Recordati Industria Chim

Good afternoon. This is the Coral School conference operator. Welcome and thank you for joining the Recordati 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.

Thank you, Sabrina, and good afternoon or good morning, everyone, and thank you for attending the Recordati conference call today. I'm pleased to be here with our CEO, Rob Cormans, and Luigi Lacorte, our CFO. that will be presenting the 2022 first quarter results. They will be running due to 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 give the floor to Rob. Please go ahead.

Thank you, Federica. I'm proud to announce a very strong start of the year for revenues and bottom line performance with continued strong cash flow generation. Overall revenue growth was 9% or 11% in constant exchange rate and reached 419.4 million, reflecting continued post-COVID recovery and good underlying growth of both our businesses. SPC recovers in relevant markets, especially with regards to Coffin Cold and OTC products, and also it improved access to healthcare professionals almost returning to pre-pandemic levels, and also a very robust performance of rare disease, both the endo and the metabolic portfolio in the U.S. and in Europe. In more details, endo increased its revenues by 46.4% versus the first quarter of last year, thanks to the continued new patients acquisition in the U.S., and in the lead European countries. East Teresa is now reimbursed in Germany and Spain and we keep pushing to get that in other European markets. We have a nicely increased contribution from Eligard, 7 million up versus the first quarter of last year. With stabilization of the markets in many countries and actually in some we already start to see which is a very big change from the product we took over with a decline. The new device filling has been accepted by the European Medical Agency with a decision expected in the third quarter of this year. The user pharma acquisition closed on March 16th and the integration is progressing really, really well. Also, the business is tracking nicely ahead of our own expectations. And then we've also had good growth in the quarter in Russia and Ukraine, basically on the back of a very strong cough and cold season and also related to some of the advanced purchases that were made in both countries ahead of the conflict. We see that Russia has brought in 17 million in revenues and Ukraine 4.4 million in the quarter. And what you should note as well is that Russia, the growth has been strong also because of strong destocking in the year before in the same quarter. Our financial results reflect strong top-line performance and efficiency improvements like the SPC rightsizing in our commercial structure and sales force, and also still very limited year-to-date inflation impacts on COX and OPEX. EDHDA 163 million, or at 38.9% of sales, which is up 8.7% versus the first quarter of last year. Adjusted net income 116.3 million, or 27.7% of sales, and up 11.4% versus first quarter last year. And net income at 96.7 million, or 23.1% of sales, up 7.6%. We have continued strong free cash flow generation of 110.3 million. Operating results reflect the impact of 7.1 million of non-recurring costs, mainly related to the user-farmer transition and organizational restructuring. depth of 1.4 billion is around 2.2 times EBITDA pro forma for EUSA Pharma reflecting continued strong cash generation by the business and expected to be around 2.4 post-May dividend payment. Before handing over to Luigi who will provide more details on the financial performance, I would also like to talk briefly about EUSA. The acquisition was driven by our desire to enter into this very appealing rare disease segment of oncology. Rare oncology is a beautiful growth opportunity and fits perfectly to our rare disease business where we see mutual strengthening. The assets that we've acquired are very, very attractive and we see opportunities to continue the strong growth and performance. And also we get people that are strongly committed, very capable, and strongly committed to making impact on disease and on patients, and that is what ultimately drives us in this business very strongly. Twenty-one revenues were just over $150 million ahead of plan, and as we also closed now a little bit earlier than expected, We can also update our expectations for this part of the business for the three quarters of 2022 that we consolidate, quarter two, quarter three, and quarter four. We expect for this three quarters contribution of over 120 million euro in revenues and over 30 million in EBITDA contribution in the last three quarters of this year. with a going margin which is much in line with the rare disease segment. Non-recurring costs in 2022 and 2023 are confirmed to be around 35 million, 28 million of which will happen in 2022 and are related largely to the ongoing manufacturing technology transfer for Sylvan and acquisition and integration related expenses. Total consideration of $707 million with an enterprise value of $750 million net of financial debt of the acquired business and of other adjustments. And financing via an existing liquidity and $650 million of new debt facilities. On the right hand of the slide, I'll give a little bit more color to the integration. We have now integrated the ecology asset into our rare disease unit with three strong business units within rare disease, metabolic, endocrinology, and the oncology assets. Like I said before, the integration is progressing really, really well, and we expect to completely finish integration still this year. There's a lot to do around the new sets of products that we acquire. The performance is really, really fantastic. But what we do with user integration is much more than integrating assets. The key thing here are also really the people that we brought on board with all of their competence and know-how, which is very relevant in this attractive niche oncology market in the rare disease oncology. And with these people and with our own team here, we look at some of the assets where we see additional opportunities that we've indicated in the pipeline part of the slide where we are currently looking at what are the opportunities and bring the business cases for that. Too early to comment on the size of the opportunity and timelines, but we believe there's something there that is really worth spending some time and money on looking at this. And to make all of this happen, People are key, and the integration with users is happening incredibly fast. We are very compatible in culture, and it's very, very good to see how the teams are working together and basically work as one to help and drive our business further and serve even more patients in the time to come. And with that, I'll leave the floor to Luigi for a detailed financial review.

