Recordati Industria Chim

Good afternoon. This is the Coruscant conference operator. Welcome and thank you for joining the Retorgati 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. Federica De Medici, Investor Relations and Corporate Communications of Recordati. Please go ahead, madam.

Hi. Thank you, Sabrina, and good afternoon or good morning, everyone, and thank you for attending the Recordati conference for today. I'm pleased to be here with our CEO, Rob Cormans, and Luigi La Corte, our CFO. that will be presenting the 2021 preliminary full-year results and 2022 targets. Then we'll be running you through the presentation. As usual, the set of slides is available on our website under the investor section. After that, we will open up for Q&A. I will now leave the floor to Rob. Please, Vlad.

Thank you, Federica, and welcome. Good morning, good afternoon. I'm really proud to have the opportunity to announce another year of very solid results for the group. And I'm, of course, aware that I do this in the midst of an evolving human tragedy in Ukraine, where I'm sure you have questions on how this potentially impacts our business going forward. So we will address that during the presentation as well. The revenue increased in 2021 by 9.1% versus 2020, or 11.4% at a constant exchange rate, with a progressive recovery in the main reference markets and operating conditions starting to return to near normal, especially in the latter part of the year. On the rare disease segment, we have seen strong growth of both the metabolic and the endo portfolio across all regions, resulting in a double-digit growth. SPC has also shown resilient growth, even in tough market conditions, where there were still excess restrictions to physicians and medical personnel. In particular, in quarter four of 21, cough and cold business came back to almost pre-pandemic levels, and also on Eligard, we delivered ahead of expectations, with sales of 85.3 million, thanks to an early transition to direct sales and a positive response to our focused promotion. Excluding Aligard, the group organic growth at constant exchange rate was 5.6%, absorbing the loss of exclusivity of Silodisin and Pitavastatin and the impact of the pandemic. Overall, financial results are in line with expectations set at the start of the year, with strong continued growth cash flow generation. EBITDA at 602.3 million, up by 5.8% versus 2020, and with a margin at 38.1%. And adjusted net income at 424.6 million, up 3.5% versus 2020. Especially also free cash flow of 469.9 million, increased quite markedly with 87.6 million compared to full year 2020. Operating results reflect the impact of 14.4 million non-recurring costs. This mainly relates to a targeted rightsizing and optimization of our field force in Germany and Turkey. This reflects an evolution of our portfolio as well as a constant emphasis on commercial access and excellence. and it capitalizes on the learning that we have during this pandemic in the ability to leverage multi-channel instead of just face-to-face visits with Salesforce. Our net income of $386 million is 8.7% up versus 2020, reflects $5.8 million of FX losses, and non-recurring tax benefits of around 27 million recognized in 21. Then another highlight of the last year, 2021, was the user acquisition. We expect to really expand on our rare disease business and accelerate growth. The completion of this acquisition is expected in Q2 of this year. During the year, We have a continued ESG commitment resulting in an MFCI rating improvement to A and an inclusion in the Euronext MIB ESG index from Borsa Italia. Let me provide you with some more updates on Eligard and EndoPortfolio and as well EUSA acquisition process. On the next slide, you see the strong performance of Eligard. Both Eligard and the Endo franchise made a strong progress during 21, confirming our expertise as a group in integrating effectively new businesses and launching new assets. Eligard, the transition finalized in a record time. The deal completed in January and the transition of marketing authorizations pretty much finalized by June in over 20 countries. We were also able to quickly start promoting the products across many markets with sales stabilizing and in several cases actually showing a reverse and going into growth. Very positive sales trends that we could see particularly in Spain and France. We have completed a regulatory filing of the new device and at the end of January of this year, in 2022, and we now hope to see approval during the second half of this year for this new device, which will give a further positive force behind Eligars. On the Endo franchise, we closed the year with revenues of 126.6 million, confirming the guidance range of 120 to 140 million, with Signifor revenue of 80.5 million and Isterisa at 46.1 million. Both for Signifor and Isterisa, the commercialization is on track, with Signifor in-market sales growing in the year of over 10% on a like-for-like basis versus 2020. And Isterisa continuing to capture patients across USA and Europe, with strong updates in the U.S., in France, and in Germany, and also good progress in Italy with early access, and Japan, where we launched in June of 2021. The key next catalyst for Isterisa is the agreement of reimbursement across key European countries. Reimbursement price in Germany and Switzerland have been agreed in line with expectations, and we are confident to be able to secure additional ones in the course of 2022. We plan to continue to invest behind this important franchise in 2022 to further drive adoption in EU post-reimbursement approvals. Finally, I would like to give you an update on the USA Pharma acquisition announced in December 21 and on the latest stages of the process. First of all, this acquisition is clearly in line with our strategy of complementing organic growth with value-accreted M&A and represents an excellent opportunity to further expand and reinforce our rare disease franchise, complementing our existing global footprint and expertise with new capabilities in a platform that will be very important for the future in expanding rare disease in a niche oncology therapeutic area. While the deal hasn't closed, the regulatory review process has been progressing according to plan and completion, as I already indicated, is expected in quarter two of this year. Good news is that USAID has been performing a little bit ahead of expectation in the latter part of 2021. with sales finishing the full 21 just over 150 million. The step-up of this was largely driven by Sylvan, likely from usage in other settings and benefiting from a market shortage of other IL-6 monoclonal antibodies. This is really great news and signals potential additional opportunities for this franchise. At this point, we confirm peak sales of approximately €250 million and a going EBITDA margin in line with the average of a rare disease segment, which includes potential expansion of Carziba into the U.S. We will clearly provide a broader update on USA post the acquisition close and once we've had the chance to fully engage with USA management. And we really look forward to welcoming Yuzha into Recordati. You will recall that we announced that we have secured a 650 million bridge financing to support the acquisition. And I'm happy to say that we have reduced that to 450 million, thanks to new term loan of 200 million already finalized and will finalize the balance of takeout over the course of 2022, depending on market conditions. So overall, a very strong year with a very solid foundation for further growth in the years ahead. And as you know, it's really early days for me in Recordati. But I would like to give a little bit of my first impression and my first perspective on the business and share with you the next slide. The first impression I had as CEO after the initial months in Recordati are extremely positive. We have a strong heritage with a very solid company with very strong foundations, an incredible commitment and an ability to deliver. There's people that have a strong focus on performance and excellent track records in delivering on objectives and beyond expectations with strong discipline in investment and strong discipline in execution and in spending. Our team has a very global footprint, and also in my management team here in Milan, these are really global citizens, often with a different nationality than only Italian. The business is beautifully diversified. There's a good diversification. We have a balanced combination with stable and cash-generating SPC business, combined with higher margin, higher growth, rare disease segment. And obviously, there's growth opportunities. The business is growing, and it's very much my aim to accelerate growth with targeted investments, particularly in the rare disease post-USA. I see fantastic opportunities to continue to grow and keep the balance with our SPC footprint. With that, I would for now like to hand to our CFO to continue to grow and keep the balance with our SPC footprint. With that, I would for now like to hand to our CFO, Luigi.

