Market Overview

Ipsen Delivers Strong Results for the First Half of 2018 with Sales Growth of 21.5%1 and Upgrades Its Guidance for Full Year 2018

Share:
  • Sales growth of 26.7%1 for Specialty Care and 2.0%1,2
    for Consumer Healthcare
  • Core Operating Income growth of 34.1%
  • Upgraded full year 2018 guidance of Group sales growth greater than
    19.0%1 (versus prior guidance greater than 16.0%) and Core
    operating margin of around 29.0% of sales (versus prior guidance
    greater than 28.0%)

Regulatory News:

Ipsen ((Euronext: IPN, OTCMKTS:IPSEY), a global specialty-driven
biopharmaceutical group, today announced financial results for the first
half of 2018.

H1 2018 Key figures

     
(in millions of euros)   H1 2018   H1 2017   % change
Group sales   1,064.5   919.5  

+21.5%1

Specialty Care sales   920.2   764.6   +26.7%1
Consumer Healthcare sales   144.3   154.8   +2.0%1,2
Core Operating Income3   322.5   240.5   +34.1%
Core operating margin (as a % net sales)   30.3%   26.2%   +4.1 pts
Core consolidated net profit3   237.1   169.2   +40.1%
Core EPS – fully diluted (€)   2.86   2.04   +40.2%
             
IFRS            
Operating Income   269.7   176.4   +52.9%
Operating margin (as a % net sales)   25.3%   19.2%   +6.2 pts
Consolidated net profit   197.3   125.9   +56.7%
EPS – fully diluted (€)   2.38   1.52   +56.6%
             
Free cash flow   164.5   94.9   +73.3%
Net cash / (debt) position4   (438.0)   (669.4)   n.a.
 

David Meek, Chief Executive Officer of Ipsen, stated: "We
executed very well against our objectives in the first half of 2018. We
delivered outstanding Group sales growth of 21.5% and significant core
operating margin improvement, leading to upgraded guidance for the full
year 2018. We also continued to increase the value proposition of
Cabometyx
® with approval for first-line renal cell
cancer by the European Commission and the validation of the regulatory
submission for second-line hepatocellular carcinoma by the EMA. In the
second half of the year, we remain focused on maintaining the growth
momentum of our Oncology and Neuroscience franchises and reinforcing our
R&D strategy to build an innovative and sustainable pipeline."

_______________
1 Year-on-year growth excluding
foreign exchange impacts
2 Reported sales in Consumer
Healthcare down 3.9%, non-restated from the new contractual set-up of
Etiasa®
3 Excludes amortization of intangible
assets (excluding software), gain or loss on disposal of fixed assets,
restructuring costs, impairment losses and other non-core items
4
Cash and cash equivalents, less bank overdrafts, bank loans and other
financial liabilities and excluding financial derivative instruments

Upgraded Full Year 2018 guidance

Following the strong performance in the first half of 2018, the Group
raises its financial targets for the full year 2018:

  • Group sales growth of greater than +19.0%, based on the
    strong momentum of the Specialty Care business. Sales growth at
    current exchange rates should still be negatively impacted by
    approximately 4.0% based on the current level of exchange rates;
  • Core operating margin of around 29.0% of sales
   
    Previous guidance   Updated guidance

Sales growth1

  > +16.0%   > +19.0%
Core operating margin (as a % of net sales)   > 28.0%   around 29.0%
 

Review of the first half 2018 results
Note:
Unless stated otherwise, all variations year-on-year in sales are stated
excluding foreign exchange impacts.

Group sales reached €1,064.5 million, up 21.5% year-on-year.

Specialty Care sales reached €920.2 million, up 26.7%,
driven by the strong growth of Somatuline® (26.1% with
a continued volume growth in North America and a solid performance
throughout Europe), the contribution of new products Cabometyx®
and Onivyde®, as well as the good performance of Dysport®
(13.0% fueled by our partner Galderma in the aesthetics market in
Europe, and a strong growth in Brazil and in the U.S. therapeutics
market) and Decapeptyl® (8.9% impacted by good volume growth,
notably in France, Spain and Algeria).

Consumer Healthcare sales reached €144.3 million, up 2.0%2,
driven by the good performance of the Smecta® brand, which
grew by 3.6%.

Core Operating Income was €322.5 million, up 34.1%, driven by the
strong Specialty Care sales growth and reflecting increased commercial
investments for the Oncology product launches and R&D investments to
support the advancement of the pipeline.

Core operating margin reached 30.3% of sales, up 4.1 points.

Core consolidated net profit was €237.1 million, compared to
€169.2 million in 2017, up 40.1%, after higher financial and income tax
expenses and benefitting from a lower effective tax rate due to the U.S.
tax reform.

Core earning per share fully diluted grew by 40.2% to reach
€2.86, compared to €2.04 in 2017.

IFRS Operating income was €269.7 million after amortization of
intangible assets, the costs of relocation of the U.S. commercial
affiliate to Cambridge, Massachusetts and the termination of certain R&D
studies. Operating income margin at 25.3% is up 6.2 points compared to
the first half of 2017.

IFRS Consolidated net profit was €197.3 million versus €125.9
million in 2017, up 56.7% after financial and income tax expenses.

IFRS Fully diluted EPS (Earning per share) was €2.38
versus €1.52 in 2017, up 56.6%.

Free cash flow reached €164.5 million, up by €69.5 million or
73.3% versus 2017, from higher operating cash flow, lower restructuring
costs and higher income tax.

Closing net debt reached €438.0 million at the end of June 2018,
versus €669.4 million at the end of June 2017, reflecting positive cash
flow generation of the Group over the last twelve months and after
payment in June 2018 of €83.0 million in dividends.

_______________
1 Year-on-year growth excluding foreign
exchange impacts
2 Reported sales in Consumer Healthcare
down 3.9%, non-restated from the new contractual set-up of Etiasa®

The interim financial report, with regard to regulated information, is
available on the Group's website, www.ipsen.comunder
the Regulated Information tab in the Investor Relations section.

The company's auditors performed a limited review of the accounts.

Conference call

Ipsen will hold a conference call Thursday, 26 July 2018 at 1:30 p.m.
(Paris time, GMT+1). Participants should dial in to the call
approximately five to ten minutes prior to its start. No reservation is
required to participate in the conference call.

Standard International: +44 (0) 1452 555 566
France and continental
Europe: + 33 (0) 1 76 74 24 28
UK: +44 (0) 8444 933 800
United
States: 1-631-510-7498
Conference ID: 2791758

A recording will be available for seven days on Ipsen's website.

About Ipsen

Ipsen is a global biopharmaceutical company focused on innovation and
specialty care. The group develops and commercializes innovative
medicines in three key therapeutic areas - Oncology, Neuroscience and
Rare Diseases. Its commitment to Oncology is exemplified through its
growing portfolio of key therapies for prostate cancer, neuroendocrine
tumors, renal cell carcinoma and pancreatic cancer. Ipsen also has a
well-established Consumer Healthcare business. With total sales over
€1.9 billion in 2017, Ipsen sells more than 20 drugs in over 115
countries, with a direct commercial presence in more than 30 countries.
Ipsen's R&D is focused on its innovative and differentiated
technological platforms located in the heart of the leading
biotechnological and life sciences hubs (Paris-Saclay, France; Oxford,
UK; Cambridge, US). The Group has about 5,400 employees worldwide. Ipsen
is listed in Paris (Euronext: IPN) and in the United States through a
Sponsored Level I American Depositary Receipt program (OTCMKTS:IPSEY). For
more information on Ipsen, visit www.ipsen.com.

