Recordati Industria Chim

This is the Coruscant Conference Operator. Welcome and thank you for joining the Ricordati 2020 First Quarter Results Conference Call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Ms. Marianne Taschke, Director of Investor Relations and Corporate Communications of Recordati. Please go ahead, Madam.

Good afternoon or good morning to everyone, and thank you for attending the Recordati conference call today. Our CEO Andrea Ricordati and our CFO Luigi La Corte will be presenting and commenting upon our first quarter 2020 results. For a better understanding of this presentation, please access the set of slides available on our website www.ricordati.com under the investor section and presentation tab. At the end of the presentation, we will answer any questions you may have. Andrea, please go ahead. Thank you.

Okay. Good afternoon, ladies and gentlemen, and welcome to our first quarter results conference call. So, if you turn please to slide two of the presentation, which is currently the slide with the title First Quarter 2020 Highlights. As you know, the first quarter of 2020 saw the onset of the COVID-19 pandemic in all geographical areas in which the group operates. As we all know, restrictions were imposed on the movement of people, transport, production, commerce, most of which are still in place. I can confirm that there was exceptional organizational responsiveness at Recordati to that deal with the effect of an unprecedented crisis. Despite the medical emergency and restrictions implemented in all countries, the financial results obtained in the first quarter are very positive and confirm the continued growth of the group. Revenues grow significantly, but please let me remind you that they include a 20 million stockpiling effect, which we expect to lead to a destocking in the second quarter. And also this revenue includes the 14.7 million revenues from the sales of Signicor. EBITDA which excludes 2 million of non-recurring costs related to the COVID-19 emergency, mostly donations to hospitals in the most affected areas, is 172.9 million or 40.3% of sales growing on previous year by 20.1%. Net income also grew by more than 20% with both profitability measures leading therefore to a margin improvement. Adjusted net income, which is net income excluding amortization and impairment of intangible assets except software and goodwill, as well as non-recurring items, net of tax effects is 125.2 million euros or 29.2% of sales with a growth versus the previous year of 23.5%. Luigi will touch and give more information on this additional measure we have introduced during the presentation. Net debt at the end of March is over $880.8 million, compared to net debt of $902.7 million at the 31st of December 2019. During the period, a milestone of $20 million was paid to Novartis, following the European approval of Isturiza. and own shares were purchased for a total outlay net of disposables for the exercise of stock options of 44 million euros. We're also very pleased to have obtained early approval for Resurreza both in Europe and in the US and I should discuss launch planning further on in the presentation. You can please turn to slide three of the presentation. Just a few more words on how Recordati has been dealing with this unprecedented crisis. Clearly, the group's primary objective was a safe cut of employees and the assurance of continuity of supply and distribution of our products. As you all know, with regards to the pharmaceutical industry, operations were allowed to continue in order to ensure the availability of drugs for patients. While complying with all the measures necessary to ensure the health and safety of its employees, Ricordati did not interrupt its production and distribution activities and adopted all necessary measures to guarantee the continued availability of a market of its products. I take this chance to really wish, I really sincerely would like to thank all the group employees for the great effort and excellent job done in this difficult situation. especially in the Lombardy region that, as you know, was one of the most heavily affected areas in Europe with the COVID pandemic. The professionalism, dedication and sense of responsibility, in particular our manufacturing distribution employees, allowed our activities to continue in the best possible way, ensuring the uninterrupted availability of our products, many of which are for the treatment of severe chronic diseases. We are proud of the contribution we have been able to provide in this emergency. Also for the donations we have made to support health care institutions with tireless and courageously committed to fighting the COVID-19 pandemic in the most affected areas. Just to give you a bit more detail on this, looking at this slide, when it comes to safe environment for our employees, we implemented measures to protect obviously individuals and to prevent infection diffusion in our facilities. Clearly, all personnel that could work from home was left home and worked from home. And I can confirm that the organization reacted very well, like I mentioned before, and people are working indeed. New working models in all manufacturing plants were introduced to support distancing measures. As an example, revision of working time and redistribution of personnel in our facilities in Turkey, Italy, and Tunisia. a two-shift model in France in our Nantes airway disease facility, and weakened shifts introduction in our specialty primary care facility in France, in Montluçon, and in our facility in Spain. Turning to supply chain and continue to follow all our businesses and all markets, we introduce alternative supply flows for starting materials and intermediates to feed reproductive API plants, both for captive and merchant portfolios. stock management tuning both for APIs and finished drug forms. We introduced stock de-localization for finished drug forms in the different countries, creating more hubs. Alternative FDF supply flows, planning and production programs revision for FDF, both in Recordati and our CMO plans, and alternative logistics and distribution models. So into slide four, I would like to say a few words on Signifor before I pass on to Luigi who will take you through on the first quarter results. So we are very pleased with the performance of Signifor in the first quarter with an estimated 6% growth versus 2019 on a like-for-like in-market sales basis. especially given the current situation and the fact that we are just starting to promote the product ourselves in the U.S., while the transfer of marketing authorizations in Europe is still to be completed. What is probably of most interest for all of you, and of course for us as well, is the launch of Istoriza. Launch in the U.S. is on track and is slated for June, July, and in the U.S. starting from Q3 2020. We have decided not to postpone the launch in the interest of patients. We are aware of the value of this new treatment option for patients suffering from Christian's disease and are committed to making it available as soon as possible. Launch activities that at one time would have been carried out by being actively present in medical congresses and visiting key opinion leaders and specialists are of course not possible at the moment. Given the current COVID-19 environment to which we're all adjusting, we have invested in a set of tools and technology infrastructure that allows us to conduct remote detailing and enable virtual video conferences with the healthcare providers. Notwithstanding the challenging situation, our organization is committed to implement the most plan as effectively as possible. So if you could please turn to slide five and at this point I'm going to pass to Luigi who will take you through the results. Thank you.