Thank you, Rob, and good morning or good afternoon, everyone. As usual, I will take you through our 2021 results in a bit more detail, starting with the sales performance of our main products, which, as you hopefully will see from slide six, you know, really reflects a trend which is consistent with one that we saw at Q3, reflecting, you know, a recovery of cough and cold, gastrointestinal NLTC franchise, continuous strong growth of rare diseases, and a really good contribution from Mediguard. Their Canadian sales, as you see, are marginally up versus 2020 at 136.7 million. This reflects, you know, volume growth across most of our markets and initial shipments to our new distributor in China, which more than upset a bit of erosion in Italy and also in Turkey. with Turkey, as we commented in Q3, also accounting for more than half of the decline on Zanypress, which is declining also due to competition of other combinations across various markets. Our Metoprol franchise at 98.1 million, declining by 7.2% versus 2020. Now, you will recall that Metoprolol, a very mature product, grew by 7.5% in 2020, on the back also of a shortage of some competitive products in the year during the peak of the pandemic. And we're effectively seeing the unwind of that and some erosion in Germany and Poland. We do expect metoprolol to stabilize as we go into 2022. Aligard, as Rob has already mentioned, delivered well. In fact, your call is delivered ahead of expectations that we set at the beginning of the year on the back of very fast transitions to direct sales. Essentially, all of the sales in the second part of the year have been through our own organization, and we started to see the benefit of promotion in a number of markets. Psilocybin and pitavacitin both, as expected, reflect the four-year impact of the loss of exclusivity in 2020, and both, as also you will have seen, have started to show signs of stabilizing in the second part of the year. Erosion on psilocybin was slightly higher than we had set out at the start of the year. You recall we set around 10 million. It's been closer to a 13, mainly driven by Italy, but also the effect of currency in Turkey in particular, with erosion in the Basel being exactly in line with expectations. Other corporate products, $286.1 million finished on a high. You'll recall this was one of the parts of our portfolio which was most impacted by COVID in 2020, and that had started the year with some challenges, particularly in Central and Eastern Europe and Russia, and very pleased to see the recovery there in the second part of the year, with cough and cold ending the year still below 2020, but at around 75% of pre-pandemic level for the full year, and again, starting to show signs of returning to normal across many of our markets, not all, but many of our markets in the later part of the year. We've also saw a very, very strong recovery of the gastrointestinal franchise, continued growth of the Agila, and also strong growth of our corporate ODC products, in particular, Proctogrivenol, Transact, and Casenlax. Drugs for Rare Diseases, 383.9 million, grow by 20.2% clearly. That's on the back of significant growth of our endo franchise, both Signifor and Visterisa. But also thanks to the growth of our legacy metabolic portfolio with many products in the franchise actually delivering growth. I'll call out Carboglue, Sister Drops, Lidaga, and also panimethin, which has managed to rebound after a competitor entry in 2020 and delivered growth for the full year. As you will see on slide seven, drugs for rare diseases now account for just over 24% of revenue, and, of course, we expect this to increase to around 30% of revenue post the use up. acquisition completion. I'll also sort of call out OTC products just under 18% of total revenue, growing by 6% versus 2020, with corporate OTC products actually growing at a higher rate of close to 10% in the year. On slide eight, in terms of revenue by geography, you know, very obviously pleasing to see all of the lines effectively on this page show a progressive improvement over the year, thanks again to those key drivers of returning to growth of specialty primary care, the contribution of ERIGARD and the growth of rare disease. Sales in Italy of 258.3 million are down by just over 3%, reflecting the impact in the first part of the year on the coffee and coal portfolio. And as I mentioned, some decline of silodesin and also a couple of discontinuation of local products, which more than upset the good growth of the OTC portfolio, in particular Magnesio Supremio and Drillfloor. France, great to see returning to growth after a tough 2020. Sales of 151.7 million, up by 5.3%, with growth of both the end of franchise, the contribution of Eligard, but also good performance of our methadone business and of our Gincor OTC products, which more than offset slightly lower sales on cough and cold, particularly the Hexa spray line. Germany, double-digit growth of 152.9 million, with good growth of both specialty primary care and rare diseases, led by Orchathon, Lercanivitin, GI Portfolio, and obviously Eligard. And Spain, 120 million, showing a very, very strong growth of over 40 percent, obviously Spain being the biggest market for are for Eligard, but also the growth reflecting, as mentioned earlier, the strong performance of the gastrointestinal business, which you'll recall was heavily impacted by restriction to elective hospital procedures over the course of last year. Portugal, 45.4 million of sales, up by 6.4%. Once again, driven by both RX, OTC, Portfolio, and Eligard, Portugal is one of our core markets for both Livazo and Slotocin, which offset in part the growth of the other franchises. Turkey, strong performance in market and in local currency with revenue growth in local currency terms of close to 15% and, in fact, double-digit growth on both specialty care and rare diseases behind the growth of Livazo, Procter-Grivenol, and Eligard, which more than a set effect of competition from generic products and generic competitors on some of our local products, Cabral and Creval in particular, and also competition on the Canadian. Obviously, Turkey facing very significant effects in 2020, close to 20 million, which depresses sales on a reported euro basis. Obviously, pause for Russia, CIS, and Ukraine. Sales of $100 million, $99.6 million are essentially flat versus 2020, recovering significantly in the second part of the year from what was a very slow start, thanks to the recovery of the cough and cold business, in particular in Russia, and also the growth on the back of the growth of Proctoglivenol, Livazo, and the contribution of Erigard, with sales in local currency in Russia slightly down versus last year by 1.9%, and sales in Ukraine and CIS markets are slightly increasing. As Rob has mentioned, clearly difficult to predict exactly as events unfold the impact of the escalation of conflict in the region or the business sector, I would say pharmaceuticals, from what we've seen historically, is a more resilient business than many others. It is typically a sector that is protected from sanctions, obviously in the interest of patients. We don't have manufacturing facilities. We're not reliant on those markets for supply into other regions. Of course, the first thought at times like this is towards the people there, our people, and in general, the people in the country. As