Forward-Looking Statement

The forward-looking statements, objectives and targets contained herein
are based on the Group's management strategy, current views and
assumptions. Such statements involve known and unknown risks and
uncertainties that may cause actual results, performance or events to
differ materially from those anticipated herein. All of the above risks
could affect the Group's future ability to achieve its financial
targets, which were set assuming reasonable macroeconomic conditions
based on the information available today. Use of the words "believes,"
"anticipates" and "expects" and similar expressions are intended to
identify forward-looking statements, including the Group's expectations
regarding future events, including regulatory filings and
determinations. Moreover, the targets described in this document were
prepared without taking into account external growth assumptions and
potential future acquisitions, which may alter these parameters. These
objectives are based on data and assumptions regarded as reasonable by
the Group. These targets depend on conditions or facts likely to happen
in the future, and not exclusively on historical data. Actual results
may depart significantly from these targets given the occurrence of
certain risks and uncertainties, notably the fact that a promising
product in early development phase or clinical trial may end up never
being launched on the market or reaching its commercial targets, notably
for regulatory or competition reasons. The Group must face or might face
competition from generic products that might translate into a loss of
market share. Furthermore, the Research and Development process involves
several stages each of which involves the substantial risk that the
Group may fail to achieve its objectives and be forced to abandon its
efforts with regards to a product in which it has invested significant
sums. Therefore, the Group cannot be certain that favourable results
obtained during pre-clinical trials will be confirmed subsequently
during clinical trials, or that the results of clinical trials will be
sufficient to demonstrate the safe and effective nature of the product
concerned. There can be no guarantees a product will receive the
necessary regulatory approvals or that the product will prove to be
commercially successful. If underlying assumptions prove inaccurate or
risks or uncertainties materialize, actual results may differ materially
from those set forth in the forward-looking statements. Other risks and
uncertainties include but are not limited to, general industry
conditions and competition; general economic factors, including interest
rate and currency exchange rate fluctuations; the impact of
pharmaceutical industry regulation and health care legislation; global
trends toward health care cost containment; technological advances, new
products and patents attained by competitors; challenges inherent in new
product development, including obtaining regulatory approval; the
Group's ability to accurately predict future market conditions;
manufacturing difficulties or delays; financial instability of
international economies and sovereign risk; dependence on the
effectiveness of the Group's patents and other protections for
innovative products; and the exposure to litigation, including patent
litigation, and/or regulatory actions. The Group also depends on third
parties to develop and market some of its products which could
potentially generate substantial royalties; these partners could behave
in such ways which could cause damage to the Group's activities and
financial results. The Group cannot be certain that its partners will
fulfil their obligations. It might be unable to obtain any benefit from
those agreements. A default by any of the Group's partners could
generate lower revenues than expected. Such situations could have a
negative impact on the Group's business, financial position or
performance. The Group expressly disclaims any obligation or undertaking
to update or revise any forward-looking statements, targets or estimates
contained in this press release to reflect any change in events,
conditions, assumptions or circumstances on which any such statements
are based, unless so required by applicable law. The Group's business is
subject to the risk factors outlined in its registration documents filed
with the French Autorité des Marchés Financiers.

The risks and uncertainties set out are not exhaustive and the reader is
advised to refer to the Group's 2017 Registration Document available on
its website (www.ipsen.com).

Comparison of Consolidated Sales for the Second Quarter and First
Half of 2018 and 2017:

Sales by therapeutic area and by product1

Note: Unless stated otherwise, all variations in sales are stated
excluding foreign exchange impacts.

Currency effects are established by recalculating net sales for the
relevant period at the exchange rates from the previous period.

The following table shows sales by therapeutic area and by product for
the second quarter and first half 2018 and 2017:

   
2nd Quarter 6 Months
                               
(in millions euros)   2018   2017   % Variation  

% Variation at
constant
currency

2018   2017  

% Variation

 

% Variation at
constant
currency

           
Oncology 372.4 299.9 24.2% 29.2% 709.7 560.8 26.5% 32.8%
Somatuline® 206.9 171.5 20.7% 27.0% 402.6 340.4 18.3% 26.1%
Decapeptyl® 100.2 93.5 7.2% 8.7% 183.3 171.0 7.2% 8.9%
Cabometyx® 33.8 9.3 264.1% 265.5% 62.0 16.9 267.7% 268.9%
Onivyde® 25.1 19.3 30.2% 43.9% 48.9 19.3 153.4% 184.1%
Other Oncology 6.4 6.4 -0.7% -0.5% 13.0 13.3 -2.5% -2.2%
Neurosciences 89.5 78.8 13.6% 22.0% 174.5 165.4 5.5% 13.0%
Dysport® 88.4 77.8 13.5% 21.8% 172.8 163.6 5.6% 13.0%
Rare diseases 17.9 19.4 -7.9% -5.9% 36.0 38.4 -6.4% -3.7%
NutropinAq® 12.0 13.8 -13.2% -13.1% 24.1 27.1 -10.9% -10.7%
Increlex® 5.9 5.7 5.1% 12.0% 11.8 11.3 4.2% 13.4%
Specialty Care 479.8 398.1 20.5% 26.1% 920.2 764.6 20.3% 26.7%
Smecta® 33.3 31.2* 6.8% 10.2% 62.4 62.6* -0.3% 3.6%
Forlax® 8.9 11.3 -21.3% -20.0% 19.1 21.3 -10.1% -8.7%
Tanakan® 8.1 9.1 -11.2% -7.2% 15.9 15.5 2.8% 6.7%
Fortrans/Eziclen® 8.0 8.8 -8.7% -4.4% 14.0 15.8 -11.7% -7.6%
Etiasa® 0.1 6.7 -98.9% -98.8% 0.1 9.4 -98.5% -98.4%
Other Consumer
Healthcare
16.0 16.2 -0.7% 0.3% 32.7 30.3 8.2% 9.3%
Consumer Healthcare 74.4 83.3 -10.6% -8.0% 144.3 154.8 -6.8% -3.9%
 
Group Sales   554.2   481.4   15.1%   20.1% 1,064.5   919.5   15.8%   21.5%

*including Smectite sales previously recorded in Other Consumer
Healthcare

Group sales reached €1,064.5 million, up 21.5%, driven by Specialty Care
sales growth of 26.7% and Consumer Healthcare sales growth of 2.0%2.

Specialty Care sales amounted to €920.2 million, up 26.7%.
Oncology and Neuroscience sales grew by 32.8% and 13.0%, respectively,
and Rare Diseases sales decreased by 3.7%. Over the period, the relative
weight of Specialty Care continued to increase to reach 86.4% of Group
sales, compared to 83.2% in 2017.

_______________
1 New sales reporting according to main
therapeutic indication of each product
2 Reported sales
in Consumer Healthcare down 3.9%, non-restated from the new contractual
set-up of Etiasa®

In Oncology, sales reached €709.7 million, up 32.8% year-on-year,
driven by the continued strong performance of Somatuline® as
well as the launches of Cabometyx® and Onivyde®.
Over the period, Oncology sales represented 66.7% of total Group sales,
compared to 61.0% in 2017.

Somatuline® – Sales reached €402.6
million, up 26.1% year-on-year, driven by strong volume growth in North
America and strong performance in most European countries, notably
France, Germany and the UK, as well as the contribution from Japan
following the launch of the neuroendocrine tumor indication in 2017.

Decapeptyl® – Sales reached €183.3 million, up
8.9% year-on-year, positively impacted by good volume growth, notably in
France, Spain and Algeria.

Cabometyx® Sales reached €62.0
million, driven by good performance in Germany, France and the UK as
well as by volume growth in Spain, Italy and new launches in other
European countries. In the second quarter of 2018, sales increased 19.8%
over the first quarter of 2018.

