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Half Year 2023 Ucb SA Earnings Call

EVENT DATE/TIME: JULY 27, 2023 / 12:00PM GMT

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JULY 27, 2023 / 12:00PM GMT, Half Year 2023 Ucb SA Earnings Call

CORPORATE PARTICIPANTS

Antje Witte UCB SA - Head of IR

Emmanuel Caeymaex UCB SA - Executive VP of Immunology Solutions & Head of US

Iris Loew-Friedrich UCB SA - Executive VP, Chief Medical Officer and Head of Development & Medical Patient Value Practices Jean-ChristopheTellier UCB SA - CEO & Executive Director

Kimberly Moran Head of US Rare Diseases Mike Davis Head of Global Epilepsy Sandrine Dufour UCB SA - Executive VP & CFO

CONFERENCE CALL PARTICIPANTS

Charles Pitman Barclays Bank PLC, Research Division - Research Analyst

David Paul Evans Kepler Cheuvreux, Research Division - Senior Equity Research Analyst Florent Cespedes Societe Generale Cross Asset Research - Senior Equity Analyst

Graham Glyn Charles Parry BofA Securities, Research Division - MD and Head of Healthcare Equity Research Jeroen Van den Bossche KBC Securities NV, Research Division - Financial Analyst

Stacy Ku TD Cowen, Research Division - VP

Yifeng Liu HSBC, Research Division - Analyst of Healthcare Research

PRESENTATION

Antje Witte UCB SA - Head of IR

Hello. Welcome to the UCB Half Year 2023 Capital Market Call. My name is Antje, and I'm the Head of Investor Relations at UCB.

Before I introduce you to the agenda and hand over to the speakers today, I'd like to make some remarks. This video conference is being recorded. This presentation and the following Q&A session are covered by the disclaimer and safe harbor statement as stated on Slide 2 of the slide deck. Please kindly read this carefully.

You can find the presentation in our Download Center if you dial-in by phone. The presentation and the following Q&A session are intended for institutional capital market participants. If you're not, please disconnect now. Following your feedback, we implemented some changes. We have shortened the presentation, and reduced the number of speakers to have more time for Q&A., and you have been invited to ask your questions live.

With this, I'd like to introduce to you our speakers for today: Jean-Christophe Tellier, our CFO -- our CEO; and Sandrine Dufour, our CFO. In the Q&A session, not only Jean-Christophe and Sandrine, but also our Chief Medical Officer, Iris Loew-Friedrich; Emmanuel Caeymaex, Head of Immunology and U.S. are here to answer your questions.

And as Charl van Zyl, our former Head of Neurology has recently left the company to join Lundbeck as a CEO, we have asked 2 members of his leadership team to join the Q&A panel. So it's my pleasure to introduce to you Kim Moran, Head of U.S. Rare Diseases; and Mike Davis, Head of Global Epilepsy. Kim is launching with the team RYSTIGGO as we speak; and Mike is managing our evolving epilepsy portfolio.

With this, Jean-Christophe, over to you.

Jean-ChristopheTellier UCB SA - CEO & Executive Director

Thank you very much, Antje. Good morning, and good afternoon, good evening, everyone. It's a pleasure to welcome you to our half year results. Maybe I can go directly to the slide after the agenda, please. And so get the next one, please.

So as you see in this slide, we are at an inflation point now. And I think at the end of the first half of '23 mark this moment, which is an important one for UCB, which is a moment where we can leave behind the absorptions that the necessary decline of our product after the loss of exclusivity and start to build a new phase of growth for the company, build on current growth drivers as well as new assets. And actually, we are today in this new period -- starting this new period of growth, thanks to a few elements.

The first one is the good resistance performance and resilience of our current growth drivers. And I would like to mention CIMZIA, but

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JULY 27, 2023 / 12:00PM GMT, Half Year 2023 Ucb SA Earnings Call

also, of course, Briviact and EVENITY. The second element is the fact that we incorporate -- we are incorporating in our portfolio, new assets, thanks to the success that we have had in our development portfolio. And here, of course, I have in mind BIMZELX, FINTEPLA and

RYSTIGGO.

Last also, but not least, we're able to enter into this new phase because we are doing a rigorous and disciplined allocations of our resource, so that we can make sure that we provide sufficient investments behind the preparation and the executions of the launches as well as managing the tail of our products.

Next slide, please. And so because of all of that, I think we can qualify in the first half of 2023 as a solid performance for UCB. And you can look at this slide from different lenses. That is one lenses, which is the classical one, which is revenue or the net sales. And here, you are still observing a decline of our revenue or net sales. But as I said, it's because of the last period where we have the loss of exclusivity, and we need to absorb. But because we are starting a new phase, we can have starting this new growth. Actually, if I put on the side the loss of exclusivity of VIMPAT, we are currently growing already by 8%.

The second lenses that you can look at the first half is what has been achieved during the first half in terms of new patient population. Because by adding new patients' populations, be able to provide access to these new patient populations, it is, of course, new source of growth for the company.