Thank you, Rob, and good morning, good afternoon, everyone. Likewise, very happy to have this opportunity to provide more detail on what was a strong set of results in Q1, starting with, as usual, on slide four, sales for key corporate products, which you will see. you know, reflect, you know, very strong growth of our rare disease franchise and continued recovery of our relevant markets in specialty and primary care, particularly cough and cold and OTC. When it comes to the main lines on the sheet, Zanideep and Zaniparistar live in a franchise You'll see down by 18.7%. With both products down in the quarter, as anticipated and flagged, sales in Xanadu were down primarily due to sales to our distributor in China following loss of a tender and due to the fact that in Q1 of 2021, sales benefited from initial sales to that distributor. We don't expect to have further erosion on the franchise in the remainder of the year. Sales of Metoprodol are broadly stable. If you recall, Metoprodol was down over 7% last year. We're seeing a return to growth in Central and Eastern Europe, which was offset by flood erosion in Poland and Germany predominantly, and also in this case, don't expect further erosion for the remainder of the year. As Rob highlighted, strong contribution of Eligard in the quarter with sales of just under 24 million. Thanks to the promotion behind the product, we have succeeded in stabilizing in-market sales and starting to see signs of return to growth in France. and more importantly in Spain which is the key market for Aligard. These being, you know, obviously great signs given the product use trajectory within market sales overall broadly in line with the last year and the 7 million increase being mostly driven by the transition to direct distribution. We have set expectations for 2022 that our other franchises, Civility and Peter Vastatin, which lost exclusivity in 2020, would continue to stabilize, and that's very much still the view. You'll see, in fact, Peter Vastatin returning to a slight growth thanks to a growth of the sales to our international distributors, but also in Switzerland and Russia. And erosion, some continued erosion on silodosin being primarily driven by effects in Turkey and some additional erosion in Italy in particular. A key growth driver several key growth drivers within the other corporate products. I'll call out some of our main cough and cold franchises, Isofra, Polydexa, the Hexa line in France, but also of the corporate OTC portfolio, Casulax, and some of our probiotics products together with Regula. all of which contributing to sales of other corporate products being 72.3 million in the quarter, up close to 14% versus Q1 of last year. Some of these products, as you recall, particularly cough and cold, being impacted by a bit of destocking in the first part of the year from Russia. Sales of drugs for rare diseases, 106.1 million, growing by close to 35%. And as you can see, with the growth really being driven by both our legacy metabolic franchise, but also the endo portfolio, which has reached 38.2 million in the quarter, 17 million of which being contributed by East Teresa. We've seen in the quarter very little impact from recent generic entry in the U.S. on Carboglu. We do expect a bit more headwind from that in the second part of the year, but we do continue seeing dynamics on generics in the rare disease segment being very different from SPC, and therefore with much higher, stronger ability to retain patients on current medications. And finally, and just for reference, obviously not included in these results are the Q1 sales of EUSA. which in the first quarter were around 38 million euros, an 8% increase versus previous year. And as anticipated and previously communicated, we will be obviously consolidating the results starting from Q2. So then moving on to slide five, You see drug-for-rare diseases account for now over 25% of revenue. OTC overall, which grew strongly at the double digits in the quarter, accounts for 19% of group sales, with local portfolios accounting for 14% overall. Looking at revenues by key market, you will see in fact how broad-based the growth was. In fact, all of our key geographies are growing. Even Turkey, which is obviously showing a minus sign, is growing high double-digit, close to 31% in local currency. And just picking out some of the main themes, It's quite common in terms of a cough and cold early guard OTC driving the growth of Italy and France at respectively 5.2% and 12.1% versus last year. In the case of Italy, within OTC, we'll call out Magnesio Supremo, which grew strongly in the quarter. In the case of France, it was really the Hexa line and Hexa Nutrients. In both cases, again, with good contribution from Aligard in the quarter. U.S. is now our second largest market, obviously dedicated to the sales of rare disease products with revenue of $52.6 million in the quarter, up 42% or 32.4% cost of the exchange rate, obviously with tailwind from the strengthening of the U.S. used dollar over these months. Germany, up by 5.3%, with revenue of $38.3 million, with growth of Orbiton, and once again, strong growth of the rare disease franchise in Germany. and a strong contribution from Aligard, which is also driving significant growth in Spain at 33.3 million. Spain continues to see also a strong growth of RGI portfolio, products like Citrafleet, Casalux, which have strongly rebounded since the middle of last year. following the impacts of the pandemic with very similar trends driving the growth in Portugal as well of 11.1%. Turkey has commented local currency terms growing by over 30%. This is really volume-driven with strong recovery of the market there. Obviously, also in this case, some contribution from Eligar, for which we have marketing authorization transfer also in Turkey, and therefore we'll be able to fully support the product. We do expect actually growth in Turkey to accelerate over the next months following price increases which were conceded to the industry in March of this year. I'm sure we may have questions on business performance and outlook in Russia, RCS and Ukraine. Obviously, as you will have seen, sales in that region remained very resilient and, in fact, showing strong growth in the quarter. Once again, that is somewhat distorted by the destocking that we have seen, particularly in Russia, in the first quarter of 2021. But that aside, obviously, we saw in the early months and early weeks of the year a strong recovery of those markets, particularly of cough and cold, and also in the weeks leading up to the escalation of the conflict. some advanced purchasers locally. You see that in local currency terms, Russia, the sales to Russia are up close to 60%. Again, once again, with the Q1 comparable being somewhat distorted by destocking. Sales in Ukraine also of equivalent 4.4 million euros were up 22% in the quarter in local currency terms. Other Central Eastern Europe, sales of 30.3 million, up 9.3%, driven once again by OTC, growth of rare disease. And as commented, you know, return to growth of metoprolol in several markets, coupled with obviously the addition of Eligard, which is driving also significant part of the growth of for Western European countries. And again, to call out here, you know, growth of pitavastatin in Switzerland and some of the smaller Western European markets. North Africa, sales of 10.1 million are up 3.1%. With sales from our affiliate in Tunisia, Opalia, up 8%. And that growth partially upset by continued challenge to exports to Algeria. And finally, international sales down by 0.5%, really being reflective of the dynamics of shipments to China. which offset the growth of rare disease and contribution of Heliguide in our international affiliates. On slide seven, you'll see that, you know, Italy has a share of total at around 18.4%. Obviously, remaining are our main markets, with the U.S. now representing close to 13%. of total, but once again, you know, showing a very diversified footprint for the group. Moving on to the P&L on slide eight, as Robert said, you know, margins remained strong and very happy, obviously, with the financial performance in the quarter. Growth profit margin at 72.5%. Slightly below the level achieved in the first quarter of 2021. A bit of mix there, but also starting to see a little bit of an increase in raw material costs starting to come through. And we do expect a little bit more of that in the remainder of the year. SG&A expenses at 29% of revenue are up 7.3% versus previous year, with selling expenses up by 6% at 33.6%, and G&A staying at around 5.3% of revenue. The growth here, particularly in selling expenses, clearly being due to the restart of activities in the field, which have returned pretty close to pre-pandemic levels in most of our territories, with the exception of some of the northern European countries, and obviously reflects also additional investments behind Endo and Eligard, which are, however, offset by some of the efficiency improvement initiatives that we put in place at the end of last year and that are continuing to deploy. R&D expenses, 10.4% of the sales are up 5.3%. Clearly this is driven by particularly by some of the measures we took last year to strengthen areas like market access, pharmacovigilance and regulatory as we took on the new franchises and the progression of ongoing studies particularly on the endo side and obviously As usual, this line of the P&L includes amortization expenses to the tune of $18.7 million in the quarter. Other expenses of $7.2 million reflect $5 million of non-recurring costs related to the user transaction. I recall we said we expect a total of $35 million. across 22 and 23, of which 28 this year, and also some additional costs of around $2 million due to the ongoing right-sizing exercises. This results in operating income of $131.3 million, a margin of 31.3%, and EBITDA of $163 million which is very strong, very much in line with last year, close to last year at 38.9%, reflecting the strong revenue, the cost discipline, and as I said, minimal impact so far on inflation from year to date. And moving to the non-operating lines of the P&L, I mean, obviously, we have continued to see some effects volatility in the quarter, which results in some effects losses, but not quite to the same level as same period last year, which is behind the slightly lower financial expenses of $7 million, with tax rate broadly stable around $32 million. leading to a net income of $96.7 million and adjusted net income of $116.3 million, which is up 11.4% versus Q1 of 2021. You'll see on slide nine Both businesses holding strongly in terms of margins with rare disease at around 47% and SPC at 36% with rare disease now accounting for just over 30% of group EBITDA. We're obviously focusing on EBITDA given the increasing sort of effect that amortization and other non-cash IFRS 3 adjustments we'll have on reported operating income, particularly starting from Q2 once we start consolidating EUSA. On slide 10, cash flow, as Rob mentioned, continues to be very strong. You'll recall we had a very strong result in 2021. 2022, free cash flow in the first quarter. of $110.3 million is in line effectively with previous year. So once again on track for a strong delivery in terms of cash generation as well with the incremental EBITDA being offset by slightly higher take on working capital really being driven by the growth of the business. Of course the cash flow reflects the consideration paid for EUSA of $707 million and in the other financing flows obviously is the net debt which we acquired with the entity of around $25 million plus the new financing that we took on to finance the acquisition. Slide 11. As already commented by Rob, obviously, our balance sheet remains strong with $1.4 billion of debt representing around 2.2 times leverage with or, in fact, I should say, without Performa EUSA. Excluding completely the EUSA contents, Performa EUSA would be around 2.3 or 2.2 once we include that. And to close on my side, on slide 12, we provided a bit of a latest view in terms of some of the key planning assumptions for this year. You may recognize the bullet points on the left representing the assumptions we called out when the targets were set at the beginning of the year. and the current view. In summary, we believe we are on track to deliver on the objectives that were set. We certainly feel the momentum on the revenue side is strong, is robust. Of course, we expect a bit more headwinds, particularly on the SPC side. coming from a combination of effects, which will be most likely higher than the minus 1% that we forecasted. Obviously, it depends a little bit on what happens to the ruble. But overall, aside from that, on track with our growth ambitions and certainly on track when it comes to the key growth drivers being the Endo franchise and Eligard. What headwind we may see on SPC arising from the conflict, we believe, is going to be offset by the slightly higher contribution of EUSA, which we will consolidate as a Q2, but obviously we'll have the benefit for the full quarter. As Robert said, delivering over $120 million of revenue and over 30 million of EBITDA between Q2 and Q4. We do expect EBITDA margin to still be around 37% of revenue, and despite the very strong performance in Q1, we do expect somewhat higher inflation headwinds in the second part of the year, and of course, just the sheer effect of consolidating EUSA, which is currently running at a lower EBITDA margin than the rest of the group, but our expectation remains that it will align over time to the average of the rare disease segment. And finally, we do expect financing costs to be probably closer to the higher end of the range because of the increasing interest rates and effects, but no change at current time in other tax rates or non-recurring costs assumptions. And so you see on slide 13, effectively confirmation of the target that we've set at the beginning of the year, which, just as a reminder, obviously include the contribution of EUSA. Clearly, they assume that sort of continued operations in Russia in line with the current. And with that, I'll hand over to Rob to talk about priorities.