Onivyde® – Sales reached €48.9 million, as
compared to €19.3 million in the first half of 2017 (including only one
quarter of sales following the acquisition completed in early April
2017). In the second quarter of 2018, sales were up 43.9% year-on-year
and increased by 2.7% over the first quarter of 2018, including
continued double-digit growth in the U.S.

In Neuroscience, sales of Dysport®
reached €172.8 million, up 13.0%, driven by the resupply and strong
performance in Brazil, as well as the good performance of Galderma in
the aesthetics market in Europe. In the first half of 2018, Neuroscience
sales represented 16.4% of total Group sales, compared to 18.0% in 2017.

In Rare Diseases, sales of NutropinAq®
reached €24.1 million, down 10.7% year-on-year, impacted by lower
volumes across Europe. Sales of Increlex®
reached €11.8 million, growing by 13.4% year-on-year, driven by the
performance in the United States. Over the period, Rare Diseases sales
represented 3.4% of total Group sales, compared to 4.2% in 2017.

Consumer Healthcare sales reached €144.3 million, up 2.0%1
year-on-year. Sales were positively impacted by the good performance of
the Smecta® brand in France and Algeria, contribution of the
new products acquired in 2017, as well as higher Tanakan®
sales. Over the period, Consumer Healthcare sales represented
13.6% of total Group sales, compared to 16.8% in 2017.

Smecta® – Sales reached €62.4 million, up 3.6%
year-on-year, driven by the launch of a new formulation in France, sales
growth in Algeria and Korea and the market growth in China, offset by
the negative impact of inventory in the first quarter of 2017 in Russia
and China.

Forlax® – Sales reached €19.1 million, down 8.7%
year-on-year, impacted by lower volumes due to an importation delay in
Algeria.

Tanakan® – Sales reached €15.9 million, up 6.7%
year-on-year, positively impacted by the lower inventory in Russia in
the first quarter of 2017.

Fortrans/Eziclen® – Sales reached €14.0 million, down
7.6% year-on-year, impacted by the negative inventory impact and
competitive pressure in Russia, partly offset by good performance in
China.

Etiasa® – Sales reached €0.1 million, down
98.4% year-on-year due to the new contractual set-up in China which
started to occur in the third quarter of 2017.

Other Consumer Healthcare – Sales reached €32.7 million, up 9.3%
year-on-year, supported by the contribution of new products, higher
sales of Bedelix® in Algeria and other drug-related products.

_______________
1 Reported sales in Consumer Healthcare
down 3.9%, non-restated from the new contractual set-up of Etiasa®

Sales by geographical area

Group sales by geographical area in the second quarter and first half
2018 and 2017:

   
2nd Quarter 6 Months
                               
(in million euros)   2018   2017   % Variation  

% Variation
at constant
currency

2018   2017   % Variation  

% Variation
at constant
currency

           
France 65.5 62.7 4.4% 4.4% 133.7 124.2 7.7% 7.7%
Germany 46.8 35.6 31.3% 31.3% 91.0 70.3 29.5% 29.5%
Italy 26.9 25.2 6.7% 6.7% 53.1 48.9 8.6% 8.6%
United Kingdom 24.0 19.6 22.1% 24.3% 46.5 38.4 21.2% 23.9%
Spain 23.1 18.3 25.7% 25.7% 44.0 35.4 24.4% 24.4%

Major Western European
countries

186.3 161.6 15.3% 15.5% 368.4 317.2 16.2% 16.5%
Eastern Europe 50.1 51.2 -2.1% 4.5% 92.6 98.1 -5.6% -0.6%
Others Europe 61.7 46.2 33.7% 36.8% 127.9 96.3 32.8% 34.9%
Other European countries 111.9 97.4 14.9% 20.0% 220.5 194.4 13.4% 17.2%
 
North America 144.5 117.9 22.6% 33.4% 278.1 220.3 26.2% 41.1%
Asia 54.8 60.2 -8.9% -6.0% 94.3 100.1 -5.8% -1.1%

Other countries in the Rest of
the world

56.7 44.4 27.7% 37.9% 103.3 87.4 18.1% 27.3%
Rest of the World 111.5 104.6 6.6% 12.7% 197.5 187.5 5.4% 12.2%
 
Group Sales   554.2   481.4   15.1%   20.1% 1,064.5   919.5   15.8%   21.5%
 

Sales in Major Western European countries reached €368.4 million,
up 16.5% year-on-year. Over the period, sales in Major Western European
countries represented 34.6% of total Group sales, compared to 34.5% in
2017.

France – Sales reached €133.7 million, up 7.7% year-on-year,
mainly driven by the Cabometyx® launch, the strong
sales of Decapeptyl® and the sustained growth of Somatuline®.

Germany – Sales reached €91.0 million, up 29.5% year-on-year,
driven by the Cabometyx® launch and the strong growth of
Somatuline®.

Italy – Sales reached €53.1 million, up 8.6% year-on-year, mainly
driven by the launch of Cabometyx®.

United Kingdom – Sales reached €46.5 million, up 23.9%
year-on-year, driven by the strong performance of Cabometyx® and
Somatuline®.

Spain – Sales reached €44.0 million, up 24.4% year-on-year,
driven by the contribution of Cabometyx® and the good
performance of Somatuline® and Decapeptyl®.

Sales in Other European countries reached €220.5 million, up
17.2% year-on-year, supported by the launch of Cabometyx® in
certain countries, Onivyde® sales to partner, the strong
growth of Dysport®, as well as the solid performance of
Somatuline® and Decapeptyl®. Over the period,
sales in the region represented 20.7% of total Group sales compared to
21.1% in 2017.

Sales in North America reached €278.1 million, up 41.1%
year-on-year, driven by continued strong growth of Somatuline®,
as well as the Onivyde® launch contribution and the
good performance of Dysport® in the therapeutics market. Over
the period, sales in North America represented 26.1% of total Group
sales, compared to 24.0% in 2017.

Sales in the Rest of the World reached €197.5 million, up 12.2%
year-on-year, driven by the resupply and the strong performance of
Dysport® in Brazil, the volume growth in Algeria and the
growth of Somatuline® in Japan, partly offset by the negative
impact of the new Etiasa® contractual set up in China. Over
the period, sales in the Rest of the World represented 18.6% of total
Group sales, compared to 20.4% in 2017.

Comparison of Core consolidated income statement for 2018 and 2017

Core financial measures are performance indicators. Reconciliation
between these indicators and IFRS aggregates is presented in Appendix 5
"Bridges from IFRS consolidated net profit to Core consolidated net
profit".

     

 

30 June 2018 30 June 2017 Restated (1) % change

(in millions of euros)

    % of sales     % of sales
Sales 1,064.5   100% 919.5   100% 15.8%
Other revenues 60.6   5.7% 50.2   5.5% 20.7%
Revenue 1,125.1   105.7% 969.7   105.5% 16.0%
Cost of goods sold (216.4)   -20.3% (189.0)   -20.6% 14.5%
Selling expenses (380.8)   -35.8% (341.1)   -37.1% 11.6%
Research and development expenses (141.6)   -13.3% (126.1)   -13.7% 12.2%
General and administrative expenses (78.3)   -7.4% (66.9)   -7.3% 17.0%
Other core operating income 14.6   1.4% 0.3   0.0% N.A.
Other core operating expenses (0.2)   0.0% (6.3)   -0.7% -97.5%
Core Operating Income 322.5   30.3% 240.5   26.2% 34.1%
Net financing costs (3.1)   -0.3% (4.2)   -0.5% -25.5%
Other financial income and expense (10.1)   -1.0% (7.5)   -0.8% 35.9%
Core income taxes (72.8)   -6.8% (60.7)   -6.6% 19.9%

Share of net profit (loss) from entities
accounted for using
the equity method

0.6   0.1% 1.0   0.1% -37.0%
Core consolidated net profit 237.1   22.3% 169.2   18.4% 40.1%
- Attributable to shareholders of Ipsen S.A. 237.3   22.3% 169.2   18.4% 40.2%
- Attributable to non-controlling interests (0.2)   0.0% 0.0   0.0% N.A.
   