And during the first half of 2023, we achieved approval of FINTEPLA for Lennox-Gastaut syndrome in Europe. We have also in Europe achieved the ability to launch BIMZELX in PsA, psoriatic arthritis and, AS axial for arthritis. And we are actually, as we speak, launching RYSTIGGO in the U.S. So new tools, new assets, new patient population that will fuel growth for the company for the future.

And then the third lenses that you can have to look at our first half performance is how confidence we are for the full year guidance. And here, you can see that we are confirming our guidance for 2023.

Next slide. And this is not the end of the journey. We are expecting in the second half of '23, 7 approvals for ongoing regulatory reviews in various geographies. So first, as you know, we are waiting the actions of the FDA for bimekizumab in psoriasis in the U.S. for the third quarter of this year. But we are also on top of that, waiting for axSpA and PsA approval in Japan from bimekizumab.

We are waiting for the rozanolixizumab approbation for generalized myasthenia gravis in Japan. And we are also expecting for zilucoplan, our next new asset approval for generalized myasthenia gravis in the U.S. and in EU, as well as additional filing that we get approval later on. So you see the journey of bringing new assets, new territories, new patient populations into the UCB portfolio is just starting now.

Next slide, please. So, I would like to now quickly zoom in on 3 of our key growth drivers: epilepsy, generalized myasthenia gravis and immunology. Epilepsy reached the inflection point because if we are today in this junction before the loss of exclusivity and the new growth, epilepsy portfolio is for us the perfect illustrations of that because of the loss of E KEPPRA in Japan and VIMPAT in Europe and in the U.S.

But as you can see, we can build growth, thanks to the very good growth and accelerations of growth actually of Briviact globally; as well as FINTEPLA we have reached already more than EUR 100 million during the first half of the year; and NAYZILAM.

Next slide, please. The new and second pillar of growth that I would like to illustrate is UCB starting the journey in generalized myasthenia gravis. And here, our objective is, of course, to elevate the standard of care and to maximize patient outcomes because it is our purpose in all different areas we are evolving.

Now with RYSTIGGO, you see on the left-hand side, the patient population that we think could be addressed and could be treated with our portfolio. With RYSTIGGO, our anti-FcRn antibody, we are the first and only targeted therapy, which is able to treat patients who are either acetylcholine receptor positive or MuSK positive in general myasthenia gravis.

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JULY 27, 2023 / 12:00PM GMT, Half Year 2023 Ucb SA Earnings Call

And later with zilucoplan, our complement C5 inhibitor, we will have in our hands the first self-administration targeted therapy that inhibit the complement cascade. So altogether, we will have a portfolio to treat broadly all patient population from different angle, and we will be able to satisfy patients who want to be treated at home, who want to be treated in a hospital, want to continue to go with an infusion and also the diversity from a physician standpoint.

Next slide, please. Last but not least, our third pillar of growth with also 3 growth drivers today is immunology. I mentioned the resilience and the performance of CIMZIA. 15 years after the launch, we were the fifth anti-TNF in the marketplace, and we continue to gain market share, thanks to the diversification and the differentiation that we have been able to build and to provide for patients. You see here 2% of growth, but in fact, if the underlying volume growth of the product was 8%. The difference is mainly due to difference in inventory.

The second growth driver is BIMZELX that we are starting to launch in a lot of different geographies. We have already been approved in 10 different -- by 10 different regulatory agencies, and we have been approved in 36 new different countries there. I will comment BIMZELX on a specific slide.

EVENITY, please, I also would like you to remember that the contribution of EVENITY to our growth come from 2 sides. One, we are booking the revenue directly in Europe, and that's the numbers that you see here, and we are already enjoying a very successful launch in the bone builder markets in a lot of different geographies; but two, we are also gaining a net contribution from Amgen, which is a significant growth of plus 44% for the first half of the year.

Next slide, please. And so when you look at the performance of EVENITY globally, you can see on the right-hand side, the impressive growth that the success of the product has, which is translated here, in the next contribution from Amgen to UCB P&L. And you see on the left-hand side that we are already reaching 485,000 patients across the globe and with 30% of market share in the building -- in the bone builder market we are gaining the leadership that we wanted to achieve.

And last but, of course, not least, I would like to close before handing over to Sandrine with BIMZELX. So on the last slide, you will see the BIMZELX leadership build-up that we are strengthening month after month. On the left-hand side, we are currently pleased with the fact that more than 10,000 of patients are currently benefiting from BIMZELX across the different geographies.

And on the right-hand side, you can see here that on the 3 main regions that today we have launched the product, in Japan, Europe and Canada, we have reached already more than 35% of dynamic market share, meaning the ability of the new patients to be treated by BIMZELX today is more than 1 out of 3. So quickly after the launch of the product, which is a remarkable performance.