we said, obviously, we're monitoring the situation closely. We believe we have the events there are triggering inflation across the globe, which we have and we will come to guidance for 2022. We have built in some assumptions on that into our financials. But at this point in time, whilst it's difficult to predict with precision, we're not seeing a major disruption to the business in the region. Sales in the U.S., which as you know, is fully rare diseases, 176.9 million. strong growth of 44% and close to 50% actually in local currency, as we've commented already, on the back of the very strong performance of both Enzo and the metabolic portfolio. Sales in other Central East European and Western European countries, which combine accounts of roughly 14% of our revenue, are growing double-digit on the back of – The addition of Edegard, obviously, and the growth of the end of franchise and progressive recovery of market conditions on specialty primary care. North Africa sales of 35.9 million, down by 13%. This really reflects challenges we faced during the year in Algeria, with imports in the country being restricted and impacting the sales of excess spray and vitamin D with sales of our local business in Tunisia actually continuing to grow double-digit, 10% or 12% the constant exchange rates. And finally, other international sales of 204.2 million, up by 1.6% on the back of the growth of the Canadian across many markets, which more than upset the impact of psilocybin and pitavacetine, which we also sell through our partners in countries outside of our main ones, and the effect of the discontinuation of Cantera. Turning to slide 9, which once again shows the diversified footprint of the group, which makes the group resilient, has made us resilient over the course of 2020 in the midst of the pandemic, and we expect to continue to make us resilient in the context of other challenges that we see emerging. Sales in Italy now represent just under 17%. of group revenue. And nice to see U.S. now becoming a second market with close to 12% of sales coming from that region. So it's like then, looking then at the P&L, which, as Rob has commented, hopefully you will see a very solid financial performance once again for 2021. where we have delivered on the targets we had set at the start of the year, despite an environment which was not exactly COVID-free, as we would have hoped. Revenue, as we said, up 9.1%, and gross profit up 10.6%, with the benefit of the improved mix towards rare diseases more than offsetting very small inflationary pressures that we started to see towards the end of the year. S&A expenses of $480.9 million, up by 14%, with selling expenses at 25.1% of sales, with two-thirds of the growth really driven by the addition of Eligard, in particular, both the transition costs towards Astellas and the royalty payments to Tolmar, but also behind the targeted incremental investments we made behind the business alongside the additional investments that we continue to make behind the Endo franchise. G&A costs at 5.3% of sales growing also on the back of additional resourcing put in place to support those new additions to the portfolio. R&D expenses of $166.1 million are 10.5% of revenue. The increase versus 2020 reflects additional $4 million of amortization arising from the new product acquisitions. And with the balance of the increase, once again, driven by some of the additional investments made in market access, medical, to support both the endo business and Eligard, and some of the ongoing trials that we inherited from Novartis behind the endo portfolio. As Rob commented at the start, Other income and expenses, $15.1 million, mostly reflect provisions made for the targeted ride sizing of some of our permanent airlines, particularly in Turkey and Germany, as we adjust our focus to fit with the more specialist nature of the portfolio and leveraging the learnings from the pandemic. So around the 12 million charge, which was relating to that, and the residual 3 million of exceptional costs incurred as a result of the pandemic, particularly in the first part of the year. That leads to an operating income of $490.2 million, a margin of 31%, EBITDA of $602.3 million, a margin of 38.1%, which is exactly in line with the target that we had set at the start of the year, once again, despite some of the pressures that we faced, and growing by 5.8% versus 2020. As we've commented throughout the year, the non-operating lines of the P&L reflect on the financial expenses level with costs of $26.8 million that you'll see are almost double what we incurred in 2020, actually reflect foreign exchange losses in the year of $5.8 million, which compared to in 2020 exchange gains of $4.3 million And we also had in 2020 2.6 million gains on cross-currency swaps that we closed and were no longer considered as hedges. And so that mainly explains the increase versus last year. This is obviously offset by the one-off tax benefits that we had on the tax line relating to the reverse merger transaction, which we completed in Q2. and also the revaluation of Magnesio Supremo, leading to net income of $386 million, up 8.7% versus 2020, and adjusted net income of $424.6 million, up by 3.5%. I would say the lower growth rate there due to the fact that we do adjust, we strip out the tax benefit from adjusted net income, but we don't adjust for the effects, gains, and losses. So in slide 11, you will see the, as usual, margins for our two businesses. I will say from my side, both remaining strong. In fact, rare disease is slightly up by versus 2020 level, and specialty primary care is still robust, obviously reflecting costs related to the Aligarh transition, and as we always said, the progressive return to in-market activity as conditions improved in the second part of the year, with rare disease now representing close to 30% or just about 30% of our operating results. On slide 12 and 13, to finish off full-year cash flow. Sorry. Free cash flow in the year was very strong, consistent with a very strong track record of the company, reflecting both the increase in EBITDA, but also with a strong contribution from working capital, which was a bit of a drag in 2020. as we grew stocks during the pandemic and as we integrated the Novartis business. And we saw both stock levels and payables normalize during this year, which more than offset increase in debtors linked to the increase in revenue. So strong benefit from working capital. Slightly higher taxes paid on a cash basis as 2020 benefited from the one-off patent box benefits announced in Italy at the end of 2019. Free cash flow of close to $470 million is an $87.6 million improvement versus 2020. In the year, we invested roughly $65.5 million in intangibles being mainly the upfront payment to Tolmar of $35 million for the Aligarh rights and $15 million to Almiral for flat rule, paid dividends of $217 million and repurchased shares, net of proceeds for exercise of options of $59.3 million. And finally, from my side, that leads on slide 13 to a very solid net financial position. As you see, the strong cash flow helped manage to absorb the dividend buyback and payments related to BD and led to a decline of $129.3 million in our net debt at the end of the year versus end of 2020. with net debt now at around 1.22 times EBITDA. And with that, I'll turn it back to Rob to talk about projections for 2022.