Core EPS fully diluted - attributable to
Ipsen S.A.
shareholders (in € per

share)

2.86 2.04 40.2%
 

Reconciliation from Core consolidated net
profit to IFRS consolidated net profit

 
Core consolidated net profit 237.1 169.2

Amortization of intangible assets (excl
software)

(24.2) (15.0)
Other operating income or expenses (4.0) (22.5)
Restructuring (11.6) (7.3)
Impairment losses - -
Other 0.1 1.6
IFRS consolidated net profit 197.3 125.9

(1) As part of the effort to implement its new organization, the Group
reviewed the presentation of its financial statements and changed the
classification of certain items on its income statement, with the view
that the new presentation would provide more relevant information to
financial statement readers. These reclassifications had no impact on
Operating income or Consolidated net profit. The impact of the various
reclassifications on the consolidated income statement for the period
ended 30 June 2017 is presented in Appendix 2.

  • Sales

At the end of June 2018, the Group's consolidated Sales reached €1,064.5
million, up 15.8% year-on-year and up 21.5% excluding the impact of
foreign exchange.

  • Other revenues

Other revenues for the half year 2018 totaled €60.6 million, up 20.7%
versus €50.2 million at the end of June 2017. The evolution was
attributable to higher royalties received from partners, mainly Galderma
for Dysport®, Menarini for Adenuric® and Shire for
Onivyde®. Other revenues were also positively impacted in
2018 by the new contractual set-up implemented since the third quarter
of 2017 for Etiasa® in China.

  • Cost of goods sold

At the end of June 2018, Cost of goods sold amounted to €216.4 million,
representing 20.3% of sales compared to €189.0 million, or 20.6% of
sales at the end of June 2017. The slight improvement of the cost of
goods sold as a percentage of sales is driven by the favorable impact of
Specialty Care growth in the product mix, partly offset by the increase
of royalties paid to partners.

  • Selling expenses

For the first half of 2018, Selling expenses amounted to €380.8 million,
representing 35.8% of sales, up 11.6% versus the same period in 2017.
The increase reflects the commercial efforts deployed to support the
Cabometyx® launch in Europe, the growth of Somatuline®
in the United States and in Europe as well as the commercial investment
for Onivyde® in the United States.

  • Research and development expenses

For the first half of 2018, Research and development expenses totaled
€141.6 million, compared to €126.1 million at the end of June 2017. The
Group increased investments in Research and development in Oncology,
especially for Cabometyx®, Onivyde® and the
peptide receptor radionuclide therapy program, and in Neuroscience,
mainly for Dysport® life cycle management and the new
neurotoxin programs.

  • General and administrative expenses

At the end of June 2018, General and administrative expenses amounted to
€78.3 million, compared to €66.9 million at the end of June 2017. The
increase resulted primarily from the reinforcement of the corporate
functions supporting Ipsen's growth and the impact of the Group's
positive performance on variable compensation.

  • Other core operating income and expenses

In the first half of 2018, Other core operating income and expenses
amounted to a profit of €14.4 million versus an expense of €6.0 million
in the first half of 2017. This evolution is mainly due to the impact of
the currency hedging policy.

  • Core Operating Income

Core Operating Income for the first half of 2018 reached €322.5 million,
representing 30.3% of sales, compared to €240.5 million at the end of
June 2017, representing 26.2% of sales, a growth of 34.1% and an
increase of profitability by 4.1 points.

  • Net financing costs and Other financial income and expense

At the end of June 2018, the Group incurred Net financial expenses of
€13.2 million, versus €11.6 million in the first half of 2017. Net
financing costs decreased by €1.1 million driven by the decrease of the
net debt level over the period. Other financial income and expense
increased by €2.6 million, mainly attributable to the cost of hedging
implemented to mitigate the foreign exchange exposure of the Group.

  • Core income taxes

At the end of June 2018, Core income tax expense of €72.8 million
resulted from a core effective tax rate of 23.5% on core profit before
tax compared to a core effective tax rate of 26.5% in the same period in
2017. The decrease in the core effective tax rate is mainly attributable
to the positive impact of the U.S. tax reform.

  • Core consolidated net profit

For the first half of 2018, Core consolidated net profit increased by
40.1% to €237.1 million, with €237.3 million fully attributable to Ipsen
S.A. shareholders. This compares to Core consolidated net profit of
€169.2 million, fully attributable to Ipsen S.A. shareholders at the end
of June 2017.

  • Core Earning per share

At the end of June 2018, Core EPS fully diluted came to €2.86, up 40.2%
versus €2.04 per share at the end of June 2017.

From Core financial measures to IFRS reported figures

Reconciliations between IFRS June 2017 / June 2018 results and the Core
financial measures are presented in Appendix 5.

At the end of June 2018, the main reconciling items between Core
consolidated net income and IFRS consolidated net income were:

  • Amortization of intangible assets (excluding software)

Amortization of intangible assets (excluding software) for the first
half of 2018 amounted to €33.1 million before tax, compared to €21.5
million before tax at the end of June 2017, mainly due to the higher
amortization of intangible assets from Cabometyx® and Onivyde®.

  • Other operating income and expenses and Restructuring costs

Other non-core operating income and expenses for the first half of 2018
amounted to an expense of €3.7 million before tax, mainly related to the
termination of R&D studies and costs arising from the Group's
transformation programs, partially compensated by a favorable settlement
with a U.S. partner. Restructuring costs came to €16.0 million before
tax, impacted by the relocation of the U.S. commercial affiliate to
Cambridge, Massachusetts.

At the end of June 2017, Other non-core operating expenses totaled €34.8
million before tax and restructuring expenses of €7.9 million,
consisting mainly of integration costs related to the Onivyde® acquisition,
the adaptation of the R&D structure and programs and the cost of a
settlement with a partner in Japan.

  • Impairment losses

In the first half of 2018, no impairment loss or gain was recognized.

  • Other

At the end of June 2018, Other items amounted to an expense of €0.1
million versus €1.6 million at the end of June 2017, and were related to
discontinued operations.

As a consequence, IFRS reported indicators are:

  • Operating income

At the end of June 2018, Operating income totaled €269.7 million versus
€176.4 million at the end of June 2017, with an Operating margin of
25.3%, up 6.2 points compared to the first half of 2017.

  • Consolidated net profit

Consolidated net profit was €197.3 million at the end of June 2018,
showing an increase of 56.7% versus the end of June 2017 at €125.9
million.

  • Earning per share

Fully diluted EPS was €2.38 at the end of June 2018 versus €1.52 at the
end of June 2017.

Operating segments: Core Operating Income by therapeutic area

Segment information is presented according to the Group's two operating
segments, Specialty Care and Consumer Healthcare.

All costs allocated to these two segments are presented in the key
performance indicators. Only corporate overhead costs and the impact of
the currency hedging policy are not allocated to the two operating
segments.

The Group uses Core Operating Income to measure its performance. Core
Operating Income is the indicator used by the Group to measure operating
performance and to allocate resources.

