Recordati Industria Chim

Good afternoon. This is the Chorus Call 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 a 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.

Please go ahead. Thank you, Sherry. Good afternoon or good morning, everyone, and thank you for attending the record conference call today. I'm pleased to be here with our CEO, Rob Cormas, and Luigi La Corte, our CFO, that will be presenting the 2022 first nine-month results. They will be running 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 a Q&A. And I will now leave the floor to Rob. Please go ahead.

Thank you, Federica. I'm happy to say that Q3 results were extremely strong, confirming the strong momentum across both our businesses. And this on the back of continued recovery of our markets and also outperforming basically the relevant markets where our portfolio competes. resulting in year-to-date revenue and EBITDA ahead of expectations. Net revenues for the first nine months of 2022 were plus 19% versus prior year, or on a like-for-like basis, plus 10.4%, where we have adjusted for the newly acquired user pharma and for the Aligard 2021 accounting. Our SPC business continues to grow at a high single digit ahead of relevant markets, driven by continued strong sales of flu products, our cough and cold range, GI, the OTC, and strong performance of Eligard. Our legacy rare disease portfolio showed double-digit growth, with strong growth of both endo and also particularly strong performance of the metabolic franchise in Q3, led by Panhematin, and sister drops but also very resilient sales of carbaglue with almost minimal impact of the generics in the US. Our new rare oncology franchise contributed in Q2 to Q3 with 91.1 million revenue and this is nicely ahead of our expectations. EBITDA of 560 million is up 15.2% versus prior year with a margin at 37.5% which remains strong thanks to multiple proactive actions taken to mitigate impact of inflation and despite dilutive effect of the hyperinflation accounting in Turkey. The strong free cash flow generation of 346.3 million is in line with last year despite high non-recurring expenses with net debt just below two times EBITDA, confirming the ability of the group to integrate acquisitions quickly and deleverage. As you already know, and I will let Luigi spend a bit more time on it and give more details, starting from the first half of 2022, our reported results are impacted by fair value IFRS S3 adjustments related to user pharma acquisition. by non-recurring expenses and some FX volatility, which impacts the reported operating profit and the reported net income. Adjusting for the non-recurring cost and purchase price allocations, adjusted net income is plus 13.5%, absorbing higher financing expenses and FX losses recorded in the first half of the year. We've also achieved two important milestones. that are going to help with our growth platforms. One is the new Eligard device approved by the reference member states, Germany, with national registrations and transition planning ongoing. The device will definitely create positive momentum around Eligard. And second, the transfer from Novartis of our production steps. Key for us, SIGNI for LAR, we've successfully completed the production transition into our hands. And there's also good news from the ESG site. Our efforts continue to be recognized by MSCI rating A confirmation and an upgrade to robust level in rating provided by Moody's ESG Solutions in September. Before I hand over to Luigi, I'd like to also give a little bit more detail on two of the key rare disease franchise performances. On the next slide, you will see both franchises, endo and oncology, are growing very, very nicely. You can see the strong growth for both endo and onco franchises, fully in line with plan and on track to deliver for the full year of 2022, with respectively 160 to 180 million for the Endo and around 130 million for the Onco franchise. For Endo, the growth is 40% in the first nine months of 2022. At a constant exchange rate, this would be 30%. We see continuous double-digit growth for Signifor and also almost revenue doubling for Isterisa. So we're really on track to deliver for both products. And also Oncology, I'm happy to report, continues to grow nicely at 13% year-on-year, ahead of our expectations, with particularly strong performance in LAC and EMEA. The full revenue for this year, and I remind you that's only nine months or three-quarters, is going to be close to $130 million. The interaction with the FDA on CAR-C by U.S., clinical development, and the regulatory pathway ongoing with a target filing in 2024 as previously communicated. So both franchises are on track to deliver our long-term ambitions with the Endo franchise in combined $400 to $440 million for Cigni 4 and Isterisa, over $100 million for Cigni 4 and $300 to $350 million for Isterisa. $250 million for the oncology portfolio as a long-term peak. There's additional potential upside from additional indications on the evaluation, particularly one for the potential post-bariatric hypoglycemia, the indication that we're exploring for signiform. And with this, I'd like to hand over to Luigi to take us through the financial figures.

