition, we continue to see growing competitive pressure on pricing on the heparin division and greater volatility in supply and cost dynamics. Additionally, the heparin business performed better than expected in 2025, mainly due to an increase in orders from international partners. Therefore, we expect lower orders from these partners in 2016 since they hold a high level of stocks. Overall, we say that the company maintains a prudent approach to its 2026 outlook, reflecting the current competitive environment and the level of visibility across its main business lines, which we will continue to monitor closely. At the same time, our strategy remains focused on our key priorities on which we are focusing our efforts.

16:48 The development and scaling of the CDMO business value creation from the acquisition of injectable manufacturing facilities in The U. S progress in the vertical integration of the heparin business and the continued momentum of the specialty pharmaceutical segment with OKEDI as a key product. In parallel, we maintain a strongly committed R and D with two Phase III clinical trials currently underway, LETROZONE SIE and RISPRAIDOMCOR, supported by a clear focus on international expansion and execution excellence. This approach reinforces our roadmap and our positioning over the medium to long term.

17:37 Thank you very much for your attention. We are now happy to take your questions. Martha? Thank you, Javier. If you want to ask any questions, please don't hesitate to send them to the question button on the platform. So the first question comes from Pablo de Venteria from Kepler. Hi, the ad for you. The first one is following the increased uncertainty around demand for the new prefilled syringe manufacturing agreement and the delay in the start of operations, What do you think is a reasonable assumption for twenty twenty seven revenues under this contract?

18:27 Should we think about the minimum contractual commitments as the right baseline at this stage? Thank you. Thank you for your question, about that. I would say that, I mean, up to date, I think it's still to change our vision or our guidance for the contract or to change any or to give any more precise information around the future incomes for next year and the following one. Let me remind to everyone that this agreement, shared a guidance to the market a couple of years ago when we signed the agreement.

19:15 And we serve our outlook for revenues for the coming years in the case of this agreement. I think what is important to highlight is that this is a take or pay agreement, meaning that the agreement itself, the contract, has some mechanisms and some minimum commitments for both parties, which still gives us a lot of comfort and visibility and I would say stability. So we are an important chunk of our revenues for the future. Again, I think we still remain confident about this. The second question is, does this doctor near term outlook in CDMO answer in any way your long term ambition presented at the Capital Markets Day of reaching around €700,000,000 in CDMO sales by 2030?

20:21 Or do you still see that target as achievable? I would be very clear. Right now, we are still very committed to that figures, to those goals. We still believe that those are achievable. We always explained to the market that this was an ambitious target, but it was we have very solid foundations from our business and from the CDMO business especially. So right now, I think it's important to highlight that this entire change of guidance is just stick to this particular agreement.

21:09 And while the rest of the business, I think we are seeing a good momentum, we keep signing important agreements. You know that unfortunately we are not able to communicate those to the markets because they have very strict confidentiality clauses. But I would say that the tailwind is still there. So we remain confident about the 2,030 goals, but we still have seen or we still see a great market momentum, an important tailwind from the market that we are signing contracts, important ones, although we are afraid that we cannot disclose those to the markets due to confidentiality reasons, And that we are also very excited about the Phoenix acquisition, I was also mentioning that it has been closed at the agreement in a very, very quick way.

22:20 Thanks, Javier. And the third question from Pablo is regarding the new prefilled syringe line in The U. S. When do you expect to be able to start commercializing the available capacity? And more broadly, are you already seeing interest from potential clients looking to book capacity in The U. S? Thank you, Paulo. Yeah, yeah, for sure. I think it would be great to highlight two different things. One is that, as you know, we are setting up a new campus for biologics. This campus includes a new filling line. That filling line will be ready next year, so it's quite exciting news for us because it's, you know, in our business that's quite quick, I would say.

23:13 And this is an area or an avenue of growth for the site and for the company. Apart from that biologic campus, we are starting to get our expert important campus, on the cytotoxic campus. I believe, at least for us, what is very exciting is that in this same campus we believe we not only we can fill cytotoxic products and standard high potent drugs, but also I think we are capable of filling ADCs. And ABCs, we foresee them or everybody think ABCs as an important driver of growth for pharmaceuticals, as a segment or as a new modality in the pharmaceutical field. So I think there are very few competitors in The U. S.

24:13 That can offer this same sort of capabilities. And I can tell you that the feedback from customers is very robust. I would say that there are less competitors in The US and in Europe, so I think it would be a transformational driver of growth for us, this Phoenix site facility. Thanks, Haliet. The next question comes from Patrizia Di Fuentes from Vestibear. Javier, this is for you. With the delays in the recruitment of Leprazole CA and quarterly risperidone, what level of R and D costs should we expect this year?

25:04 Yes, as we previously announced and commented to in our I think it was in our Capital Market Day, the first time we shared with all of you the expansion of the Phase III projects. I think that these first few years will be expanded in terms of R and D, sorry, cost. So I would say that this year, we can assess that we'll be in this higher end of the range that we presented on the Capital Market Day, so probably closer to the €60,000,000 figure for the full year. Let me remind to all of you that we will be starting recruiting patients at the hopefully at the end of the year.

25:56 So this is for sure. We are spending a lot of money in preparing this crucial moment for the company. Okay, thanks Javier. The next question comes from Alvaro Lince from PDM. Can you provide more detail on the approval process for the April 2024 client line? What is the bottleneck? I will answer that one. I mean, you know, the agreement was signed in 2024.

26:43 We had detailed timeline, but at the end of the day, there's been a lot of processes going on, tech transfer, validation batches. And at the end of the day, we are also we are working closely with the customer to see how the regulatory approval goes. There are different dynamics there, different causes of delay. And also, would say that there is no I wouldn't say it's a big delay, but at the end of the day, it's a long process. It's been forecasted from three years ago. We depend on a large multinational, and they are, you know, quite slow sometimes, quite conservative approach.

27:31 And what I can tell you is that we are monitoring very closely the different events. And if we find out that there is any relevant update, we'll communicate to the market. Anyhow, we expect that for sure next year, the product will be approved. I mean, that's the worst case scenario that at the end of the year, the product will be approved and will be ready and able to manufacture from next year onwards. Thanks, Javier. So the last question comes from Joaquin Raziakilos from GB Capital. Juan, this one is for you. Now that competition seems tougher in heparins, how do you see the development of this division in the midterm?

28:23 Hi. Good morning, Joaquin. Thank you for your question. Yes, actually, are seeing a very rapid erosion in terms of prices. Heparin is a very dynamic market. As I mentioned before in my presentation, we expect variability between quarters. But I mean, we're adjusting ourselves. I mean, we are still very much optimistic on the long term of the heparin perspectives, investing on picopecton to be fully vertical integrated. We still don't know really what is the basis for this rapidly unexpected price erosion that is impacting our business. But we feel very much confident that the business remains solid, and we expect still to be at further growth for the company in the next coming years.

29:20 And that's the reason why we are fully investing just to make sure that we remain competitive on the market landscape. But unfortunately, we are seeing a very rapidly unexpected erosion in prices that is impacting our partners' future orders for 2026, and we just wanted to make sure that we will communicate it accordingly to the market. Heparin is a great business. Rovi has a great knowledge. We have a great performance in the past. And again, we are fully committed to this business, we believe that we are going to hear in not that long future very good news coming from the polymidemic exaparin franchises.

30:12 Thanks Juan. We are out of time. Thank you very much for your participation. The Rovi IR team will answer the pending questions as soon as possible. Thank you again for your assistance and have a nice day.