Thank you, Luigi. So clearly our priority remains on delivering the targets for 2022. We're on track and confident that we can deliver. But I also wanted to share with you some of the overall broader priorities that we see in our business. First, we will continue to drive organic growth for both our business units. And we have our growth drivers in place in the SPC part of the business with Aligarh, with OTC, and in general with increasing demands. Our growth is volume-driven on the background of a growing market demand, aging population, specifically for the areas having solutions for patients in this area in SPC. And we continue to see very good growth for our rare disease parts, specifically on the endo and on the oncology franchises with strong double-digit growth in this. And we really want to continue to also explore what I would like to stress as affordable internal pipeline opportunities, aiming to reinforce our internal pipeline and also our capabilities in that field. And for me, and for us, affordable innovation means that not only financially affordable in terms of cost but also in terms of risk and within our portfolio we see good opportunities that we want to further explore to enhance our growth in a very nice and in terms of affordable and low risk opportunity there. We keep also enhancing our growth through value accreted M&A activities both in SPC and that is focused on Europe and in rare disease which is global and there will be focus also on the US because that's where the biggest earning and profit opportunities are in this business. We are committed to reinvest cash flow in the company to fuel future growth. We want to stay and our ambition is very clearly to sustain our position as a sector leading in terms of operating margins on EBITDA and adjusted net income. We will continue to drive for further efficiency on the commercial side, but also in our operations where we have programs in place to address the impact of inflation and also to leverage our vertically integrated supply chain. And absolutely to maintain a solid balance sheet and a very clear capital allocation policy as done in the past with very strong discipline. We do expect to continue to deliver strong cash flow generation to fuel our growth and also our dividend policy with 60% of cash flow. By the end of 2022, we aim for a leverage ratio around 2.2 times EBITDA, excluding any further BD or M&A. Our cash generation profile, we feel, could allow us to go to closer three times if a high-quality opportunity of scale came along. Clearly, we would do so with a plan to come back to the levels of leverage that we feel are more sustainable and appropriate for our business. With that, I would like to thank you for your interest so far. end the presentation and open the floor to questions.