So thank you Andrea and good afternoon and good morning everyone. I'm pleased to have this opportunity to comment what was clearly a strong set of results for Q1, flattered as has been highlighted by what we estimate has been a 20 million stocking effect ahead of or at the start of the COVID crisis. As I go through the presentation, I'm not gonna try and unpick that by product or by market, but what I will say is that it primarily affected our specialty and primary care business in particular in Western Europe and Central and Eastern Europe. Rare disease business was only marginally affected. So with that said, starting with sales by product, corporate products, therefore products which are sold in more than one market, continue to grow and now account for close to 70% of total revenue. Our Lurkani dipping franchise continues to grow nicely. The Mono grew by 8.7% in the quarter, driven by Germany, Poland, Turkey, and Benelux. And the combination product with Enalapril also continued on the growth trajectory that it started back on in the latter part of 2019. Ulurek or Silodesin started to face as a Q1 as anticipated generic competition. Generics entered the market over the course of the quarter and we now have more multiple generics in all of the major European markets with price reductions as anticipated which range between 25 and 40% depending on the country, but so far our strategy to continue to support products at the point of loss of exclusivity has successfully sustained volume and managed to contain the level of erosion in the first few months. We obviously expect that to continue in the coming months. Pitavastatin continued to grow well, driven by strong underlying growth in Russia and Turkey, but also continued growth in Spain, Portugal, and Greece. We had an exceptionally strong quarter on our metoprolol franchise, driven both by those markets where we established operations to promote products directly over the course of 2019, but also growth in Germany and Poland. Growth which was in part also benefiting from some temporary shortage of generic products in some of the markets. Other corporate product growth of 15% was fairly broad-based with a particularly strong contribution from our seasonal flu and allergy portfolio, Isofra and Polidexa in Russia and Ukraine, Hexaspray in France. but also strong growth of both proctoblimenol and regila, which was up over 60% relative to Q1 in the previous year. Drug for rare diseases grew by almost 38%. Obviously, Signifor and Signifor-Lar making a significant contribution to that with 14.7 million euros in the quarter. Jaxapede and Ladaga also contributed roughly 2 million each in the quarter. But beyond that, we also saw good growth from Carbagoo in Switzerland and the US and from sister drops in Europe, alongside the continued growth in some of our international markets. As you will see from page six, the share of business which comes from rare diseases and OTC has continued to grow with rare diseases now accounting for 18% of total net revenue and local product portfolios are still important but below 16%. Moving to slide seven and looking at revenue by geography, once again, very broad-based growth with several markets off to a solid good start in January and February already. And obviously with the growth that's further enhanced in March by stock movements. The one outlier, if you like, on the slide is Italy with minus 2% growth. That's driven by multiple factors. Italy, you may recall, faced generic entries and price reductions on pantoprazole and lovastatin in the later part of 2019. and obviously has a significant business in Philodossin which faced generic entry in the quarter. But Italy is also the one market within specialty and primary care where the stocking effect at the end of the quarter was less pronounced and in fact was close to nil we estimate given that the crisis broke out earlier and we saw stocking already taking place in February and then one in March. France revenue is up 8.9% with strong growth of methadone, exospray and Gincor, plus obviously a good contribution from rare disease and Singapore. There is also some stocking in France alongside the other European markets as I've mentioned, which does in part affect the pressures that we're seeing in France on Nercanidipine and Silodosine from new legislation which was introduced at the start of the year which promotes dispensing of generic alternatives. Germany was off to a very strong start with growth in the quarter of 8.4% driven by Metoprolol, Cardersal And obviously, once again, the contribution of Signifor. Very strong growth in Russia, CIS, and Ukraine of 24.7%, with Russia growing by 20.5% in the quarter, with a mix of volume and price growth, really driven, as I said earlier, by our seasonal plume US, which is predominantly related to our rare disease business, is up by 21.1%. With some tailwind in terms of effects, the market on a local currency basis, U.S. grows by 17.6% with the growth clearly driven by Singapore, but also Cardiff and Cistern, which more than upset what we expected to be a low single-digit decline for the quarter on Panematin. Turkey grew by 25% which reflects foreign exchange headwinds of close to 12% in the quarter. Growth was driven from the overall portfolio but obviously particularly strong on our leading products in the market, Mixtunur, Traberal and Livazo. There was in Turkey as well, even though the impact of COVID in the quarter was less pronounced, there was a little bit of stocking ahead of expected price increases in the quarter, and we do expect growth to soften somewhat in Turkey in the coming months as a result. Still in Portugal, growth grew with growth driven by Livazo and Reggila, which was launched in both markets at the end of 2019, plus again the contribution of Cinefor. Other Central Eastern European markets and other markets in Western Europe all grew exceptionally well thanks to Metoprolol, particularly in those markets, as I said earlier, where we started to establish