Thank you, Luigi. So turning to 2022 expectations, on slide 14, you'll see the planning, the key planning assumptions for this year. Revenue projections. Excluding USA are expected to grow mid-single-digit, reflecting an adverse effect of minus 1%. On our SBC business, we expect low- to mid-single-digit growth, reflecting a progressive return to pre-pandemic conditions, with volumes expected to get back to growth and Aligarh to contribute with over 100 million revenues, offsetting limited their carnitine sales in China. The rare disease to grow double-digit, driven by endo-strong performance, expected revenue range of 160 to 180 million, and further growth of sister drops, Ledaga and Juxtapid. Slight erosion of CarbaGlu in the U.S. due to generic introduction. Assuming a closing in quarter two of this year, Yuza will contribute in 2022 with a revenue of over 110 million and an EBITDA of around 25 million. And then we also expect non-recurring costs of about 35 million in 2022 with around 5 million of the further commercial excellence exercise of right-sizing in SPC business in Europe and around 28 million from the user integration where mainly the ongoing tech transfer related to Sylvans from Janssen is contributing to this. Financing costs will account for 31 to 33 million excluding FX gain or losses and we expect our leverage at closing around 2.4 times pro forma and to return to below 2.2 times by the end of 2022. Tax rate is expected to be around 22% to 23%, and we expect an incremental amortization after user transaction completion plus other non-cash adjustments. These charges will be determined post-acquisition closing since subject to the purchase price allocation. And on slide 15, we set out 2022 guidance, which we will fine-tune after the formal USA acquisition completion, with the revenue target range between $1,720,000,000 and $1,780,000,000, resulting in a midpoint growth of 10.8%, with EBITDA DA expected between 630 and 660 million with a margin of 37% and a midpoint growth of 7.1%. I think we've always made it clear that short-term margin should and could be affected by deals that relate to the phase of the product and the launch phase. In short-term, USA has a slightly dilutive effect as these are very much still products in launch phase. We will update mid-term plan post-closing, as I already alluded to, and of course our ambition is to maintain a strong margin with a strong commitment to profit generation. And the adjusted net income is forecasted in the range of 450 to 470 million, with a margin of 26% and a midpoint growth of 8.3%. And with that, I would like to give the opportunity for questions and answers.