This is the Coruscant 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 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 D'Ambrogi of Equita. Please go ahead.

Thank you. Good morning. Good afternoon, everybody. The first question is on the consolidation of the USA. because you are revising upwards the contribution, but because of, let's say, one month in excess of what you expected. But I noticed the EBDA margin is a couple of percentage points higher. I don't know if it's just a matter of rounded figures or you discovered something more exciting than you thought. You didn't talk about 23 guidance for EUSA. And I just ask you if it confirm 150 for sales and 50 million of EBDA. And a general question on the guidance, because if we remove EUSA from the consolidation, you have growth in terms of sales and the BDA between 0% and 5%. And if we remove also the contribution of the end of franchisee, it's even lower. So I clearly understand there is the Russia impact. I don't know if you can share with us what is your best estimate for the current year sales, Russia and Ukraine together. I understand the Forex is a bit worse than expected. LERC and EDP, I understand, is just an issue for the first quarter. So could you summarize what are the negative effects on a like-for-like basis that are impacting your guidance?

Sure. I'll try on the last one, though. There's a number of moving parts there, obviously, and also I'm not clear if this sort of reference is the guidance or Q1, but I think in terms of your question, I think we said that we already at the start of the year that EUSA is performing better than, if you like, our sort of business case assumption, and that's reflected both in a It's like a stronger sales momentum and also a sort of marginal improvement in the sort of expected EBITDA contribution. Bear in mind also there is a little bit of, I mean, when looking at the contribution for this year, we also had to make a call. without having full visibility on the monthly phasing as to what exactly would be the portion that we would be consolidating this year. So there's a little bit of that. But to answer sort of maybe sort of more relevant question around 2023 expectations for EUSA, I mean, we're not giving today sort of revised 2023 guidance. However, I mean, we have indicated that EUSA is running ahead of plan. It delivered just over $150 million of sales in 2021. It's currently running, I mean, if you do the math, with around 25% EBITDA margin in the second part of this year. We think we can achieve in excess of 30% for next year. Again, we're not going to give a sort of specific, but it's certainly going to deliver more than $150 million of sales, and I think you should expect an EBITDA margin contribution of that, you know, north of 30. Now, I think when you then start unpicking things like Endo, you need to be a little bit careful, right, because, I mean, Endo is an integral part of our business. So, you know, to look at, first of all, Q1 results obviously don't have any contribution from EBITDA. In fact, they have a $5 million charge. as I read. If you like, the growth that you see in Evita for this quarter, from our perspective, is fully organic and . Of course, if we start taking out from that all of the parts of the business which are growing, then of course the balance will be declining. Perhaps I didn't fully understand the third question, but I think You know, from our perspective, the actually new job so far, we're going and we expect that to continue.