the direct selling organization. but also thanks to the continued growth of Proctoglivenol, Regina, and Zanidib. And also, again, the contribution of rare diseases, which almost doubled sales in Central and Eastern European markets. North Africa is up by 5.4% with growth driven by our business in Tunisia, which is up double digit, 10% growth there. and other international sales growth of 4.4% really reflects the growth of our rare disease business in international markets, particularly in Japan, in addition to additional revenue in the quarter from Singapore. So again, all in all, a strong Q1 in terms of revenue, thanks to a good start of the year, enhanced March, and obviously an expectation that that will also mean a somewhat softer Q2 as that stocking unwinds and as we face a stronger headwind in terms of foreign exchange, particularly on the Turkish lira and the ruble. On slide eight, in terms of revenue competition by geography, The picture is fairly unchanged. The only thing that I'll sort of emphasize here is the fact that really the diversified footprint of the group has been a key strength as we've gone through this turbulent period with the group not being over-reliant on any one geography. Switching to slide nine and looking at the other lines of the P&L beyond the 12% growth in revenue, we also obviously saw a strong growth in underlying profit. Gross profit margin grew to 70.8%, really driven by mix and the additional contribution from the rare disease portfolio. SG&A expenses of 37.6% of sales are made up of 33.3% of sales of selling expenses and 4.3% of sales of G&A. The increase, the single-digit increase versus last year really driven by the additional investments and resources that we put in place over the second part of 2019 upgrade our resources and capabilities to maximize the opportunity on our endocrinology franchise and obviously start to reflect also costs to prepare for the launch of ISTOISA in the U.S. partially upset by a level of deferral of activities on the primary specialty care side from March into later part in the year, again, due to the disruption. R&D expenses grow to 8.1% of revenue, really reflecting both the increase in amortization charges arising from the acquisitions that we made last year but also reflecting the initial costs from the clinical trials behind Cignafor and Isurisa, which we inherited from Novartis. 2.1 million of other expenses are really the non-recurring costs incurred as a result of the COVID-19 crisis, mostly being, in fact, the majority of this are the donations, which the group decided to... put in place to help those hospitals in the most affected areas. We expect the total amount of non-recurring costs driven by COVID for the full year to be in the range of six to eight million. And once again, primarily being the five million of donations that we have set out to make. Operating income, as a result is 148.4 million up 17.8% versus 2019 or 34.6% and EBITDA is 172.9 million at 40.3% of sales or 20% increase versus last year. Obviously these figures also benefit from the higher sales in the quarter, but I would emphasize that even adjusting for that and we estimate the incremental 20 million revenue being worth roughly 13 million and at EBITDA level, you would see that the EBITDA margin still is ahead of last year and in line with the improvement that we have set out to achieve in the 2020 target. Net income of 111.2 million is 20.7% up on 2019 reflecting both the higher operating results but also reduced financial expenses driven by a positive effect on two cross currency swaps which are no longer treated as hedges since the start of 2019. and a lower tax rate, around 33.5%, which benefits from the ongoing benefit of the patent box, which we agreed with the Italian tax authorities at the end of 2019. As Andrea mentioned, as of this quarter, given the increased level of intangibles on our balance sheet, and to facilitate comparability of our financial results with those of our peers in the sectors, we have decided to provide an additional measure as of this quarter, being adjusted net income, which adjusts net income for amortization and write-down of intangibles, excluding software and goodwill, and non-recurring items, net of the tax effect. On this basis, adjusted net income for Q1 was 125.2 million, which is up 23.5% versus 2019. We've also fine-tuned the definition of EBITDA to exclude non-occurring items. And once again, in Q1, this solely relates to the COVID-related expenses of around 2 million, which we expect to grow to only 6 to 8 million for the full year. We've included for reference on slide 10, a clear reconciliation between net income and adjusted net income both for Q1 2020 and Q1 2019 and also provided reconciliation for the full year 2019 and a reconciliation of what would have been a target on an adjusted net income basis that consistent with the target net income guidance that we provided for the full year. And again, I won't go through the details of that, but you have that in the presentation. Slide 11 illustrates the growing relevance of the rare disease business on our total results. As we commented already, rare disease representing 18% of revenue in the first quarter and 23% of EBIT and EBITDA. But nice also to see on a margin basis EBITDA for both rare diseases and specialty primary care growing in the quarter relative to the same period of last year. And finally from my side on slide 12 Q1 is also a strong quarter in terms of cash flow generation. As Andrea mentioned, our net debt at the end of March was 880.8 million, a decrease of close to 22 million versus December of 2019, which reflects also net cash outflow for share repurchases of around 44 million in the quarter. and the 20 million US dollar milestone payments which was made to Novartis for the Easterisa approval in the EU. With liquidity at the end of the quarter, a very robust 200 million. And with that, I will hand over to Andrea to talk about the outlook for the remainder of the year.