Sales, Revenue and Core Operating Income are presented by therapeutic
area for the 2018 and 2017 half years in the following table:

         
(in millions of euros) 30 June 2018 30 June 2017 Change %
                     
Specialty Care
Sales 920.2 764.6 155.6 20.3%
Revenue 950.5 789.2 161.3 20.4%
Core Operating Income 356.3 281.3 75.0 26.6%

 

% of sales

38.7% 36.8%
Consumer Healthcare
Sales 144.3 154.8 (10.5) -6.8%
Revenue 174.6 180.5 (5.9) -3.3%
Core Operating Income 41.8 47.1 (5.3) -11.2%

 

% of sales

29.0% 30.4%
Total Unallocated
Core Operating Income (75.6) (87.8) 12.2 -13.9%
 
Group total
Sales 1,064.5 919.5 145.0 15.8%
Revenue 1,125.1 969.7 155.4 16.0%
Core Operating Income 322.5 240.5 82.0 34.1%

 

 

% of sales

  30.3%   26.2%        
 

At the end of June 2018, Specialty Care sales grew to €920.2
million, up 20.3% as compared to the end of June 2017 (26.7% at constant
exchange rates), reaching 86.4% of total consolidated sales at 30 June
2018, versus 83.2% a year earlier. In the first half of 2018, Core
Operating Income
for Specialty Care amounted to €356.3 million,
representing 38.7% of sales. This compares to €281.3 million in the
prior-year period, representing 36.8% of sales. The improvement reflects
the continued growth of Somatuline® in the United States and
Europe, the contribution of Cabometyx® and Onivyde® as
well as the performance of Dysport®, along with increased
commercial and Research & development investments.

At the end of June 2018, Consumer Healthcare sales came to €144.3
million, down 6.8% year-on-year (or -3.9% at constant exchange rates),
impacted by the new contractual set-up in China for Etiasa®,
partially compensated by the good performance of the
Smecta® brand, contribution of the new products acquired in
2017 as well as higher Tanakan® sales. For the first half of
2018, Core Operating Income for Consumer Healthcare amounted to
€41.8 million, representing 29.0% of sales, compared to 30.4% at the end
of June 2017, reflecting commercial investments to support the OTx
strategy.

At the end of June 2018, Unallocated Core Operating Income came
to a negative €75.6 million, compared to a negative €87.8 million in the
year-earlier period. The evolution is mainly attributable to the
positive impact from the currency hedging policy, partially compensated
by the reinforcement of the unallocated corporate functions and the
impact of the Group's positive performance on variable compensation.

Net cash flow and financing

The Group had a net cash increase of €25.3 million over the first half
of 2018, bringing closing net debt to €438.0 million.

Analysis of the consolidated net cash flow statement

   
(in millions of euros)   30 June 2018   30 June 2017
Opening net cash / (debt)   (463.3)   68.6
         
Core Operating Income 322.5 240.5
Non-cash items 14.2 (4.5)
Change in operating working capital requirement (50.2) (35.4)
(Increases) decreases in other working capital requirement (1.5) (20.0)
Net capex (excluding milestones paid) (47.8) (37.2)
Dividends received from entities accounted for using the equity
method
  0.9   0.0
Operating Cash Flow   238.2   143.4
Other non-core operating income and expenses and restructuring costs
(cash)
(0.6) (18.3)
Financial income (cash) (9.0) (9.1)
Current income tax (P&L, excluding provisions for tax contingencies) (72.8) (32.6)
Other operating cash flow   8.7   11.5
Free Cash Flow   164.5   94.9
Dividends paid (83.2) (70.6)
Net investments (business development and milestones) (42.8) (759.8)
Share buyback (4.4) (4.0)
FX on net indebtedness (6.2) 0.0
Other (discontinued operations and financial instrument)   (2.5)   1.6
Shareholders return and external growth operations   (139.2)   (832.9)
CHANGE IN NET CASH / (DEBT)   25.3   (738.0)
         
Closing net cash / (debt)   (438.0)   (669.4)
 
  • Operating cash flow

Operating cash flow in the first half of 2018 totaled €238.2 million, up
€94.8 million (+66.1%) versus the first half of 2017, mainly driven by
higher Core Operating Income (up €82.0 million).

Non-cash items decreased in the first half of 2018 by €14.2 million
versus an increase of €4.5 million in the first half of 2017, impacted
by a change in long-term management incentive programs.

Working capital requirement for operating activities increased by €50.2
million for the first half of 2018, compared to an increase of €35.4
million in the first half of 2017. The increase in the first half of
2018 stemmed mainly from:

  • a €20.3 million increase in inventories during the year, in-line with
    business growth;
  • a €34.7 million increase in trade receivables, in-line with sales
    growth, compared to a €34.0 million increase in trade receivables at
    the end of June 2017;
  • a €4.8 million increase in trade payables as of 30 June 2018, as
    compared to an increase of €18.1 million in the first half of 2017.

At the end of June 2018, other Working capital requirement needs
decreased by €1.5 million, mainly driven by variable compensation
payments in the first half of the year, fully compensated by an increase
in tax liabilities.

Net capital expenditure amounted to €47.8 million for the first half of
2018, compared to €37.2 million in 2017, and mainly included projects to
support increased production capacity at industrial sites in the United
Kingdom, the United States and France, as well as corporate investments
in information technology and digital projects.

  • Free cash flow

Free cash flow for the first six months of 2018 came to €164.5 million,
up €69.5 million (+73.3%) versus 2017, mainly driven by an improvement
in Operating cash flow and lower Other operating income or expenses and
restructuring costs, partially compensated by higher current income tax.

Other non-core operating income and expenses and restructuring costs of
€0.6 million included a positive settlement with a U.S. partner, offset
by costs arising from the Group's transformation programs. In the first
half of 2017, €18.3 million of payments included Onivyde®
integration costs, the impact of the transformation of the R&D model and
a settlement with a partner in Japan.

The €9.0 million in financial expenses paid in the first half of 2018,
in-line with June 2017, resulted from hedging costs, the impact of the
bond issued in June 2016 and financing costs.

The change in current income tax stemmed mainly from the growth of the
income, partially compensated by the improvement in the effective tax
rate induced by the U.S. tax reform.

  • Shareholders return and external growth operations

In the first half of 2018, the dividend payout to Ipsen S.A.
shareholders amounted to €83.0 million.

Net investments in the first half of 2018 amounted to €43 million,
including additional milestones paid to Exelixis for €29 million, an
equity investment in Arix Bioscience for €17 million, the final payment
of the acquisition of Akkadeas Pharma for €8 million, partly offset by
the milestone received from Shire for Onivyde® for €21
million.

Net investments in the first half of 2017 amounted to €760 million,
including the acquisition of Onivyde® assets for €666 million
(including the purchase price and future earn-outs), the acquisition of
Consumer Healthcare products in European territories for €86 million and
the equity stake in Akkadeas Pharma for €5 million as well as an
additional commercial milestone paid to Exelixis for €9 million, partly
offset by a €8 million regulatory milestone payment received from Radius.

Reconciliation of cash and cash equivalents and net cash

   
(in millions of euros)   30 June 2018   30 June 2017
Current financial assets (derivative instruments on financial
operations)
  0.4   -
Closing cash and cash equivalents   344.9   170.9
Bonds (297.7) (297.3)
Other financial liabilities (excluding derivative instruments) (**) (83.2) (134.9)
Non-current financial liabilities (380.9) (432.1)
Credit lines and bank loans (4.1) (92.7)
Financial liabilities (excluding derivative instruments) (**) (398.3) (315.5)
Current financial liabilities   (402.4)   (408.1)
Debt   (783.3)   (840.3)
Net cash / (debt) (*)   (438.0)   (669.4)

(*) Net cash / (debt): derivative instruments booked in
financial assets and related to financial operations, cash and cash
equivalents, less bank overdrafts, bank loans and other financial
liabilities and excluding financial derivative instruments on commercial
operations.