And could you share your best estimates for Russia, Ukraine this year?

Yeah, I mean, Ukraine, obviously, you know, we had 4.4 million of revenue in the first quarter. I think, you know, what is remarkable and a testament really to the resilience of people in that country, I mean, we are continuing to be able to get sales across and, you I think people in Ukraine are trying to operate as close to normal as they can. So we're still seeing wholesalers putting through orders and even paying invoices. Now, of course, we don't expect a significant contribution from Ukraine over the remainder of the year. Russia is different. I mean, Russia, we see the business continuing to perform. Of course, we've said multiple times we're committed to continuing to supply patients wherever they are. And I think it's more a judgment call as to where you think the ruble will be, which is a little bit difficult to call right now. So we're not providing a specific four-year estimate for Russia, but so far we see business there continuing. We may expect a little bit of demand softening later in the year if economic sanctions start to bite into spending power. But then if you assume 73 on the ruble, which is where it is now, or 100, which is consensus, clearly makes a difference.

And maybe also worth to stress, Martínez, Of course, we continue to serve patients wherever they are as to our best ability and do so within all the legal frameworks and requirements coming from sanctions. And we always said also the priority is safety of our people, both in Ukraine and Russia. And this is an incredible, volatile environment where we really are very much on top of it. I'm glad to say everyone's safe so far. but we need to really make sure that this continues to be the case also in Russia. So you cannot just pull out without at least also considering the potential implications for our people in Russia. So we continue to do business and we work with the consensus ruble rate at the moment, but no one really knows where this will end. And so far we really are very close on top. So far we've not seen any significant interruption of our business there or in Ukraine for that matter.

Okay, thank you. Just the very last question on DM&A. I don't know if we can state it temporarily on hold because you need to digest the user or because the debt to EBDA is already higher than usual. Or back to what Andrea used to state in the previous calls, there are a lot of opportunities around and this will not prevent any announcement. So

I think I would go with Andrea's words. There are really some really good opportunities around and of course we will maintain our discipline and I think that's been one of the key success drivers of Record Art is being able to generate really good cash out of the acquisitions we do and have a good return on capital. So that is something we really look at very carefully. There will be opportunities going forward. User integration is progressing really well and the people are really very much part of Recordati at the moment. And any new deal, of course, we have to put in the light of the opportunity and we are very much aware of the fact that we need to finance it. So we'll take all of that into consideration and keep the discipline there. But if the right opportunity is there, we will not hesitate and go for it. Thank you. Welcome.

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

Thank you. I've got three real questions and just one modeling question. My first question is your ability to pass on prices ex-US. You've mentioned that you're expecting to see higher inflation in the second half. Is that something that you'll be able to offset? I guess in OTC that's relatively easy. You have been given some price leeway. Perhaps you could give us the magnitude of that in Turkey and whether it actually manages to catch up with the devaluation. My second question would be whether you've seeing the current very poor environment for biotech funding increase the number of deals that you are being offered. I could imagine that there would be lots of biotech companies who are now no longer looking to try and commercialise things themselves because they may not be able to get that funding to do it. So is there a material uptick in what you're able to do? And then perhaps allied to that, I was really intrigued by your slide where you talked about the integration of EUSA in your orphan Europe business and that the two together is two and two may equal five, not four. Can you give us some idea of maybe the number of marketing people that you had in your rare disease unit? What quantum that has gone up? Is there some sort of critical mass that you have now reached adding that business? My final just modeling question is, I know you haven't decided exactly what the amortization charge will be for EUSA, but could you give us a number that we should use for the next three quarters? Presumably it's higher than the 18.6 that we had in the first quarter. Thank you.

Thanks, Jo. Quite a couple of good questions, interesting questions. On prices, I think you're right. What we've done, yes, in the U.S., there's an opportunity and ability to increase prices a bit, although these things are also, I mean, you have to be careful on how to do that and where to do. OTC, yes, the same, if the competitive environment allows for it. In Turkey, we've had the opportunity to really increase selectively some of our products because we could demonstrate to the Ministry of Health that the price increase would really be justified and they've approved that on top of a already over 30% price increase in general that became effective in March. So we've seen the ability for us to pass on some of the cost pressure to also increase our prices, not everywhere and everything, but where it's possible and reasonable and we believe it's the right thing to do, we obviously do that. On biotech, yes, I think two or three years ago money was swimming around biotech. This is less the case. Yes, there will be good opportunities for companies like Recordati with a very good commercial footprint in rare disease globally and a very strong footprint also in Europe where some of these opportunities can actually also fit to SPC. This really helps us in future M&A. And to the point I was making before, we will maintain our discipline. It's really important that we do the right deal with the right potential return. And using our capital in a disciplined manner also for us is absolutely something that is needed and we'll continue to do that. But I'm optimistic about the possibility to do the right sort of deals. USA has absolutely strengthened our footprint in rare disease. I'm not going to share the exact commercial footprint for competitive reasons, it's too sensitive, but before that we really didn't have much of a presence in rare oncology and now with the user people, and they're now Recordati people on board, we have a very good medical, commercial and general ability to interact in this niche oncology and rare disease oncology market where there are a couple of good opportunities. And I think with this footprint, There hasn't been much of a commercial overlap, if you like, because the endo, the metabolic, and the onco commercial medical teams are very different, but definitely these people can learn from each other, and the back office support functions is where we see a little bit more of a potential opportunity in synergies. Our footprint is now global, and I think a company like Recordati for partners is a fantastic partner where they don't completely lose their assets and lose themselves, can still feel what they do, and the assets that they brought and pampered forward with a lot of loving, tender care, we really are a good home for the right ones, and that, I think, is an advantage that we have. And for your last question, I'll ask Luigi to comment on that.