This is the Carlsberg Conference Operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone 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 Brian Balkin of Barclays. Please go ahead.

Hi, it's Brian from Barclays. Thanks for the question. On 22 guidance, hoping you can help us understand the extent to which that factors in potential disruption from the Russia-Ukrainian conflict, just given that those markets contributed 7% of sales in 2021. And then how should we think about... your exposure there. Thank you.

Thanks, Brian. I'll pass to Luigi to complete. The events in Russia and Ukraine are really very, very recent. Other than that, we have factored in for some inflation to happen in 2022. We do not really expect and anticipate a major disruption of our business. The ability to continue our business Of course, when all those things started to happen in the last 24 hours, first and foremost concern was with the safety of our people, specifically in the Ukraine, but also after that immediately the continuation of our business. We believe that we should be able to continue our business relatively short term. So the implications in terms of inflation, we had really good hedging on things like energy, for instance, that should carry us long-term into 2022. But the full impact of the invasion of Russia and Ukraine was really not foreseen when we gave our guidance. But I'll pass to Luigi to complete the answer.

Yeah, no, Brian, thanks. And I'm sure this is a question on many people's minds. I don't know if I can give a lot more color than what I said in the sense that You know, one pharmaceutical, and we've seen this, it wasn't quite, you know, a similar kind of shock, but let's not forget what this business has gone through in 2020 in terms of the impact from the whole of Europe being at times in lockdown. And we've seen through that time that, you know, the pharmaceutical sector is resilient, certainly on a bottom line level that where, you know, if and where you have an impact, you on sales that can tend to be offset to a large extent through lower activities and therefore costs. From what we can gather at the moment, and we've been in close touch, as you can imagine, with our people in those markets, we're not seeing today a disruption. These comments are valid as of 4.44 p.m. Milan time today, and And I really don't know what will happen tomorrow. We'll see. I think we are confident, once again, about the resilience of the sector, the resilience of our business as demonstrated also last year through a pandemic. We don't have, I think the thing that also is important to emphasize, we do not have local manufacturing. We're not reliant in other parts of the business for supplies out of Russia. And beyond that, I just think we'll have to watch and see what happens. I know that's only a partial answer, Brian, but I don't know that we can really give a better one at this point in time.

The next question is from Martino D'Ambrogi of Equita. Please go ahead.

Good morning. Good afternoon. The first question is on the guidance once again. When you talk about USA whose acquisition is finalized in the second quarter, are you assuming six or nine months in your embedded guidance for the 110 million euro? Because I'm sure you will not provide a guidance for the full year because it's not in your hands yet. just to have an idea of what is your assumption. The second is still on the guidance, the R&D cost. If you said something, I probably missed it, but just to double-check. And still on Russia, you are presenting a weight on sales, which is 6.5%, including CSI and so on. Can we say it's 6% Russia? which will become 5% following USA. How much of the sales in Russia are dedicated to rare diseases? And can we say if it's less or more profitable than the average of the group?

Yeah, so, Martino, in terms of the 2022 guidance contribution of EUSA, look, we don't own the business yet, so we're not sort of, you know, have a sort of detailed sort of phasing for that business. We assume it will be, you know, based on – and it's also difficult for us to predict at this stage when exactly the closing will be. We've assumed – It will be at some point during Q2. You can sort of take that as meaning sort of midway through Q2, but it's difficult to be so precise on something that we don't know yet, which is also why, to be fair, I've not given and we don't intend to give sort of guidance by sort of full detail of P&L lines because, again, we'll have to see once we integrate EUSA what that looks like. I mean, certainly EUSA has a slightly higher sort of, you know, R&D as percent of revenue at the moment. So you should expect the consolidated number to be slightly higher than what we're reporting at the moment. But, again, we would say that sort of more fine-tuning and more details on that once we have completed On sort of further breakout of revenue of sort of Russia, CIS, and Ukraine, I think it's appropriate that we give you a little bit more sort of direction. Within that, around $75 million would be Russia, $15 million Ukraine, with the balance in the other markets in the area. I think in terms of profitability, we're not going to go into sort of profitability by market. You have to assume sort of in line with group average at this point in time.