(**) Financial liabilities mainly exclude €15.5 million in
derivative instruments related to commercial operations at the end of
June 2018, compared with €20.4 million one year earlier.

  • Analysis of Group cash

Ipsen S.A. issued on 16 June 2016, a €300 million unsecured seven-year
public bond loan with an annual interest rate of 1.875%. In addition,
€300 million in bilateral long-term bank loans were contracted with a
maturity of 6.5 years. As of 30 June 2018, none of the bank loans were
drawn down.

Ipsen S.A. also has a syndicated loan of €600 million maturing on 17
October 2022. As of 30 June 2018, no amount was drawn down on this
facility.

Ipsen S.A. has a program of "NEU CP - Negotiable EUropean" Commercial
Paper, for €600 million, of which €367 million was issued as of 30 June
2018.

  • Estimated impact of IFRS 16 standard

The Group completed the diagnostic of the main impacts of the standard
IFRS 16 – Leases. The main contracts concerned by this standard are
property leases and vehicle rentals.

The Group will utilize the simplified retrospective method from the
first application of this standard as of 1 January 2019.

The Group estimates that the application of IFRS 16 will lead to an
increase in the financial liabilities of approximately €170 million as
of 1 January 2019.

APPENDICES

  • Appendix 1 – Consolidated income statement
(in millions of euros)   30 June 2018  

30 June 2017
Restated (1)

Sales   1,064.5   919.5
Other revenues 60.6 50.2
Revenue 1,125.1 969.7
Cost of goods sold (216.4) (189.0)
Selling expenses (380.8) (341.1)
Research and development expenses (141.6) (126.1)
General and administrative expenses (78.3) (66.9)
Other operating income 31.1 1.9
Other operating expenses (53.5) (64.2)
Restructuring costs (16.0) (7.9)
Impairment losses - -
Operating Income 269.7 176.4
Investment income 1.1 0.6
Financing costs (4.2) (4.8)
Net financing costs (3.1) (4.2)
Other financial income and expense (10.1) (7.5)
Income taxes (59.8) (41.4)
Share of net profit (loss) from entities accounted for using the
equity method
0.6 1.0
Net profit (loss) from continuing operations 197.3 124.4
Net profit (loss) from discontinued operations 0.1 1.6
Consolidated net profit (loss) 197.3 125.9
- Attributable to shareholders of Ipsen S.A. 197.5 125.9
- Attributable to non-controlling interests (0.2) 0.0
         
         
Basic earnings per share, continuing operations (in euros) 2.39 1.51
Diluted earnings per share, continuing operations (in euros) 2.38 1.50
 
Basic earnings per share, discontinued operations (in euros) 0.00 0.02
Diluted earnings per share, discontinued operations (in euros) 0.00 0.02
 
Basic earnings per share (in euros) 2.39 1.53
Diluted earnings per share (in euros)   2.38   1.52

(1) As part of the effort to implement its new organization, the Group
reviewed the presentation of its financial statements and changed the
classification of certain items on its income statement, with the view
that the new presentation would provide more relevant information to
financial statement readers. These reclassifications had no impact on
Operating income or Consolidated net profit. The impact of the various
reclassifications on the consolidated income statement for the period
ended 30 June 2017 is presented in Appendix 2.

  • Appendix 2 – Reconciliation of the income statement reported as of
    30 June 2017 published in 2017 and the restated income statement as of
    30 June 2017 published in 2018

As part of the effort to implement its new organization, the Group
reviewed the presentation of its financial statements and changed the
classification of certain items on its income statement, with the view
that the new presentation would provide more relevant information to
financial statement readers.

In order to better reflect the substance of the operations related to
global medical affairs, the Group has decided starting from 2017 to
recognize global medical affairs expenses in "Research and development
expenses". These costs, which amounted to €14.2 million at the end of
June 2017, were previously recognized in "Selling expenses".

The allocation of internal costs within the various functions was
revised in the consolidated income statement. As a result, certain
support function expenses were reclassified within the income statement,
a move deemed by the Group to be more relevant given the activity of the
concerned services and the new organization.

These reclassifications had no impact on the Operating result and on the
Net profit.

Starting December 2017, the Group restated the comparison reporting
periods in accordance with IAS 1 Revised. The impact of the various
reclassifications on the consolidated income statement for the period
ended 30 June 2017 is presented in the following table:

     
(in millions of euros)  

30 June
2017
Restated

 

Presentation
restatement

 

30 June
2017
Published

Sales 919.5 919.5
Other revenues 50.2 50.2
Revenue 969.7 969.7
Cost of goods sold (189.0) 1.2 (190.2)
Selling expenses (341.1) 8.6 (349.6)
Research and development expenses (126.1) (11.1) (115.0)
General and administrative expenses (66.9) 1.4 (68.3)
Other operating income 1.9 1.9
Other operating expenses (64.2) (64.2)
Restructuring costs (7.9) (7.9)
Impairment losses - -
Operating Income 176.4 0.0 176.4
Investment income 0.6 0.6
Financing costs (4.8) (4.8)
Net financing costs (4.2) (4.2)
Other financial income and expense (7.5) (7.5)
Income taxes (41.4) (41.4)
Share of net profit (loss) from entities accounted for using the
equity method
1.0 1.0
Net profit (loss) from continuing operations 124.4 0.0 124.4
Net profit (loss) from discontinued operations 1.6 1.6
Consolidated net profit 125.9 0.0 125.9
- Attributable to shareholders of Ipsen S.A. 125.9 125.9
- Attributable to non-controlling interests   0.0       0.0
             
Basic earnings per share, continuing operations (in euros) 1.51 1.51
Diluted earnings per share, continuing operations (in euros) 1.50 1.50
 
Basic earnings per share, discontinued operations (in euros) 0.02 0.02
Diluted earnings per share, discontinued operations (in euros) 0.02 0.02
 
Basic earnings per share (in euros) 1.53 1.53
Diluted earnings per share (in euros)   1.52       1.52
 
  • Appendix 3 – Consolidated balance sheet before allocation of net
    profit
   
(in millions of euros)   30 June 2018   31 December 2017
ASSETS
Goodwill 392.1 389.0
Other intangible assets 963.6 930.2
Property, plant & equipment 427.7 418.9
Equity investments 65.2 43.3
Investments in companies accounted for using the equity method 14.8 14.7
Non-current financial assets 96.2 112.7
Deferred tax assets 151.0 142.0
Other non-current assets 4.7 4.8
Total non-current assets 2,115.3 2,055.6
Inventories 188.3 167.4
Trade receivables 469.8 437.2
Current tax assets 28.1 58.0
Current financial assets 16.5 29.6
Other current assets 118.2 96.3
Cash and cash equivalents 359.3 228.0
Total current assets 1,180.2 1,016.4
TOTAL ASSETS   3,295.5   3,072.0
         
EQUITY AND LIABILITIES
Share capital 83.8 83.7
Additional paid-in capital and consolidated reserves 1,379.6 1,171.7
Net profit (loss) for the period 197.5 272.3
Foreign exchange differences 4.5 (2.3)
Equity attributable to Ipsen S.A. shareholders 1,665.3 1,525.4
Equity attributable to non-controlling interests 2.5 10.5
Total shareholders' equity 1,667.9 1,535.9
Retirement benefit obligation 66.7 67.6
Non-current provisions 50.2 33.3
Other non-current financial liabilities 384.4 400.3
Deferred tax liabilities 16.8 21.5
Other non-current liabilities 55.2 71.7
Total non-current liabilities 573.2 594.3
Current provisions 17.9 16.6
Current financial liabilities 415.0 294.7
Trade payables 325.2 319.1
Current tax liabilities 11.2 2.4
Other current liabilities 270.7 290.2
Bank overdrafts 14.4 18.7
Total current liabilities 1,054.4 941.8
TOTAL EQUITY & LIABILITIES   3,295.5   3,072.0
 