Okay, thank you very much, Luigi. So regarding, if you turn to slide 13, please. So regarding the full year outlook for 2020. So despite the level of uncertainty from the environment in which we operate due to the COVID-19 crisis, we would like to provide this outlook for the year. Given the situation, we expect net revenue to be slightly below our original forecast due to effects winds, headwinds, in particular in Turkey and Russia. and obviously the impact of the COVID-19 lockdowns on demand in Q2 and Q3. Signifor and Isturiza targets are unchanged at around €17 million, notwithstanding the slight delay in the new MH transfer for Signifor, which implies only booking the net margin and not full sales for a few more months than we expected initially in our objectives. And clearly also because of the launch of Isturiza in the context we all know about. 5 to 6 million incremental investments for the earlier than expected loan provision. And also, please let me remind you that this launch also triggers 3 million of additional amortization charges. Every gun margin improvement excluding COVID-19 related non-recurring costs is basically on track. As I said before, there were many donations. And we therefore expect EBITDA and adjusted net income to be near the lower end of the range announced in February. This leads me to basically the end of the presentation, at which point I pass the word to Marianne.

Yes, thank you Andrea. Operator, would you please open the question and answer period.

Excuse me, this is the CurlScore conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on that touchtone telephone. To remove yourself from the question queue, please press star and two. We kindly ask to use handsets when asking questions. Anyone who has a question may press star and one at this time. The first question is from Martino de Ambrogi of Equita. Please go ahead.

Thank you. Good afternoon, everybody. The first question is on the M&A activity that I suppose is totally frozen. But I was wondering what you're feeling on the potential new opportunities which may arise in such a brand-new environment today. First. Second, do you stick to your 2021 guidance, which we're supposed to include additional acquisitions or this becomes more difficult? And still in 2021, just to be sure, the adjusted profit guidance should be 50 million higher than the 400 million

Okay, let me just answer the first question and I'll let Luigi answer the second question. Regarding M&A activity being frozen, we don't actually see this freeze of M&A activity. We have plenty of dossiers on our table which are progressing. And as you know, and we believe that this dossier can progress even in the context we're operating at this moment in time. We don't really see why this should slow down or be frozen. So this is still and always will be an integral part of our strategy going forward and we will press on this front obviously also in view of the 21 objectives. Okay so maybe Luigi you can answer the second question regarding guidance 21.

Yeah so we're clearly we're not providing at this point a sort of detailed update on 2021 guidance so the one that that we provided and which we reiterated at the beginning of the year still holds And yes, I think the ballpark, the rough estimate which you quoted in terms of adjustment for 2021 to go from net income target to adjustment net income is correct.

Okay, thank you. And if I may follow up on the sales for the current year, because you mentioned negative forex asset for Turkey and Russia. Just a magnitude of this effect and if you confirm Eurek minus 40 and Livadro minus 7 million for the current year due to patent expiry.

I'm not sure I heard correctly the first part of the question. In terms of the second part of the question, are we still expecting the level of generic erosion on psilocybin and pitavastapine that we expected? I think the answer is yes. Absolutely. And in terms of foreign exchange, I mean, you will have seen obviously since the beginning of the year both the ruble and the Turkish lira have weakened. And that's what we are referencing and seeing. Our guidance is provided based on consensus exchange rates and not current exchange rates. And obviously, we will see the impact of that on revenue. And we think the impact of that is roughly one percentage point in terms of additional effects that we see over the coming months. Okay, thank you.