Yeah, for modeling purposes, but for those on the call, I mean, obviously we're now going through the sort of purchase price allocation exercise. You know, if you start from the premise that we assigned an enterprise value to a result of $750 million, and assume that a large chunk of that would be assigned to intangibles. You can expect a yearly amortization charge of probably somewhere between, I'd say, ballpark 25, 30 million a year. Now, you need to be careful with that. The reason why we haven't yet finalized that is because We're making sure that we've also looked carefully at the fair value uplift on inventory as customary and as perceived by the standards and that work is ongoing and we will communicate the exact figures as soon as we've done that exercise. So, sorry, I can't be more precise than that at this stage, but the work isn't done yet. You know, obviously, we closed the acquisition a few weeks ago, and inventory by nature is a bit of a moving sort of beast.

Thank you very much.

The next question is from Harry Sefton of Credit Suisse. Please go ahead.

Brilliant. Thank you for taking my question. So my first question is on the new Eligard device. So ahead of its launch, can you maybe give us an update on your expectations of approximately what proportion of the current Eligard market you would expect to switch with that new device? And then also, could you give us an update on the competitive advantage you expect for that new device, especially in light of some recent launches of other pre-filled LH, RH agonists? in that space. My second question is then on Russia. So you mentioned that you are still supplying in Russia, but are you still currently carrying out promotional activities in Russia, and would you say that supply is broadly normal? And then related to that as well, on Russian receivables, while Russia may only account for a small portion of your sales, we usually hear that it takes longer to get paid from Russia, hence we see a higher proportion of receivables. Can you disclose your receivables in Russia and maybe comment on the current ability to get paid and take cash out of the country at the moment? Thank you.

And maybe, Luigi, if you start with Russia, take that question.

Yeah, sure, Harry. I mean, we're currently seeing no issue at all collecting and remitting funds out of Russia and converting the rubles into euro. So that's sort of short answer to that. I mean, usually sort of distributors in Russia work anywhere between 75 to just over 100 days, and we don't sort of give a sort of specific number, though I think if you look in our annual report, I think we do publish if you like, sort of total net assets which are denominated in rubles at the year end. I think it was 6 billion sort of rubles with the year end being a particular sort of high moment because of the sort of fading of cough and cold. So it's usually, again, anyway between 35 to just over 100 days. But we're seeing no problem at the moment collecting. And by the way, we do also have insurance and guarantees that we've always had, actually. That's not something new on renewables in that country because of their elongated nature.

And also in terms of shipment stock, nothing unusual at the moment in Russia. It's a bit more cumbersome to do some of the business there, checking all the parties involved in terms of making sure that we really stick to all the required legal actions there and appearances. But no particular changes in stock levels or anything in Russia.

We have maybe just to round off. As you expect, we have been operating, trying to make sure that invoices out of Russia are paid on time and where possible, in fact, times a bit ahead of time. And the business, our local affiliate in Russia, has reduced, as have done others, the level of, if you like, promotion and advertising to some extent.

And on the question, what we expect of this new device is that it will help to improve the handling for patients. It still is a device that you really need to explain to patients and nurses and caregivers in general, medical professionals. What we've seen coming up from some of the tests, it's appreciated. We believe it will help to to give a positive impact on it. I don't expect that the huge percentage of patients all of a sudden is banging on our doors to shift, but we will start to shift almost all of the patients to this new device country by country. As the authorities will most likely request us to take back the old device the moment you have a improved version on the market. So I do expect that this device will over time substitute for all of the not only new patients but also existing patients on LHR.

Brilliant and just did you have any comments on the recent launch of a pre-filter in the LHRH space or would you say that that's just typical of the markets that you operate in?

Yeah I think if you see this market there's all sorts of alternatives in the market. We have factored them all into our plans and we do not see that this is going to seriously impact our plans going forward. So this was all factored in.

Brilliant. Thank you very much.

The next question is from Rajan Sharma of Deutsche Bank. Please go ahead.

Hi, thanks for the questions. Just a couple of updates, actually. The first on the Cushing's syndrome regulatory path for Esterisa in the US. I think previously you commented that FDA discussions were expected in early 2022. And now that we're kind of into the second quarter of the year, could you provide an update on that and whether any discussions have been held? And then just secondly, an update on Silvent, which is one of the EUSA products. Again, for your results, you commented that performance of that product in particular had been particularly strong given the IL-6 market dynamics. So I was just wondering if that's normalized now or does that demand remain elevated? Thank you.