So as you can see, a great first half of the year. Solid performance, an ability to build -- continue to build on the growth of our growth drivers, which demonstrate resilience during the first half of the year; two, a portfolio that continues to evolve with new assets, new territories, new patient populations coming in, success of the launches where we have been already able to implement them. And I'm sure that RYSTIGGO in the U.S. will be also a confirmation of this ability to execute; and three, a solid discipline and rigorous allocation of resource and cost management that allow us to deliver the result that Sandrine will now further comment. Thank you.

Sandrine Dufour UCB SA - Executive VP & CFO

Thank you, Jean-Christophe. And good morning, good afternoon, everyone. Let me present this robust first half results as well as the confirmation of our guidance. I will directly go to the next page to give the key highlights.

And as expected, the first half results reflect the impact of the loss of exclusivity of impact. You heard Jean-Christophe explaining that excluding this impact, we have an underlying net sales growth of 8%. And if I look at the trends of the last months of the semester, I can say that the negative impact of the loss of exclusivity are now mostly behind us, and this is what gives us the comfort to talk about an inflection point as we enter the second part of the year.

Now from a resource allocation point of view, we have continued to be very disciplined to make sure that we adequately fund the multiple launches in terms of products, new indications and geographies. Our Focus For Growth, transversal program is yielding very positive results. We will have achieved a run rate of about EUR 200 million of sustainable cost efficiency by year-end by closely managing

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JULY 27, 2023 / 12:00PM GMT, Half Year 2023 Ucb SA Earnings Call

all our cost categories, and this contributes to fund the increase of investments behind the launches as well has absorbed the inflation impact, which year-over-year is not insignificant.

As committed, Zogenix is becoming earnings accretive as of 2023. And finally, the profile of margin between the first half and the second half will be different as we accelerate investments to support the launches. And I, of course, will come back on that.

So if we move now to the next page, I will look at the full P&L, and I will start with the net sales. So the total net sales reached EUR 2.4 billion. It's a 12% decrease, 14% at constant rate. And as I said, adjusted for VIMPAT growth at constant rate was 8%, and this was supported by solid volume growth.

Next to the net sales, revenues achieved EUR 2.6 billion. It's a decrease of 11%. I would like to mention that the other revenues include a onetime milestone payment of EUR 70 million linked to our partnership in Japan for VIMPAT. But as a reminder, we also had a similar amount of EUR 70 million for the sale of intellectual property rights for olokizumab last year in the first half. So year-over-year, this is neutral.

Adjusted gross profit was EUR 2 billion, with a decrease in line with revenues and a stable adjusted gross margin of 77%. Total OpEx decreased by 15% to EUR 1.3 billion, reflecting lower expenses and higher other operating income.

And if I start with marketing and selling expenses, they grew by 3% to EUR 753 million, driven by the launches, the prelaunch activities. We have the ongoing launch activities of FINTEPLA, BIMZELX and the global launch preparations for BIMZELX in the U.S., RYSTIGGO and zilucoplan in generalized myasthenia gravis.

R&D expenses decreased by 5% to EUR 759 million. This is reflecting the investments in the late-stage pipeline as well as the earlier-stage activities. The R&D ratio increased from 27% to 29%, and this is a function of the net sales decrease.

G&A decreased by 9%, and the other operating income increased significantly to EUR 350 million. So first, this is the result of the net contribution from Amgen in the commercialization of EVENITY, which grew by more than 40% from EUR 108 million to EUR 156 million. And second, as we had mentioned back in February, we sold a portfolio of established brands in Europe for EUR 145 million.

And so in total, adjusted EBITDA reached EUR 801 million after EUR 814 million in the first half of last year. It's a decrease of 2% and a decrease of 9% at constant rates. This is reflecting the lower revenues, the lower operating expenses, and it corresponds to a 31% margin after the 28% margin in the first half of last year. And even if you exclude the contribution of the sales of the established brand products, this is a solid 25%.

Moving to profits. Profit amounted to EUR 311 million, it's a 22% decrease versus last year. And if I look at the conversion from EBITDA to profit, we had higher amortization of intangibles in the first half of '23, this is linked to the Zogenix acquisition. We had lower other expenses versus '22, as the first half last year was impacted by Zogenix acquisition.

Financial expenses were higher at EUR 79 million, not just because of higher net debt linked to the Zogenix acquisition and higher interest rates, but also due to a nonrecurring positive currency impact in '22. We had EUR 25 million positive, while the nonrecurring currency impact this first half is a EUR 9 million negative.

And effective tax rate ended up at 22%. That compares to 17% in H1 last year, and the increase in tax rate is explained by the expected drop in profit before tax compared to last year, where the tax charge remains stable and a one-off reversal of a deferred tax liability in 2022. And finally, the core EPS was EUR 2.63 per share. This is a decrease of 16% versus last year.

So in summary, we delivered healthy financial results for the first half. We see the inflection point in the net sales performance, leaving the loss of exclusivity impact behind us. And we were able to decrease OpEx and to significantly improve other operating income, both with the increase of EVENITY contribution and the sale of products. So all of that puts us in a comfortable position to invest behind our ongoing and upcoming launches in the second half of the year.

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