The next question is from Joe Walton of Credit Suisse. Please go ahead.

Thank you. I wonder if you could tell us a little bit more about Isterisa and Cignafor. Starting, you've given us the IQVIA sales number at 17.4. Can I just check exactly what you booked so that we can get some sense of how much there would be an uplift when you take the full responsibility for the product? Perhaps you could tell us a little bit about the US and European split for Cigna 4. And now that you are going to be launching in Europe and the US, I just want to check your original guidance for the 70 million euros excluded any US launch. Now, are you adjusting your target or should we still assume that that is excluding the US? And can you tell us a bit about pricing? Now that you've got approval in Europe, presumably you've been able to have some discussions about pricing ahead of launch. And perhaps you could tell us where you think that that is shaking out. And on the COVID effect, you talked about specialty and primary care. You didn't mention OTC. For most companies, OTC has been an area of significant stocking. Is that not an issue for you? Thank you.

Okay, thank you, Joe. A lot of questions there. I think I've noted them all. I'll give it a shot. In terms of Signifor and Suiza and Clarity, so first of all, just to be clear, as noted on the slide, those are not Acuvia sales. These are for 2019, the sales which were reported to us by Novartis as having been sold into the market. And for 2020, this is a gross up of the 14.7 million net revenue which we book. which is that for the period before marketing authorization transfer a net margin, and then following marketing authorization transfer, which has obviously occurred already in the U.S., you know, a sort of gross, the net sales number as the rest of the portfolio. So we've tried to sort of – to help the lead of the – our estimate of in-market performance, we have grossed up our revenue number to make it comparable to a sort of net sales number which would have been recorded by Novartis last year. So that's number one. I think number two, I think you were looking for a U.S. to Europe split. We've not provided that in the past, other than saying that more than 50% of Singapore sales is outside of the U.S. And I think we will leave it at that for the finding. On the 17 million, guidance for the product, there are two effects there which affect each other. So on one hand, we have made an estimate that we have built into the forecast now, initial sales of Isterisa in the US for the year. We have also, there is a small delay of one to two months in the timing of the marketing authorization transfer of Signifora in the European Union and again as explained, before the marketing authorization takes place, the revenue that we book is only the net margin. So there's a discount to the full amount. That's why we're sticking with, for the time being, with the guidance that we've provided, which obviously is also reflective of the fact that we will be launching Istriza in a somewhat unprecedented environment where we think we're putting everything that is necessary to still maximize the opportunity, but obviously the level of accuracy that we can provide on the forecast, I'm sure you appreciate, is reduced. On pricing, we're not going to provide detailed commentary on pricing. I think it's to read that it has a very compelling clinical profile and rest assured we will have also a compelling value proposition and will not comment more than that being a launch page. And I think hopefully with the last question on COVID, but yes, you're absolutely right. When a comment on specialty and primary care, that obviously includes the OTC portfolio within that as well. As you may recall, whenever we report our numbers, OTC is part of specialty and primary care. And yes, OTC as well was affected by COVID. the stocking and will be affecting Q2 by destocking and what we expect to be a temporary softness of demand. Hopefully I've answered all the questions.

The next question is from Casey Arikatla of Goldman Sachs. Please go ahead.

Hi, everyone. Thank you for taking my questions. I have two. The first one on Panhandle, can I confirm that the product sales in the US are down low single digit percentage? And if that is true, can you give us an idea about whether this has been a good product in the last few quarters? So is it down low single digit after growing quite a bit in the last few quarters? And also, is it all currency driven or are you seeing any initial impact from the recently launched competitor product here? That's my first one. The second question, a few Spanish pharma companies have been talking about potential price cuts proposed by the government for prescription products in the country. Can you give us an idea about how big your prescription sales are in Spain? And would love to hear any thoughts that you might have on these potential price reforms. Thank you.

I'm sorry, I think perhaps it was the line, but we're not sure we caught the product. I think your first question was on panemitin, is that correct?

Yes, panemitin, historical growth, and are you seeing any impact from gibletic?

Yeah, so our short answer is the impact so far is in line with what we expected. I think we commented at the end of the year. that the erosion would happen over time. It would be more of a 2021 effect as opposed to a 2020 effect. And I think I mentioned during my presentation that we've seen a sort of single-digit decline in Q1 on... where they need to go to infusion centers.

And clearly, we have not been able to do that in certain circumstances because of the crisis.

And I think your second question was around pain and the level of prescription sales. We have not seen price reductions as being a major factor in Spain in the quarters. The prescription pharmaceutical sales in in Spain are roughly just over 80% of the total sales. Thank you. Thank you.

The next question is from James Van Tempest of Jefferies. Please go ahead.