  • Appendix 4 – Cash flow statements
  • Appendix 4.1 – Consolidated statement of cash flow
   
     
(in millions of euros)   30 June 2018   30 June 2017
Consolidated net profit (loss) 197.3 125.9
Share of profit (loss) from entities accounted for using the equity
method before impairment losses
0.3 (1.0)
Net profit (loss) before share from entities accounted for using
the equity method
197.6 124.9
Non-cash and non-operating items
- Depreciation, amortization, provisions 77.6 53.3
- Impairment losses included in operating income and net financial
income
- -
- Change in fair value of financial derivatives 1.9 (12.1)
- Net gains or losses on disposals of non-current assets 0.6 0.1
- Foreign exchange differences 1.1 15.9
- Change in deferred taxes (12.6) 8.8
- Share-based payment expense 5.7 4.5
- Other non-cash items 0.7 0.2
Cash flow from operating activities before changes in working
capital requirement
272.4 195.5
- (Increase) / decrease in inventories (20.3) (19.5)
- (Increase) / decrease in trade receivables (34.7) (34.0)
- Increase / (decrease) in trade payables 4.8 18.1
- Net change in income tax liability 45.6 16.4
- Net change in other operating assets and liabilities (58.9) (47.0)
Change in working capital requirement related to operating
activities
(63.4) (66.0)
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 209.0 129.6
Acquisition of property, plant & equipment (35.2) (28.1)
Acquisition of intangible assets (67.5) (93.4)
Proceeds from disposal of intangible assets and property, plant &
equipment
2.8 0.1
Acquisition of shares in non-consolidated companies (22.1) (0.7)
Payments to post-employment benefit plans (0.8) (0.2)
Impact of changes in the consolidation scope (7.4) (547.6)
Deposits paid (0.5) (0.1)
Change in working capital related to investment activities 20.6 (11.6)
Other cash flow related to investment activities 20.5 (0.2)
NET CASH PROVIDED (USED) BY INVESTMENT ACTIVITIES (89.6) (682.0)
Additional long-term borrowings 1.1 1.6
Repayment of long-term borrowings (25.1) (2.8)
Net change in short-term borrowings 119.1 375.5
Capital increase 2.4 3.5
Treasury shares 2.0 (3.3)
Dividends paid by Ipsen S.A. (83.0) (70.2)
Dividends paid by subsidiaries to non-controlling interests (0.2) (0.4)
Change in working capital related to financing activities (3.0) (2.8)
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES   13.3   301.1
CHANGE IN CASH AND CASH EQUIVALENTS   132.7   (251.3)
Opening cash and cash equivalents 209.3 422.5
Impact of exchange rate fluctuations 2.9 (0.4)
Closing cash and cash equivalents   344.9   170.9
 
  • Appendix 4.2 – Consolidated net cash flow statement
   
(in millions of euros)   30 June 2018   30 June 2017
Opening cash and cash equivalents       422.5
Opening net cash / (debt)   (463.3)   68.6
 
CORE OPERATING INCOME 322.5 240.5
Non-cash items 14.2 (4.5)
(Increase) /decrease in inventories (20.3) (19.5)
(Increase) / decrease in trade receivables (34.7) (34.0)
Increase / (decrease) in trade payables   4.8   18.1
Change in operating working capital requirement   (50.2)   (35.4)
Change in income tax liability 45.6 16.4
Change in other operating assets and liabilities (excluding
milestones received)
  (47.1)   (36.4)
Other changes in working capital requirement   (1.5)   (20.0)
Acquisition of property, plant & equipment (35.2) (28.1)
Acquisition of intangible assets (excluding milestones paid) (8.9) (7.0)
Disposal of fixed assets 2.8 0.1
Change in working capital related to investment activities   (6.5)   (2.1)
Net capex (excluding milestones paid)   (47.8)   (37.2)
Dividends received from entities accounted for using the equity
method
0.9 -
Operating Cash Flow 238.2 143.4
Other non-core operating income and expenses and restructuring costs
(cash)
(0.6) (18.3)
Financial income (cash) (9.0) (9.1)
Current income tax (P&L, excluding provisions for tax contingencies) (72.8) (32.6)
Other operating cash flow 8.7 11.5
Free Cash Flow 164.5 94.9
Dividends paid (including payout to non-controlling interests) (83.2) (70.6)
Acquisition of shares in non-consolidated companies (1) (22.1) (0.7)
Acquisition of other financial assets - -
Impact of changes in consolidation scope (2) (8.0) (671.1)
Milestones paid (3) (31.6) (9.5)
Milestones received (4) 20.6 8.0
Other Business Development operations   (1.8)   (86.5)
Net investments (business development and milestones)   (42.8)   (759.8)
Share buybacks (4.4) (4.0)
FX on net indebtedness (6.2) -
Other (discontinued operations and financial instrument) (2.5) 1.6
Shareholders return and external growth operations   (139.2)   (832.9)
CHANGE IN NET CASH / (DEBT)   25.3   (738.0)
         
Closing net cash / (debt)   (438.0)   (669.4)

(1) Acquisition of shares in non-consolidated companies is
mainly comprised of an equity investment in Arix Bioscience for €17
million and an investment in an external innovation fund for €5 million.

(2) Impact of change in consolidation scope reflects the last
equity stake in Akkadeas Pharma.

(3) Milestones paid correspond to payments subject to the
terms and conditions set out in the Group's partnership agreements
including €29 million milestone paid to Exelixis in the first half of
2018. The amounts paid were recorded as an increase in intangible assets
on the consolidated balance sheet. The transactions were included in the
"Acquisition of intangible assets" line item in the consolidated
statement of cash flow (see Appendix 4.1).

(4) Milestones received are amounts collected by Ipsen from
its partners. The €21 million received in the first half of 2018 is
related to a milestone from Shire following the Onivyde®
acquisition closed in 2017. In the consolidated balance sheet, the Shire
milestones not yet received are booked in "Current financial assets" and
in "Non-current financial assets", depending on the forecasted cash-in
timing. Shire milestones received are included in the "Other cash flow
related to investment activities" line item in the consolidated
statement of cash flow (see Appendix 4.1).

  • Appendix 5 – Bridges from IFRS consolidated net profit to Core
    consolidated net profit
             
    IFRS                       CORE
(in millions of euros)   30 June 2018  

Amortization of
intangible
assets (excl
software)

 

Other
operating
income or
expenses

  Restructuring  

Impairment
losses

  Other   30 June 2018
Sales 1,064.5 1,064.5
Other revenues   60.6                       60.6
Revenue   1,125.1   -   -   -   -   -   1,125.1
Cost of goods sold (216.4) (216.4)
Selling expenses (380.8) (380.8)
Research and development expenses (141.6) (141.6)
General and administrative expenses (78.3) (78.3)
Other operating income 31.1 (16.5) 14.6
Other operating expenses (53.5) 33.1 20.2 (0.2)
Restructuring costs (16.0) 16.0 -
Impairment losses   -                       -
Operating Income   269.7   33.1   3.7   16.0   -   -   322.5
Net financing costs (3.1) (3.1)
Other financial income and expense (10.1) (10.1)
Income taxes (59.8) (8.9) 0.3 (4.4) (72.8)

Share of net profit (loss) from entities accounted for
using
the equity method

  0.6                       0.6
Net profit (loss) from continuing operations   197.3   24.2   4.0   11.6   -   -   237.1
Net profit (loss) from discontinued operations   0.1                   (0.1)   -
Consolidated net profit   197.3   24.2   4.0   11.6   -   (0.1)   237.1
- Attributable to shareholders of Ipsen S.A. 197.5 24.2 4.0 11.6 (0.1) 237.3
- Attributable to non-controlling interests   (0.2)                       (0.2)
                             

Earnings per share fully diluted - attributable to Ipsen S.A.
shareholders
(in € per share)

  2.38   0.29   0.05   0.14       (0.00)   2.86
 

The reconciliation items between Core consolidated net profit and IFRS
consolidated net profit are described in the paragraph "From Core
financial measures to IFRS reported figures".