And the rare disease is a smaller part in the business with, again, the average profitability for rare disease products. The history, we know that during these challenging times, pharmaceuticals tend to really be quite resilient. There is a very short disruption. You can imagine that it's going to be difficult for any truck to pass into that region and deliver goods, but we really have good stock levels on the ground, and we expect to be able to continue this business fairly soon without problems. really big impacts on those two countries.

And again, we'll monitor and we'll review that as events unfold.

And on R&D?

No, but R&D, as I said, there's not the reason for which we're not giving sort of a breakout of the P&L for 2022, where I think, in fairness, we get quite a bit more color on guidance and with many companies is that, you know, we have to see once we sort of take our hands on EUSA, you know, how exactly sort of the various P&L lines will come together. You know, I would expect our R&D at sort of a percent of sales to be slightly higher after the completion of EUSA than it has been, if you like, in 2021. and that's simply as a result that they are incurring a higher level of cash R&D costs than we are at this stage, but we're not going to go into that much more detail in terms of further breakout of the 2022 guidance, Martino.

Okay, and very last on the end of franchisee, $160 million, $180 million sales target for the current year. Can we assume roughly... $90 million, Signifor, and the balance could be higher or lower, but is this to Risa?

I would say we don't give guidance on a per-product basis. Of course, most of the growth will come from Risa, right? Signifor, we expect, will continue to grow. Most of the growth, as we said already in the three-year plan, clearly will come from Risa. And as we said, and just to set expectations, you know, a next important catalyst of that is the progressive reimbursement in Europe. And so, you know, we do expect that to start kicking in as we go into the year sort of, you know, progressively. But again, most of the growth will be contributed by Suiza.

And very last, is there any reason why Sturisa was flexed sequentially in Q4, if I'm doing right enough?

Not of any sort of relevance from our perspective. Patient acquisition has continued to be strong. A single quarter of sales on rare diseases is always a little bit lumpy. I think there was a small sort of true-up of... accruals on discounts in Europe in the last quarter. But we're talking sort of rounding here, which on a single quarter sales of a single product can distort a little bit the underlying trend, Martin.

And, Martin, what we've also seen, and that helped a bit in some of the sales numbers before, is that patients didn't really have the access to surgery that you would normally have due to COVID restrictions. and specifically also some restrictions in getting into surgery. That has returned to more normal now. But in terms of getting patients on the therapy and the ability to grow the numbers there, we are fully on track. Okay, thank you.

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

Thank you. A couple, please. At AbbVie the other day, we were talking extremely positively about the opportunity for Cariprazine, or I can never pronounce it for you, Richelia, in the U.S. Is there any access that you have to any of that data, and is there any chance of effectively reinvigorating that product, which now seems to be too small to talk about? Could you also tell us a little bit more about your rightsizing in Turkey and Germany? What's changed in your market environment there? If you're able to do more digital, is that something that you can do in other markets as well? Just give us a little bit more of a flavor for that, please. And then you talked for the UCIA business of Silvent, as I understood it, doing particularly well because there was a shortage of other IL-6s out there. Is this a temporary demand? that you're getting, or do you think that this is enabling the company to establish the product and that it will therefore grow more strongly from this enhanced base?

Thanks, Jo, a lot of good questions. Let me start with Rayagile in the US has a slightly different label, a different indication that unfortunately the bipolar one we will not be able to claim in Europe, so Yes, we have a very good collaboration with all the partners behind the products, but there's very little that we can actually really do in Europe at all. There might be a small, small, small opportunity in Switzerland, for instance, but that's going to be extremely limited.

But the data they were talking about was major depressive disorder, you know, adding to their bipolar, so adding more depression to it. And I thought that was really more of where you... had data, and that was more of the positioning in Europe. So I wondered if there was any of that incremental non-bipolar data you could access.