Thank you for taking my questions. I've got a couple on guidance and then a couple on the business, if I may. So just on guidance, just to be clear, at least in terms of looking at the alternative performance measures, so thank you for providing that. Going forward, are you going to be providing guidance on that metric? Is that going to be the preferred metric for guidance, or is this just given the period we're in in terms of the one-offs? how we should think about it, and then, you know, which number is really what, you know, we should be focusing on for the year. And then the second question related to guidance is R&D. I mean, you flagged anyway that, you know, we should see an increase as you're investing in your portfolio. But trying to look at what you've delivered in the top line of stocking, it seems as if you might be running at an underlying level of around 8.5% of revenues. I'm just wondering if that's sort of the right place to be in. And then just questions on the business. you've given us a sense of the overall impact from COVID to the business this year, but can you give us a flavour perhaps of the top three countries in Europe, how it's had a various impact on the different pieces of the business and how you've responded? And then finally, on M&A, I know, Andrea, you touched on that earlier into the Q&A, but just curious if you could give some more details around the M&A environment and some of the discussions that are happening in what areas we could potentially see the company go into next. Thank you very much.

I'll start with answering the last one. I mean, I cannot give you that kind of information. Clearly, M&A is very... sensitive subject, and as I said, we have a lot of doses that we're looking, both in FTC and in rare disease. We're looking at portfolios of products being divested, and we're looking also at opportunities of licensing products in late stage development, and this is really the kind of scholar I can give you around this, for all the reasons. Thanks. um i hope that you can appreciate that but as i said there is a lot of movement there is a lot of uh opportunities out there so we're pretty confident uh and that we we will be able to kind of pursue and you know and progress with our mna strategy as we always have done even in this contest we're operating it yes

And I guess, James, going back to your first question with regards to guidance, first of all, just to be clear, as we said, we are going to continue to report on a sort of full IFRS basis and therefore provide visibility not just on an adjusted net income basis but net income as well. In terms of the focus on guidance, I do think, as I said, particularly given We can't second guess the type of acquisitions that we will make and whether or not they will come with value being ascribed to goodwill versus intangible assets. We believe that in terms of providing guidance, the focus ought to be on revenue. EBITDA and adjusted net income. But again, as we've done now, we'll provide a bridge so that you're able to reconcile. And in terms of the non-recurring items, as I said in my presentation, the intent here for CERPA 2020 is that you simply isolate really the donations and any truly exceptional recurring costs arising from COVID. For 2019, there were no such costs. There was, and I think we highlighted this clearly at the end of last year, the one-off benefit relating to prior years of the patent box of 27 million in Q4. So yes, the progress of guidance would likely be revenue EBITDA and adjusted net income going forward, which I also believe puts us more sort of on par with our sectors.

The next question is from Chris Ryan of Bank of America. Please go ahead. Excuse me, the next question is a follow-up from Joe Walton of Credit Suisse. Please go ahead.

I don't think you actually answered the last question on R&D. And if we strip out amortization, 8.5% or so of sales is fairly very low by your peer group standards. I wonder if you could talk a little bit about how you see that developing. And if we look again through to 2021... and perhaps beyond. I'm interested in your views as to how governments are going to respond to the extra debt that they're taking on board. Now, traditionally, we like to see our pharmaceuticals pretty much free at the point of delivery, and governments are very generous. But do you expect to see incremental price pressures coming in as all of the COVID situation has to be paid for? And if so, are there any particular countries where you would point to a potential pricing risk for you? And could I also ask for the sales number for Regina? I think you may have given it and I may have missed it.

I think on R&D, Joe, if anything, obviously R&D, I don't think there's any major change in terms of, I think, amortization numbers that we've always commented on. If anything, R&D has been increasing over the last few years. as a result of the increased amortization and as a result of new studies in particular going forward, we will see an increase being driven by costs which are coming through to support ongoing trials of Signifor and Easter ESA. The fact that it's below the levels of other companies in the sector, yes, it is a different, if you like, product portfolio and approach. I think the group has always been consistent in seeing BD as an integral part of its strategy and, if you like, complementing the in-house research which is done.

It also depends on what stage, you know, the difficult trials that we're carrying, different trials that we're carrying through are. So going forward, there might be fluctuations, but yes, you're not going to see our R&D line drop to 15% of net revenues. I mean, this is not what we expect and envisage going forward.

And this percentage, I think, is in fact in line with the guidance which was provided as part of the three-year plan. And I think you had a question on pricing pressure?

Pricing pressure linked, Joe, to the current crisis, in other words, if the government, in order to kind of mitigate this... extreme costs that they're putting on the dashes are going to come to us as an industry to regain some savings. Honestly, it's a very uncertain time. It's very difficult to give you any kind of answer on that. We're obviously monitoring the situation. At this moment in time, we have an answer to this question. It is always a possibility, but we haven't seen any movement of the sort which are directly linked to the COVID-19 crisis.