Thank you, Rob, and good morning, good afternoon, everyone. I am guessing most of the interest will be on discussing our four-year outlook, so I'll try and go quickly through our usual slide deck, providing a bit more color on what I hope everyone will recognize as being a very strong set of results for the quarter and the first nine months of the year. Picking up on slide four with the sales of our main products and franchises, hopefully the slide will really sort of show three things. Number one, once again, the group confirming its ability to sustain and even grow the revenue of mature products post loss of exclusivity. And I think we're particularly proud of this achievement this year, done whilst at the same time refining our go-to-market model for the specialty and primary care organization. It highlights obviously, as in part already mentioned by Rob, the strong growth of our new franchises. and also the continuous rebound and the growth ahead of relevant markets of our other corporate products, particularly cotton, cold, gastrointestinal, and UOTC portfolio. Just very quickly touching on the highlight, you see the stability on the mature portfolio, Zany Deep, Zany Press franchise, down by 4.7% with, as you can see, recovering some of the decline in the first part of the year due to the loss of tenders in China, which is in part upset by growth in many of our direct markets. Revenue of the metropolis franchise essentially flapped with growth across many of the Central and Eastern European markets, offsetting single-digit decline in some of the Western Europe markets. And both Tilotisin and Pitavastatin returning to growth following loss of exclusivity in 2020, with actually Pitavastatin growing double-digit, both of those driven by growth in Russia, Turkey, Switzerland, Portugal, and other markets. Once again, I think a key strength of the group in sustaining these products. Obviously, Eligard adding over $18 million of revenue in the first nine months of the year. On a like-for-like basis, growth is around 12% or $8.4 million, with the products having not just stabilized, but starting to grow in a number of our markets on the back of our promotion, notably in Spain, France, Italy, Turkey, and we hope to see other markets now following the trend in the next month. We're also very happy, as Rob has mentioned, that we hopefully will see new momentum and further momentum when it comes next year with the introduction of the new device Other corporate products growing by 16.5%, as I mentioned, driven by, first and foremost, the growth of our cough and cold portfolio, products like Isofra, Polydex, the X-spray franchise. These products have now pretty much gone back to pre-pandemic levels and, in fact, in some markets are ahead. We also saw very strong growth of our gastrointestinal franchise, Tetrafleet, Casenlax, Nemacasin, probiotics, Regela, and a lot of OTC portfolio, including local OTC products. With regards to rare disease, obviously Rob has already talked about the endo and the oncology franchise growth in the period, which remains strong. I'm pleased to say that also our metabolic franchise is showing growth north of 10%, with some growth particularly in the U.S. behind panimethin and Cystidrop, and the Carboglu revenues remaining resilient despite the first generic century beginning of this year. Nice to also see the growth, continued growth of our broad revenue portfolio, in some of our international markets, Mexico, Brazil, and Japan, to name a few. So very broad-based, strong momentum in the business, which, as you will see on slide five, is now over 30% represented by drug for rare diseases. OTC overall is 16.4% of the business, growing double-digit, and local product portfolios is now below 13%. Moving on to slide number six and looking at revenue by geography, really all markets are benefiting from those same drivers that we touched. the addition of the EUSA portfolio. Nice to see, and potentially an historic moment, the U.S. is starting to be neck and neck with Italy for becoming the number one geography for the company with, as already commented, obviously U.S., which is focused on rare disease, growth of close to 50%, part benefiting from the strength of the U.S. dollar, but really driven by broad growth of all of our franchises in the U.S. Italy at 206.8 million, growing by 5.6% with a strong performance and growth, again, here of our seasonal food products, some of our ETC portfolio, particularly Magnesio Supremum, plus probiotics. And obviously, growth of rare disease is partially offset by a slight decline in some of our cardiovascular drugs. I won't go