No, I think the way we've seen it so far is that this really only works on the base of bipolar that you can actually start. It's a very different positioning that they have in the U.S. Clearly, we look at this opportunity, but that's not something that we believe is going to be really realistic for us in Europe. Unfortunately, I'd love to. But it's not reality. In terms of commercial excellence, what we've really been doing, and it's very much as you hinted to, and it's an ongoing, this is always a dynamic process, right? We look at opportunities and with the launches of the new two products, we see that there are opportunities, for instance, in the Nordic countries where we've strengthened our sales force a bit. And this has also been a learning phase, not just for doctors, but also for us in what are the best ways of getting your message across and interacting with your customers. and using multi-channel is something we've been doing. We will definitely take the best practices to other markets. In Germany and in Turkey specifically, it's also reflecting the focus on specialists rather than on general practitioners, which is really a slightly smaller target audience so that we can actually work with fewer people as well. And to the extent that that is true in other markets, we'll continue to drive it. We do not foresee... as significant impact as we've seen in 21, also in 2022, where in 21 this is, in terms of actual reduction, you're talking about 175 positions that we were able to reduce without in any way bringing down our commercial impact. In fact, probably we're better now than we were ever before. And then the last question is, What we've seen is that on the back of some shortage of the NTIL 6, Sylvent has been able to probably increase. We don't own that business yet. It's very difficult to really comment on, but that's one of the very first things we'll definitely do once this is approved by the authorities to sit down with user management and look at opportunities. Theoretical, there are some, but I don't really want to speculate and I want to really save that for the update we'll give after we've had the time to look into that and have been able to close the acquisition.

Maybe I'll just add, Joe, are we looking at potentially other countries in terms of rightsizing? I think we mentioned that we do have, we have foreseen... Part of the non-recurring costs that we've foreseen for 2022 reflect that, mostly voluntary sort of programs that, again, in a very sort of targeted way, we're looking at across some of our other established markets.

And I'll ask just a final question, if I can. I assume that you are fully occupied with your user acquisition. but what is your sort of pipeline for more products, given that you've had a history of growing 50% organically, 50% by acquisition? How is the pipeline for new opportunities coming along?

I'm happy to – well, I'm not going to, of course, mention anything concrete, but the pipeline is as good as ever, if not better. There are plenty of interesting things to look at, and yes, we are very busy with interacting with our – use our colleagues of the future and cannot wait to get them on board fantastic people but there are some other interesting opportunities as well so but I mean I don't think you expected that we would give anything concrete but it looks promising and it's very much part of our strategy the next question is from Rajan Sharma of Deutsche Bank please go ahead

Hi, thanks for the question. I've got a couple on hysteresis, actually. Could you just give us an update on the regulatory path for the acid in Cushing's finger in the U.S.? Have you begun discussions with the FDA yet on that one? And then secondly, how are you tracking on your target of 500 patients on hysteresis therapy by 2023 in the U.S.? ?

So we're on track. It's a short answer for the target that we set of achieving over 500 patients in the U.S., and we think the sort of sales sort of guidance that we provided for next year, or for 2022, should confirm that. Nothing has changed in terms of the expectation in terms of engagement with the FDA. in the early part of this year to discuss the pathway that we see for the potential expansion of the Cushing's label for East Teresa in the U.S. So nothing has changed. We expect we're going to pull together a dossier which sort of draws from previous studies and real-world evidence that we're going to be collecting and plan to engage with the FDA in the early part of this year.

And then take it from there, right, as it was difficult to comment on how the FDA will react. We think we have a good dossier, sir.

Okay, thank you.

The next question is from Nicola Storer of Kepler. Please go ahead.

Yes, good afternoon, everybody. I was wondering if you could provide us with some more detail on your margin guidance for 2022 and maybe how all the moving parts contribute into it. You talked about inflation, so maybe if you can... detail a bit on which kind of relation, on which items are you talking about. Then you talked about launch phase of the user. And then also I guess that all your right sizing carried out in 2021 could bring about some benefits. So if you can make a kind of bridge between 2021 and 2022 and also give us an indication on whether this scenario you have projected for 2022 could some way be carried also in 2023, putting at risk your business plan targets. Thank you.

So, Nicola, as I said, we're not going to sort of try and unpick too much the guidance because, as you said, there's a lot of moving parts involved. to just give sort of some really high-level sort of direction in trying to sort of keep it simple. You're asking sort of for a bridge between 21 and 22. You know, we're guiding to one percentage point lower in terms of margin target numbers. which, as we said, comes from a combination of integrating the UZA business, which is running at a sort of lower margin level, and inflation pressures. If I was to put sort of tentative numbers to it, I would say half a point of margin from gross profit and the impact that we'd expect inflation to have, which is sort of more than upsetting the benefit of mix, and half a percentage point on R&D on the back of the higher investment that Teresa is incurring, but also the investment that we plan to do because, as I said, there's some work that we want to do on Isturiza as we prepare for sort of getting the full benefit of reimbursement in Europe, and I mean that in terms of sort of particularly investment in medical services and sort of small observational studies in Europe. So I think that's to give you just a general direction. In terms of does that sort of put pressures on 2023? Well, we're not sort of updating today any sort of 2023 numbers. You know, inflation kind of depends on, you know, how quickly that subsides. So we'll see, and again, I think we'll be in a better position to provide guidance, both on top-line potential and bottom-line, once we get our hands on EUSA and can more sort of fully articulate the plan for that.

Sorry, I'm about to... Sorry, just to add, what doesn't change is our commitment to good margins and affordable development, right? So that is not new, and nothing has changed in that respect.

Thanks. And maybe follow-ups on that. Nothing on savings from right-sizing of your sales force, because 175 people is quite a lot.