Sorry, I just realized that I had missed one of the questions from James Jeffries, who was sort of unpicking the growth rate. No, just to be clear, so with 12% overall growth, we said 20 million of that is really exceptional stocking. Now, 14.7 million is contributed by Signifor. If I were to subtract both the sort of, if you like, new revenue from Signifor and the stocking impact, we should be looking at a figure which is closer to 3%, which is consistent with, in fact, It's very much in line with our expectations for the start of the year. Once again, a year where we know we would be losing exclusivity of both silodosine and pitavacetine and facing the entry of a new competitor called nanimetine in the U.S. Apologies for that. And please, if you're going to be asking multiple questions, if you just go a little bit slowly, because it's hard sometimes maybe to just note them all.

Thank you. Joe wanted to know what the sales of REGILA.

Yes, sorry, Joe. Sales of REGILA were just over $3 million and a 60% plus increase versus Q1 of last year. And hopefully I've not missed any other questions from anyone so far. Operator?

The next question is from Chris Ryan of Bank of America. Please go ahead.

Hi, sorry, my question is up in the air, so thank you.

So the next question is a follow-up from James Vane Tempest of Jefferies. Please go ahead.

Hi, thanks for taking the follow-up. Just to qualify my earlier question, I was looking at more from the point of view of R&D as a proportion of revenue. I'm curious in terms of what the underlying spend is. Is it 8.5% really what the underlying run rate is for the year? And then just for another one of my prior questions, I'm just curious what impact, in terms of the top three countries in Europe, how the businesses... adapted to the COVID challenges and what kind of processes you've maybe had in place. Should some color in terms of the top three countries outside of Italy would be really, really helpful to understand the business model. I'm sorry.

Sorry. I think we missed the second part of the second question. Regarding R&D, the run rate, I think you can predict around 10%. Okay? For a full year. R&D.

What I did is underline without the amortization.

Underline. That's roughly 50%. I mean, no change versus what we've seen in 2.1.

Okay, thank you. Just to clarify my second question, you've given an impact of the overall, well, you've given the overall impact from COVID to the business, but can you give us a flavor how this has happened in some of the various countries you've operated in?

It's difficult because it's been really difficult market by market in terms of also products and speed. Every market was different in terms of the kind of measures that were put in place and different in terms of the logistic structures that we're deliberately – and again, it's not an exact science in terms of estimating the extra stocking impact. We've obviously done this on a country-by-country basis with the team. The 20 million is our estimate and in some cases we have seen As I said, maybe metoprolol certainly was to an extent affected where market participants were slightly worried that generic products options which were sourced out of China would be low in terms of availability. It's really difficult to give you a short answer. We'd really have to go market by market. The only thing that I think stood out is obviously, as I said, in Italy we saw that happen in February and unwind. in March and we'll see now in the next month but we have seen most of that already reversed in the month of April actually and continuing on in May. So I'm confident by the time we get to Q2, we should have a more clean picture, if you like, in terms of underlying sales. Of course, what neither we nor I think anyone right now can predict is whether or not there'll be second waves of lockdown in any of the markets, which really was not built into our thinking at the moment. The expectation is that gradually, over the course of Q2 and Q3, things will start going back to a new normal.

I'd say that at the end of Q2, when we will announce our Q2 results and for 6-0 results, I think we'll be in a better position to give you a cleaner kind of view on the outlook for the rest of the year. Okay?

That's very helpful. Thanks very much.

As a reminder, if you wish to register for a question, please press star and one on your telephone. For any further questions, please press star and one on your telephone. Excuse me, there's a follow-up from Joe Walton of Credit Suisse. Please go ahead.

I wonder if you could just tell us a little bit more about your launch plans in such a tough time for and whether you feel you've got all the right sort of digital tools in place. A number of companies have told us that they will be delaying their launches or it seems, not strange clearly, but it seems ambitious to be launching a brand new product. Is this because you feel that you've already got very good traction with the doctors because you know them because they're already involved with Cigna 4 so that you can speak to them. Just give us some sort of a little bit more sense on your plans for the launch, please.