             
    IFRS                       CORE
(in millions of euros)  

30 June 2017
Restated (1)

 

Amortization of
intangible
assets (excl
software)

 

Other
operating
income or
expenses

  Restructuring  

Impairment
losses

  Other  

30 June 2017
Restated (1)

Sales 919.5 919.5
Other revenues   50.2                       50.2
Revenue   969.7   -   -   -   -   -   969.7
Cost of goods sold (189.0) (189.0)
Selling expenses (341.1) (341.1)
Research and development expenses (126.1) (126.1)
General and administrative expenses (66.9) (66.9)
Other operating income 1.9 (1.6) 0.3
Other operating expenses (64.2) 21.5 36.4 (6.3)
Restructuring costs (7.9) 7.9 -
Impairment losses   -                       -
Operating Income   176.4   21.5   34.8   7.9   -   -   240.5
Net financing costs (4.2) (4.2)
Other financial income and expense (7.5) (7.5)
Income taxes (41.4) (6.5) (12.3) (0.5) (60.7)

Share of net profit (loss) from entities accounted for
using
the equity method

  1.0                       1.0
Net profit (loss) from continuing operations   124.4   15.0   22.5   7.3   -   -   169.2
Net profit (loss) from discontinued operations   1.6                   (1.6)   -
Consolidated net profit   125.9   15.0   22.5   7.3   -   (1.6)   169.2
- Attributable to shareholders of Ipsen S.A. 125.9 15.0 22.5 7.3 (1.6) 169.2
- Attributable to non-controlling interests   0.0                       0.0
                             

Earnings per share fully diluted - attributable to Ipsen S.A.
shareholders
(in € per share)

  1.52   0.18   0.27   0.09       (0.02)   2.04
 

(1) As part of the effort to implement its new organization,
the Group reviewed the presentation of its financial statements and
changed the classification of certain items on its income statement,
with the view that the new presentation would provide more relevant
information to financial statement readers. These reclassifications had
no impact on Operating income or Consolidated net profit. The impact of
the various reclassifications on the consolidated income statement for
the period ended 30 June 2017 is presented in Appendix 2.

RISK FACTORS

The Group operates in an environment which is undergoing rapid change
and exposes its operations to a number of risks, some of which are
outside its control. The risks and uncertainties set out below are not
exhaustive and the reader is advised to refer to the Group's 2017
Registration Document available on its website (www.ipsen.com).

  • The Group is faced with uncertainty in relation to the prices set for
    all its products, in so far as medication prices have come under
    severe pressure over the last few years as a result of various
    factors, including the tendency for governments and payers to reduce
    prices or reimbursement rates for certain drugs marketed by the Group
    in the countries in which it operates, or even to remove those drugs
    from lists of reimbursable drugs.
  • The Group depends on third parties to develop and market some of its
    products, which generates or may generate substantial royalties for
    the Group, but these third parties could behave in ways that cause
    damage to the Group's business. The Group cannot be certain that its
    partners will fulfill their obligations. It might be unable to obtain
    any benefit from those agreements. A default by any of the Group's
    partners could generate lower revenues than expected. Such situations
    could have a negative impact on the Group's business, financial
    position or performance.
  • Actual results may depart significantly from the objectives given that
    a new product can appear to be promising at a development stage, or
    after clinical trials, but never be launched on the market, or be
    launched on the market but fail to sell, notably for regulatory or
    competitive reasons.
  • The Research and Development process typically lasts between eight and
    twelve years from the date of discovery to a product being brought to
    market. This process involves several stages; at each stage, there is
    a substantial risk that the Group could fail to achieve its objectives
    and be forced to abandon its efforts in respect of products in which
    it has invested significant amounts. Thus, in order to develop viable
    products from a commercial point of view, the Group must demonstrate,
    by means of pre-clinical and clinical trials, that the molecules in
    question are effective and are not harmful to humans. The Group cannot
    be certain that favorable results obtained during pre-clinical trials
    will subsequently be confirmed during clinical trials, or that the
    results of clinical trials will be sufficient to demonstrate the
    safety and efficacy of the product in question such that the required
    marketing approvals can be obtained.
  • The Group must deal with or may have to deal with competition (i) from
    generic products, particularly in relation to Group products which are
    not protected by patents (ii), products which, although they are not
    strictly identical to the Group's products or which have not
    demonstrated their bioequivalence, may obtain a marketing
    authorization for indications similar to those of the Group's products
    pursuant to the bibliographic reference regulatory procedure (well
    established medicinal use) before the patents protecting its products
    expire. Such a situation could result in the Group losing market share
    which could affect its current level of growth in sales or
    profitability.
  • Third parties might claim the benefit of intellectual property rights
    with respect to the Group's inventions. The Group provides the third
    parties with which it collaborates (including universities and other
    public or private entities) with information and data in various forms
    relating to the research, development, manufacturing and marketing of
    its products. Despite the precautions taken by the Group with regard
    to these entities, in particular of a contractual nature, they (or
    certain of their members or affiliates) could claim ownership of
    intellectual property rights arising from the trials carried out by
    their employees or any other intellectual property right relating to
    the Group's products or molecules in development.
  • The Group's strategy includes acquiring companies or assets which may
    enable or facilitate access to new markets, research projects or
    geographical regions or enable the Group to realize synergies with its
    existing businesses. Should the growth prospects or earnings potential
    of such assets as well as valuation assumptions change materially from
    initial assumptions, the Group might be under the obligation to adjust
    the values of these assets in its balance sheet, thereby negatively
    impacting its results and financial situation.
  • The marketing of certain products by the Group has been and could be
    affected by supply shortages and other disruptions. Such difficulties
    may be of both a regulatory nature (the need to correct certain
    technical problems in order to bring production sites into compliance
    with applicable regulations) and a technical nature (difficulties in
    obtaining supplies of satisfactory quality or difficulties in
    manufacturing active ingredients or drugs complying with their
    technical specifications on a sufficiently reliable and uniform
    basis). This situation may result in inventory shortages and/or in a
    significant reduction in the sales of one or more products.
  • The Group's activities are largely dependent on information systems.
    Despite the procedures and security measures in place internally and
    at the providers with which the Group operates, the Group may have to
    deal with incidents, notably connected to malicious acts against such
    information systems, such as cyber-attacks that could lead to activity
    disruptions, the loss or alteration of critical data, or the theft or
    corruption of data.
  • In certain countries exposed to significant public deficits, and where
    the Group sells its drugs directly to public hospitals, the Group
    could face discount or lengthened payment terms or difficulties in
    recovering its receivables in full. The Group closely monitors the
    evolution of the situation in Southern Europe where hospital payment
    terms are especially long. More generally, the Group may also be
    unable to purchase sufficient credit insurance to protect itself
    adequately against the risk of payment default from certain customers
    worldwide. Such situations could negatively impact the Group's
    activities, financial situation and results.
  • In the normal course of business, the Group is or may be involved in
    legal or administrative proceedings. Financial claims are or may be
    brought against the Group in connection with some of these proceedings.
  • The cash pooling arrangements for foreign subsidiaries outside the
    euro zone expose the Group to financial foreign exchange risk. The
    variation of these exchange rates may impact significantly the Group's
    results.

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