through all markets. Dynamics are pretty much the same. I will call out Turkey, where you'll see revenue growth of in euros of 12%, just under 60 million euros. Growth really driven by volumes, both on FTC and the rare disease business, with a very, very sharp devaluation of the Turkish lira, essentially upset by equally significant level of price increases, which were awarded by the authorities over the course of the year. Russia, TAS in Ukraine, revenue up close to 40%, close to 89 million of that. Revenue in Russia was around 70 million euros, growing also on the back of obviously the strength of the ruble, contributing year-on-year, a tailwind of 9 million euros. Revenue in Ukraine, down close to 12% versus last year, just below 9 million euros. Other ones I'll comment, North Africa, revenue growth of roughly 5%, with high single-digit growth of our subsidiary in Tunisia, Opalia, partially upset by decline in Algeria. And finally, our international sales in other geographies up 15% to close to $177 million with the contribution of our growing rare disease portfolio and addition of EUSA. more than upsetting the decline of sales of their community in China. So again, also on a geographical basis, a strong performance across all of our markets. And you'll see on slide seven that our legacy market of Italy now represents just over 15% of revenue, not so long ago it was close to 20. and U.S. now up 14%. Moving to the P&L, on slide 8, as we said, overall revenue of $1,377.5 million up 19.1% or 10.4% on a like-for-like organic basis, adjusting for exchange rates. Adjusted gross profit, which adjusts for the unwind of the uplift to the acquired inventory of EUSA of $35.6 million, is $990.4 million, growing by 17.5%, a margin of 71.9%, with the decline versus last year being fully explained by the diluted effect of the both the transition over the course of 2021 on Eligard to direct selling and the effects of hyperinflation accounting in Turkey, which have added 5.6 million to the revenue line and detracted from gross profit because of the revaluation of inventory and cost of goods by 6.8 million. SG&A expenses and obviously other lines of the P&L, obviously all growing in part also due to the integration of EUSA, but you'll see SG&A expenses remain pretty much in line with last year in terms of percent of revenue, just under 30%, with selling at 24% of revenue and G&A at 5.8% of revenue. with obviously the benefits of the life-sizing actions that we took over the course at the end of 2021 and over the first part of this year, offsetting the return to pretty much full-fledged activities in the field following the end of lockdowns and obviously disruption during the pandemic period. R&D expenses of $155.7 million, 11.3% of revenue. The growth includes $19 million of incremental amortization, mainly coming from EUSA, but also from other acquired assets. And the expectation is of slightly higher R&D expense rate of percent of revenue in Q4, as we continue to progress some of our R&D programs, in particular real-world evidence study and non-interventional studies to support ISTO-ISA, the progression of MTAs and additional effort on the MTA program to accelerate the recruitment. and their initial preliminary activities on the potential new indication in post-bariatric atherosclerosis on SIGNIFOR. Other expenses of 31.4 million are, as you know, to reflect the non-recurring cost that we signaled at the beginning of the year, both related to the acquisition to the tune of 19.2 million, and relating to the continued and improved effectiveness of the commercial organization to the tune of $11.1 million with an additional close to 90 STDs impacted this year, mainly in Italy. We do expect these actions to deliver on a full year basis, roughly 19 million of savings. These result in adjusted operating income and EBITDA of 423.7 million, EBITDA of 516.2 million, EBITDA margin of 37.5%, remaining very strong in current environment. Financial expenses, obviously a significant increase versus last year. As we commented at Q2, these reflect roughly 18.2 million of effects losses incurred in the first half of the year and compared to 6.8 million of losses in 2021. These are all mostly unrealized and arising from the strength of the ruble and in part of the US dollar. Also included in financial expenses is 5.6 million net monetary loss due to hyperinflation accounting in Turkey. Bottom line result, net income of 241.5 million. and adjusted net income of $355.9 million, once adjusting obviously for the non-recurring items and the unwind of the purchase price allocation. You will see in the appendix we