Joe, I think you answered your question. Obviously, we have good trust with the physicians. They're already obviously utilizing an endocrinologist in particular. They're already utilizing Signifor, so our targeting and segmentation of physicians is in place. We have already started promoting to them in the U.S. for Signifor, as you know. organization that was set up specifically for the launch for a specific endocrinology business unit in the U.S. to cater for this product portfolio is already calling for Signifor and obviously doing pre-marketing activities for Isturiza. Isturiza is a product that is, let's say, highly anticipated by the endocrinologists. So this should definitely help us, even though obviously the face-to-face interactions are by definition limited, if not, in most cases, nearly impossible. We have invested, obviously, in in digital tools in order to compensate this lack of face-to-face human interaction which and this has been going on both at the us level and also the european level um but yes i mean so i think you partly answered your question i hope i kind of you know added a bit more but let's say that we are confident that we we should we should also i mean we don't think we think it would be Let's say an ethical not to launch a product because of this crisis. This is a serious disease and this product has an extremely interesting efficacy and safety profile. As I said, it's highly anticipated by physicians and by patients, and so I think it would be totally unethical not to launch it just because the launch, let's say, context is not ideal from a promotional perspective. But as I said, this is going to be compensated by the fact that there's a big anticipation for this product by the physicians, and also the fact that we know exactly who the physicians and targets that we need to go and diesel to and promote to our clients basically for Singapore. So we are quite, let's say, confident that we should be delivered as expected, even in this difficult and challenging situation.

And can I ask you also if you have any idea of when you might give us your capital market today with a sort of broader strategic update?

Well, this, as I think we already mentioned, is going to take place. Honestly, Joe, I think it will take still some months before we really understand the impact of this crisis. So, as I said, we will give you a 2020 outlook, new outlook for 2020. sometime during the first half results kind of investor pool and the plan as already communicated is to present... Not communicated. We haven't communicated, sorry. The plan is to present the new, as agreed also by the Director, is to update our three-year plan in February 2021. Thank you very much. 2020 target and the next obviously three years, two years.

Once again, if you wish to ask a question, please press star and one on your telephone. Any further questions, please press star and one on your telephone. The next question is from Isacco Brambilla of Mediobanca. Please go ahead.

Hi, good evening everybody. Thanks for taking my question. The first one is on your top line guidance for Fugia 20. You are mentioning an expectation to be slightly below the original guidance of mid-single-digit revenue growth. I was wondering, is this mid-single-digit target purely organic, or it takes into account also some kind of further contribution from M&A? Organic. Okay. Okay. Okay, and the second one is on ZanyDeeper. ZanyDeeper's products are now posting, are again posting a quarter of sales growth. Should we continue to stick with original expectations of flat-fish trends? through 2021, or you feel confident we can assume some kind of growth going forward? And basically the same question also for Sellokin, which sales were very strong this quarter. I acknowledge there was some kind of one-off effects in this quarter, but 30% energy growth is a lot, and I was wondering whether the underlying trend you see for certain is still flat, is a top-line trend, or some kind of growth may come also from this product.

Thank you, and to answer, just to be precise on the first question, the bullet point on the mid-single-digit growth as a total is from our February presentation, which was representing our total sales, so that total sales growth expectation, which is And again, just to be really precise, it is organic, a sort of existing base business plus Singapore and East Teresa. So that was the guidance that was provided at the beginning of the year and that's the reference point against which we're saying as a result of the combination of slightly adverse effects and the softer demand which we expect to see particularly include CO2 in addition to the destocking will be likely slightly below. So again, that's on total revenue consistent with the target that was defined at the beginning of the year which includes what we would call typically organic plus the contribution from Singapore and East Teresa. With regards to longer-term expectations on 70% and growth, you know, we said that we will come back with a fuller update for 2021 and beyond. We're not going to try and do that on a product by product basis. But I think... Certainly on Celucan, we're happy with what we're seeing of the product. Yes, some of the growth in the quarter was one-off, but we would expect that product, now that we put resources in place in a number of markets where we used to operate through distributors in the past, to show growth for the year. Zanity and Zanipress also continue to grow on an underlying basis but I think there we need to obviously watch closely the impact of coming months in France which is a high volume market for these products and the impact of those measures which were introduced earlier this year which force patients to pay for products where they are dispense a branded and only afterwards claim reimbursement for the difference to generic, we have to see the impact that that has on the business. And that may dampen the growth on ZanyDeep and ZanyPress in the coming months.

Thank you. Many thanks.

The next question is from Giorgio Tavolini of Intermonte. Please go ahead.

Hi, good afternoon and thanks for taking my question. I was wondering if you expect any additional cash out in the second quarter for the payments for the Istorisa launch since you already booked in the Fusiera 19 89 million euros higher payables for future payments due to Novartis' So I was wondering, since you paid the 20 million, if you expect to pay the rest between Q2 and Q3 or in another moment? Thanks.

Yes, and thank you for the question. Short answer is yes. We have paid a $60 million milestone to Novartis, which, as you rightly pointed out, was amongst those milestones that we already articulated in the December 2019 final results, once we knew that the product had gained approval in the U.S. Thank you.

Ms. Taschke, gentlemen, there are no more questions registered at this time.

Okay, thank you. Thank you, operator. Thank you, everyone, for attending the call. Goodbye.