The FDA discussions will happen in the next weeks. They are imminent. I don't think I should comment on the potential outcome there, but we expect to have that anytime soon. On sylvan, it's sort of normalized. There was a bit of an uptake at the end of last year because of some of the potential competitive products couldn't always deliver and we took up some of that and that's really normalized now.

Okay, thank you. And then just if I could follow up actually on one of the questions on the business development or M&A outlook given the market weakness and obviously you talked to there being opportunity now. So does that potentially provide you with kind of the rationale to perhaps go to the higher levels of leverage that you've discussed potentially kind of three times or above, given that we are potentially in kind of a unique opportunity for yourselves?

Well, the three times for us is sort of hard. But like I said before, if there is a fantastic opportunity and we see it, it all depends really on what the deal would be. But if this is the once-in-a-lifetime opportunity, we will try and make it happen. But we do have this governance around the leverage, and we really take that serious.

I think I would just add on that. I think we'll continue to be as disciplined as we've always been. I think, yes, there are opportunities being thrown out by the fact that some biotechs are finding it harder to – potentially access funding, but we're not going to go on a wild spree simply because that's the case. We'll continue to apply the same sort of rigor to the approach that we've always applied, Roger.

All right. Thanks very much.

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

Hi, good evening or good morning, everyone. And I had three questions from my side. For modeling purposes, in the past, you used to provide the operating income breakdown between rare diseases and specialty and primary care business. So I was wondering if you could share with us a similar breakdown also for this quarter. Secondly, I noticed that in slide three, you are mentioning two new pipeline indications for Silvant within the EU's pharma portfolio and also for Signi for PBH. So, what benefits opportunities do you expect from these new indications and which timing? And the very third one is on the trend, the top-line trend. I mean, you had an easy comp in the first quarter due to the stocking in Russia last year and the accelerated purchases this year. So I was wondering if you could quantify this effect to extrapolate a like-for-like trend here. and if we should expect in the second quarter a weaker top-line momentum due to the normalization of this organic trend. Thank you.

Yeah, thank you, Giorgio. Maybe I'll start with the two opportunities you related to, and I'll pass on to Luigi to address the other one. The opportunity on Sydney for PBH, stands actually for post-bariatric hypoglycemia, which is a fairly serious problem with a big unmet medical need that highly obese people undergoing surgery oftentimes face and can really have very serious medical consequences. What we have seen in some sub-segments of patients doing trials with with 64 is that there could be a potential benefit there and what we're doing at the moment is trying to understand what it would take to get that indication approved and what it would bring in terms of a business case. I think we will need a bit of time to really completely sort that out and then I can't comment on what time we would need to really then get it to market because it depends really on the clinical program that we would need to agree with the authorities. We do have, and you might have picked that up, the European authorities do believe that this is really interesting and relevant, and we got an orphan drug designation for this indication in Europe. So it's something we're really seriously looking at, and we would consider to do it, also commercially it makes sense to do this as an opportunity. SILV and new indications are really very much cytokine response indications that we look at broader. There we even have much, we need to really sit, and we're sitting down with our new colleagues from now the Onco franchise in the rare disease to go through all the opportunities, prioritize them, and look at what are the ones we really want to pursue. I'm optimistic that there's something really interesting and actually also quite significant in that respect. But I would rather really wait for the concrete plan with timing and peak sales expectations before I share anything with you on that. And, Giorgio, I'll pass to Luigi for the other questions.

Yeah, I think that's it. Yeah.

Yeah, sorry. So, Giorgio, in terms of comparison to last year, I think last year we quoted somewhere between $8 and $10 million sort of being the stocking effect that we've seen on cough and cold, and particularly Russia in the first part of the year. I mean, in terms of expectation going forward, I'm not going to have to sort of give more precise guidance than the one that we've given, being that, you know, we expect to be within The range that we set, we've given the indication of where we think it will contribute, and I think with that you can work out what kind of growth rate we can expect. I think in terms of operating income of the business unit, and just to make sure that there's no suspicion that we're wanting to hide anything, it was close to around 39%. Adjusting for the 5 million non-recurring items, on EUSA, so to exclude that, it was around 39% for layer disease and 31% for SPC. And again, the only reason why we think it makes more sense to focus on EBITDA going forward, as we started to do, if you recall, since some time for the global group, is that unless we decide to do a massive sort bridge between reported and core, as other companies do, operating income will start being a bit more distorted by the accounting of the non-cash IFRS adjustments which arise from the acquisition. So that's the only reason really why we're focusing on EBITDA, but again, around 39% on rare disease and 31% on SPC for the quarter.

Very appreciated. Thank you, Luigi. Thank you.

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

Hi, thanks for taking my questions. Just firstly on Turkey, I think you said you expect an uptick in Turkey with higher prices, but just one of you can give us a sense of what the channel's like, and have you seen stocking in Turkey ahead of price increases by households or distributors? And the second kind of related question, and just following up on an earlier question, it's interesting you're not seeing stock levels change in Russia that much. Some other mid-sized companies have talked about households stocking up massively in March. So I'm just kind of curious why do you think that is, and how many months of inventories do you also have in Russia? And then my last question is typically we've seen over the years you've updated the strategic plan at Q1. I recognize this is unprecedented times, but just wondering what your latest thoughts are around that when we might get a glimpse of what you expect for 2024. Thank you.