have added some tables to reconcile between net income and the adjusted figures. As you will see on slide 9, while accounting only for 31% of revenue, rare disease now accounts for over 36% of EBITDA. And the margins on both businesses remaining strong, slightly lower on the rare disease compared to previous year, reflecting the consolidation of EBITDA, as announced since the acquisition is running currently at a slightly lower EBITDA margin. We still expect it to be around 25%, 30% this year, but to grow in future to be in line with the balance of the rare disease portfolio. On slide 10, cash flow. Performance was also very strong, absorbing both the non-recurring costs incurred in the first part of the year and some higher working capital due to the growth of the business. You recall we commented in 2021, cash flow performance being very strong and given the non-recurring, the one-off costs and the growth of the business, very pleased that we're able to with a sustained free cash flow delivery very much and marginally below last year. Obviously, on the bottom part of the cash flow statement, you know, showing the acquisition of EUSA, net of the cash required in relative financing, and some of the other payments for intangible mainly 35 million paid to EdiGuard earlier this year on the approval of the application for the new device, plus residual milestones on Novartis and 10 million also included of clinical studies which meet criteria for capitalization. Thanks to this strong cash generation and the operating performance of the group, At the end of September, very pleased to say net debt to EBITDA ratio is just below two times, obviously on a sort of less 12-month EBITDA basis. This is a very strong result. It demonstrates once again the ability of the group to quickly deleverage after doing the acquisitions, even significant ones like the one we just did, completed this year, with EUSA and clearly is what gives the company the ability to maintain a strong balance sheet and clearly the flexibility to continue making BD and M&A an integral part of the strategy. And finally, to close prior to opening up to Q&A, you'll see on slide 12 our financial projections for 2022. Very pleased that on the back of the strong performance today, we are able to increase our targets on revenue and EBITDA, with revenue now seeing around $1,860,000,000 for the year, and EBITDA at around $670,000,000. This on the back of the strong underlying performance across both businesses, The slightly positive year-on-year effects versus the original assumptions. Effects was fairly neutral year-to-date with the strength of the U.S. dollar and ruble upset by the devaluation of the Turkish lira. We expected to turn marginally positive in the balance of the year. And proactive actions, obviously, to sustain our margins. EBITDA margin implied of 36% reflects roughly a 0.7 adverse effect or dilutive effect from hyperinflation accounting of Turkey. We expect application of YAS 29 to add roughly 15 million on revenue, but detract roughly 8 million at the level of EBITDA. But it also reflects in Q4, which has historically always been, you know, a slightly softer quarter in terms of margin. As I pointed out earlier, some targeted incremental investments, you know, namely being, you know, preparation of the introduction of activities to prepare the introduction of a new device in any card. We are preparing for fuller if you like, launch of Easter ESA in Italy. Easter ESA is already in the market in Italy, but we do now expect reimbursement to be approved in Q1 of 2023. We have initiated real-world evidence and non-interventional studies to invest behind the strong momentum of Easter ESA and are adding some resources to the MTA program to accelerate recruitment. We've also decided, as have other companies in current environment, to foresee a one-off payment to employees on somewhat lower incomes as a contribution towards, obviously, a growing cost of gas and just inflation, and also as a recognition of the very strong performance they've contributed to for this year. Financial expenses are now expected to be around $60 million due to the enduring strength of the ruble. With CETA Q2, we were expecting some of the effect losses to unwind. That no longer seems realistic, and we also still foresee net monetary losses from last 29 to be in the tune of $10 million. And finally, we expect adjusted income to be in the middle of the target range at around $460 million with higher operating results offset by the higher financial expenses. And with that, I will close the prepared remarks part of the call and open it up for Q&A.