No, of course, but we always also said that we would. So notice that when I sort of talked about sort of margin progression, I talked about cost of goods and I talked about R&D, because we did always say that we would progressively reinvest in the business as and when sort of market conditions improved, and we've done a little bit of that in 2021. But, of course, the conditions did remain the in markets somewhat restricted for part of the year, and we'll do a bit more of that in 2022, which will be offset by the savings which are generated by the right sizing that we talked about, where we expect the return to be quite short.

Cool. Thank you.

The next question is from Isacco Brambilla of Mediobanca. Please go ahead.

Hi, good afternoon, everybody. Thanks for taking my question. I have just a quick one on Heligard. Can you elaborate a little bit more on the missing steps for having the product green-lighted and launched on the market and also on which is the potential in terms of contribution from the new device to the mid-term prospects you want to build with the business plan? Thanks.

I'm not fully sure we fully understood the question. I think it was around sort of expectations from the new device. It's been filed. We expect, we hope to see the approval in the A half, second half.

Third quarter of this year. But just to be sure, Eligard is on the market, right? This product was taken over. With a negative trend, we've been able to reverse and stop the negative trend and in some countries grow. And we believe that the advice will help to improve handling by patients and management of the therapy. And, of course, it's going to create positive outcomes momentum in terms of plan, but it was very much part of our initial plan when we acquired the products, and so things are going as planned, on track, and we're happy with it.

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

Hi, good evening. Thanks for taking my questions. I was wondering if you can elaborate more on the cough and cold expectations for this year, since we are seeing a faster recovery from the COVID pandemic and the progressive lifting of the restrictions. So I was wondering if you are projecting a faster recovery on that front. And the second one is on inflation. We have the pricing power to transfer part of the inflationary pressure to the final clients in terms of retail pricing. And the third one is on the guidance for 2023. You didn't mention targets, and I was wondering if there is any adjustment to consider after the EUSA farm acquisition or not. Thank you.

So, Giorgio, thanks for your questions with me. I think probably on inflation, Luigi, you want to?

No, well, just to reiterate what I said before, do we have pricing power? Yes, we do, and we do sort of regularly take those opportunities. It will not be, obviously, it's not on the whole of the portfolio and it's not in every country, so it is limited, but that's how we are in part also able to contain the impact to, you know, I'd like to think sort of relatively... sort of low number, when I say sort of half a percentage point of margin.

And cough and cold, like Luigi already indicated during his presentation, that we've seen a return over the entire year of 21. We were at almost 75% of pre-pandemic. Towards the end of last year, we were getting close to 85%, and we expect actually going into this year, that we will be not completely on pre-pandemic level, but more or less around 90% of the pre-pandemic cough and cold market.

And on your third question on sort of 2023 guidance, you know, do we update it post-EUSA? Well, no, we don't because, well, one, we're just not updating guidance for midterm today. We'll do that later this year once we complete the acquisition. And don't forget, there are 2023 targets already included, a contribution from BD, as they've always done. So we're not going to do that. The one thing, and I know that instead of talking guidance that maybe we haven't touched on, I just did want to mention, you know, obviously the guidance that we provide, and as we have sort of done sort of consistently over the last couple of years, is for results on an adjusted basis, both in terms of EBITDA and adjusting net incomes. Of course, with an acquisition, particularly one of the size of EUSA, there will be non-cash IFRS 3 acquisition accounting adjustments that we'll have to factor in, in terms of additional amortization and other charges, particularly arising from the step-up to the value of inventory that we will acquire from the acquisition. No, we can't sort of determine those until post-close. We'll have to go through the sort of full purchase price allocation exercise. But just thought I'd mention that, obviously, as a reminder.

Thank you. Just a follow-up, if I may. Could you clarify what you are expecting, a limited decline of the less-candidating sales in the year due to the adverse impact of tenders in China? Is that something that was expected, or how should we consider this element? Thank you.

It was not expected, but I had to consider it just to give a sort of a round figure, sort of less than $10 million. So we mention it because it will show a little bit, particularly in the first part of the year. We had initial in 2021, we had, and I think we commented during the year, initial shipments to a new distributor there. Lyricanidipine, to be fair, a little bit surprisingly, was included by being a relatively small molecule in the country into the fifth round of sort of value-based tenders in the country. And I think that will compress sort of in the short-term revenues and therefore will result in our distributor probably not ordering products very much over the course of 2022. But we remain positive about the outlook for China. It's a big market, and I think we see this more as a sort of, you know, a one-year effect rather than anything.

And a very committed distributor that really works along with us really very constructively. So we believe we should be able to overcome this, like Luigi said, beyond the short term.

many things.

For any further questions, please press Start N1 on your telephone. Mr. Cormans, there are no more questions registered at this time.

Thank you. I'd like to thank you all for your participation. I look forward to interacting with you soon. As Luigi indicated, we will be interacting as soon as we have the closure of the USA and the chance to really interact and digest that business and I think also in the same time frame we'll be giving a more long-term outlook as well as we typically have done. So thanks for the interaction and the questions and have a very good day.

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephone. Thank you.