James, I'll start with Turkey and Russia. I think Turkey, these price increases recur pretty much every year at the same time. So would distributors try and advance some purchases just ahead of that, yes, but it's a trend that we know when to expect and to manage. There is hyperinflation. Yeah, so there's no, I don't think there's any sort of distorting effect of that because, again, we have sort of, even though it's a slightly sort of lower level, but still high double-digit price increases. in 2021 as well. I mean, they do tend to trail a little bit. It's going to be a question if you trail a little bit the level of devaluation, but hopefully you catch up over some years. In terms of Russia, it's very, very difficult for us to gauge stock levels at patient level. I think that we saw... last year, a pretty drastic destocking from what used to be around 13. We estimated, and I'm talking here stocks at wholesalers level, around 13 weeks down to 8, and then it did get slid even slightly further in Q2. Information we have suggests that we're staying at those kind of levels and that actually The distortion is from last year's stocking and the recovery of crop and cold, which across the region, however, particularly in some of the Central and Eastern European markets, including Russia, was back very close to a pre-pandemic level. So based on the information we have, which is limited, and we're not going to be able to assess how much is exactly in people's business, homes, we've not seen a huge increase in stock levels.

And no unusual patterns. So if you look at the patterns, I would be surprised if there would be massive stocking at household levels.

There may be some. There may have been some in the early weeks, but now that we're two months on from the outburst of the conflict. I assume most of that panic behind that would be absorbed. Does that answer your question, James?

Yeah, thank you. And then just the last one on your strategic plan. Thanks.

Well, I mean, the strategic plan that we would usually update it every other year. So I don't think there's any sort of change to that intent. So we'll see. I mean, hopefully by this next year, the world will have sort of normalized a bit. But, you know, to do one now with so many moving parts, I don't think would be particularly helpful, James. I don't know what else to say to that.

No. Of course, we stay on top of the business. We look at opportunities, and for any potential deals, we make a longer-term view as good as possible. But no, so every other year we'll do this strategic plan, and you can expect one next year again.

Great. Thank you.

The next question is from Anna Murray.

of icg please go ahead hi it's just a very um straightforward one i wanted to give an update on the funding um for the user transaction so 650 i think that's a currently on a bridge is that right can you tell us what the current cost of debt is if there are step-ups attached to that and if you have or if you intend to refinance that bridge in the near term

Yeah, I mean, we took out a bridge for when we did the deal. It's quite a long-dated one. You will see, I think we issued already the detailed sort of report for Q1 that you will see in the notes. It's sort of 12 months plus six, so we have a lot of time to decide the optimal way to sort of take that out. Of this original 650, we already took out $200 million with term loan at the beginning of the year. And, you know, we'll continue to evaluate options. We have multiple ones available for the remainder. I don't know there's much more to say on that. I think that's all. The line is quite bad. I hope I understood the question and responded.

Yes, you did. As a follow-up, I think you mentioned you think the financing cost will be to the wider end of your initial expectations. Can you give any guidance what that expectation now is?

Yeah, I mean, the range that we're given was $31 to $33 million for the year, and I said it would be at the higher end of that range.

Okay, thank you.

Thank you.

As a reminder, if you wish to register for a question, please press star and one on your telephone. The next question is from Isacco Brambilla of Mediobanca. Please go ahead.

Hi, good afternoon, everybody. I have a couple of quick questions. The first one is on raw materials inflation pass-through. If I recall correctly, during the previous calls, we were discussing about the potential headwinds to the tune of 50 basis points in full year 2022 from raw materials inflation. Is this still a sort of reliable expectation for this year? Second question is on Eligard. If we look at the slide for your presentation, I see a 40% year-over-year growth, which I guess is a bit inflated from the fact that in first quarter 2021, you were booking just net revenues for the product. If this is the case, can you disclose a sort of underlying growth trend of Illegarde, say, net of distortion?

Yes, of course. So the raw materials impact, if you recall correctly, the 0.5 percent sort of impact on gross margin. Obviously, that was sort of set before the events in Eastern Europe and the further spike in inflation and prices that came with that. I think right now I'd say probably we expect an additional 0.5 on gross margin, so an additional 50 basis points. You've seen, I think, at Q1, it was a growth profit with 50 basis points below last year. I'd expect for the full year another 50 basis points decline, but we'll continue to sort of work at efficiency measures, obviously, to address that. And as we've said repeatedly, in some parts of the portfolio, we do have pricing that we can use. With regard to Heligod, hopefully I said it, I think I said it when I went through the product sales, but I'll reiterate it. You know, the $7 million increase versus last year is predominantly an effect of the transition to direct sales across all geographies, which wasn't the case in the first quarter of last year, of course. And, you know, from our perspective, at this stage of the process, stabilizing the sales in market, where like-for-like growth is pretty much on par with last year was the objective. In fact, we're happy that we're starting to see, you know, signals of growth in Spain and in France. But like-for-like, for now, is pretty much in line with previous years.

Okay, very clear.

Many thanks. I think, operator, we have time probably for one last set of questions. If there are any.

Mr. Medici, gentlemen, there are no more questions registered at this time.

Then I'd like to thank you all for joining us today. Happy to share and proud to share the first quarter results and confirm our outlook for the year and have this discussion with you and looking forward to meeting you on the next occasion. I wish you a wonderful remainder of the day. Thank you.