Thank you. Excuse me. This is the Chorus Call Conference Operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. To remove your question, please press star and 2. Please pick up the receiver when asking questions. The first question comes from Nicolo Soror of Kepler-Chevreau.

Hi. Good afternoon, everyone, and congratulations on results, which were very strong. I have three questions, if I may. The first one is on profitability. And so if I further adjust the gross profit for all the hyperinflation stuff in Turkey, I end up with a number which is closer to 74%, which is one of the strongest print over the past many quarters. Is this possibly a new base upon which building our estimates for the future? And I add that these results have been achieved also notwithstanding inflationary pressure of course in countries other than Turkey. which were mentioned in previous calls. Related to still the profitability, maybe if you can quantify the one-off payment to employees you expect to disburse in Q4. Second question on Russia. I was particularly surprised by the strength of Russia. Last year, we had a very strong second part of the year. In the nine months, we are already at 90 million versus 100 million for the full year last year. So which are your expectations for the country, for the area, Russia, Ukraine, and former Soviet Union countries for the year? And the question is related to your cost of debt. If I'm not wrong, debt you have taken on is mostly variable and not swapped into fixed. So as interest rates are growing, what should we expect as pure financial charges for 2023? Thank you.

Thank you, Nicolo. I'll take maybe the first two and the cost of death one, and I think Robert will comment on Russia. Growth margin, I think the calculation you're doing, you're doing on sort of the single quarter, quarter three, and I'd always be careful of taking a single quarter as a proxy for the future. Metabolic revenue on our release portfolio was quite strong in Q3, which contributed to the positive performance. And as you said, we are seeing, and we already see today, a little bit of the effect of inflation coming through. The good news is, so far, some of the actions we've taken around pricing, have helped upset that. But no, you shouldn't take the single quarter as being representative of a full year. In terms of the one-off payment, assume that impacts the Q4 margin by slightly less than 1%. And in terms of the cost of debt, Actually, we're closer to 65-35 in terms of variable versus fixed. At the moment, depending on the view you take on the speed at which a rebore may further climb, there's not that much of a benefit on the fixed from my perspective, but we'll see. I won't give specific guidance for 2023 today, but obviously you should expect that we're not going to. There's a big chunk of financial expenses in RP&L this year, which are related to the effects losses, which will not be recurring. I mean, we don't treat them as non-recurring items, but effectively they are one-off. We sold rubles at the wrong time. And Rob, on the Russia issue.

What we said also in the last quarter is we do expect and we are seeing a slight decline in volume in Russia. And we've seen that clearly also in Ukraine throughout the year. And this is happening, so it's less than 10% in volume decline. We've been able at the beginning of the year to increase our prices somewhat. And at the moment, we continue to see the same trend. Nothing new in that sense coming from Russia. And the business continues to do really well in that sense. Nothing else to add on that.

Cool. Thank you.

The next question is from Joe Walton of Credit Suisse.

Thank you. Three, please. The usual one that somebody always asks, so I'll get it in now. In terms of opportunities for acquisitions, particularly for biotech-like products in the U.S., valuations are very low. Is that being transferred yet into people's expectations for doing deals? The success that you've had with the Isterisa deal must be bringing more people to the party thinking, you're a good steward of their products, so just getting a sense of the pipeline that's available there. You mentioned Eligard and how you've got the approval with the reference state of Germany. As you move through to the other countries in Europe, Is there anything you would point out to us that, you know, maybe you were surprised on the label that you got? Is there anything that you can do in terms of repricing this product? So just give us a little bit of, you know, more on Elagard. And if you could also talk more generally, you've highlighted inflation. You've obviously got to pay your staff more in the fourth quarter. I'm sure they'll also need more money at the beginning of next year. What sort of proportion of your portfolio is, do you have some flexibility on pricing with? I appreciate all of your OTC, but you seem to have done incredibly well to regain devaluation pricing, et cetera, in some of those markets. So just if you can give us a sense of the price flexibility you may have to absorb some of the inflationary pressures that we would expect for next year. Thank you.

Thanks, Joep. So yes, we continue to look at deals and you're absolutely right. We were quite busy, but like I stressed a couple of times already, we maintain also our discipline, the beautiful opportunities. We first wanted to really make sure that we had fully digested the acquisition of use and integrated the company, which is, I'm happy to report, really almost complete. In reality, this business is running As one, it's now really our on-call franchise, and we're very happy with our new colleagues in that respect, and they found their place, and business continues to do really well. So yes, we are able and willing to take on a next opportunity, but they will always have to meet with the same fairly stringent criteria as we did in the past, looking at ultimately the return of capital employed and looking at the opportunities. And clearly, I think for rare disease, where the The biggest opportunities in the future will be in the foreseeable future is in the US. So that has our focus. But you might appreciate that I'm not going to be more specific than this on any specific deals. On Aligarh, I see this rather as positive news for the franchise. We have something really good to say about our products. It will improve the handling. by nurses and patients, and in that sense it's just a positive boost in general. Germany will be the first country where we'll start to do this, and I don't expect this to be before quarter two of next year, and you'll see it roll out through the rest of our countries. But there's not a specific additional label or claim, and I also do not expect that this is an opportunity to reprice. It's really more giving energy and enthusiasm behind our products. And what we've seen is stabilizing in some countries already growth of Eligard. And I'm confident that with this we can continue to see the very positive trend around Eligard going forward. On the pricing, there are some countries where we can increase our prices, and we have. And notably the U.S. on the OTC portfolio. We've done it in Turkey, traditionally has been a country where you can increase prices, and we've done it this year. But I'll let Luigi also add his two pennies of thought around the flexibility there.

Yeah, I know. I think Rob has covered it. I mean, obviously, we have flexibility also in the U.S. OTC portfolio. I mean, just to give a sort of indication, I think you have heard me in the past say that, you know, pricing pressure on Recordati on normal years, i.e. outside of major interventions or loss of exclusivities, year on year can oscillate between plus one, minus one. This year, it's actually, even excluding Turkey, which I feel like is an outlier, We're running at around plus 1.5%, so we've clearly done a little bit more this year, and you're seeing the benefit of that in terms of ability to sustain margins. We're not going to provide specific guidance for next year. We're just starting to go through the budgeting process with the teams, and we'll see. But so far, very pleased with how we've been able to also use that lever to offset the impact of inflation.

And maybe one word to add, Edgar, I think it's not just the pricing, but also the ability. We have over 60% of our products were fully integrated and produced ourselves. And that has helped us really to address this. And we did report in the past. And we continue to look at commercial excellence in trying to increase and enhance the impact we make in the market. But we're also doing that by using opportunities to be more effective and efficient. And that has been able to also, like Luigi also said in his prepared statements, with fewer people, we're actually seeing that we increase our market share in all of our relevant markets for the business. So this is not a program that is over. We'll continue to do a bit more going forward. And that gives us confidence going into the future.

The next question is from James Gordon of JP Morgan. Mr. Gordon, your line is open, sir.

Hello, James Gordon, JP Morgan. Thanks for taking the questions. Hello, thanks for taking the questions. Just a question about profitability. So the implied Q4 profitability using the updated guidance, it is about 550 bits of sequential EBITDA margin contraction. which is quite a lot bigger than the normal contraction we see in Q4, which is about 200 bits. And I heard the comment about some one-off employee payments that you mentioned, but is some of it higher R&D spend? And is there anything one-off in the R&D spend, like one-off milestones? How much of the extra should we put into R&D versus SG&A for Q4? And looking into 2023, so you're exiting this year at about a 32% margin for Q4 and 36% for the full year. I know you previously issued 23 guidance, which suggested more like a 38% margin. But are there things you can do that means you are going to see significant expansion next year, such as activities on pricing and some of the stuff that happens this year being one off? Or do we need to reset our expectations a bit in terms of inflationary cost pressures, et cetera, and investment plans when we think about modeling 23?

Thank you, James. I'll have a first stab at that and then let Rob add on. So short answer is no, you should not be taking Q4 obviously as a sort of proxy for next year. As you've said, Q4 has always been a little bit softer quarter. by about two percentage points. And I'll talk to sort of the slightly higher step down that you're seeing now, but maybe just taking a step back. Beginning of the year, we set an expectation for 2022 of the margin of 37%. The beginning of the sort of, if you like, escalation of the conflict and the spike in inflation, we said we'd probably see about an extra 50 basis points of pressure. Once you adjust for hyperinflation, which clearly was not included in the guidance and we're not adjusting for, we're pretty back in line with that, confirming once again the group's ability to deliver on the targets. We're not going to set a target now for next year. As always, we will do that later. uh um you know early in 2023 of course we'll continue looking at um you know pricing right pricing you know leveraging all the things that we've leveraged this year um but on the on the somewhat higher um sort of drop of margin in q4 summary is phasing um i said you know q3 was particularly strong in terms of the uh of the mix um we have the uh the initiation of the programs and while they don't sort of strictly end at the end of the year, as you may know, but even now indeed there's a level of spend which you pay at initiation of the study, which tends to be a slightly more substantial part of the overall study costs. And when you sort of consolidate that in a single quarter, obviously it can make more meaningful sort of distortion to that single quarter profitability, which is why we actually never focus on profitability of a single quarter. And things like preparation of the new device introduction in Aligarh, the Teresa launch in Italy, the one-off payment that we have, and discuss and really decide they were likely to do all that to that. But again, many of these are one-offs or higher in the incidence when concentrated in a single quarter. But in terms of fuller guidance for 2023, you'll have to wait, as always, the, you know, February when we'll get that together with the final results for 2022. I hope that gives you some flavor and some sort of more insight into the trend. But again, we feel very happy in terms of what we're delivering. We should not take Q4 as a proxy. And we continue to stay committed to sustaining what we see as being margins at the very higher level of the sector. Rob? Nothing to add, Luis.

Thank you.

The next question is from Keyur Parekh of Goldman Sachs.

Hi. Thank you for taking my questions, too, if I may, please. The first one is, given the increased revenue expectations for this year, how should we think about the trajectory of the revenue line as we think into 2023? And then separately, relative to your midterm guidance, again, kind of the same question as we think about how much stronger the revenue line has been this year, when would be a good time for you to think about updating your longer-term or mid-term guidance? Thank you.

Thanks for the question. But like Luigi already stressed, we're going to give a guidance for next year at the beginning of early next year, so probably do it at early February. And our momentum continues to be good. Business is doing well. We're a larger business, both in the SPC and Rare disease, continued good growth and are able to translate that into high margins. And we'll give you more updates at the beginning of next year.

We're obviously not very far from the bottom end of that guidance, right, for 2023 with this proposal, but we haven't set a date yet for the update, but it will be in the first part of next year.

Thank you.

The next question is from Isago Brambilla of Mediobanca.

Hi, good afternoon, everybody. A couple of questions. From my side, the first one is on top-line organic growth. It is now at least three or four quarters you are running with organic growth, even excluding the switch of Elgar recognition in the high single-digit slash low double-digit territory. Can you help us understand how much of this is a sort of pent-up recovery compared to last year's? subdued trends and how much is sustainable growth, even looking forward. The second question is focused on the rare disease franchise. You reported use growing plus 13% in the nine months. Is Teresa, if I'm not wrong, hosting the same revenues of Signifor this quarter and also the so-called legacy business growing more? double-digit. Is there any non-recurring driver supporting performance of this portfolio during this quarter, or is this trend sustainable? Thanks.

So I think, first of all, in terms of that organic growth, I think that I think rare disease was not significantly impacted by the pandemic, as we've always commented. So I don't see any need to do major adjustments to the growth rate there. On SPC, I would just point back to comments we've made in the past where we said that we see the SPC portfolio having the potential to grow around mid single digit, low to mid single digit. So there's obviously an element of recovery this year and strong growth in a few markets. Again, without yet sort of giving sort of full updated guidance for the future, you know, for us that remains a little bit the guideline for SPC. Of course, you have parts of the business that will grow At a higher rate than that, we hope to see pedigree within the SPC portfolio continue to grow at a high single digit hopefully next year. But we're not going to give more detailed guidance on 2023 or beyond now.

And maybe to what extent there has to be something which is a one-off in the current quarter sales. I think Mostly it's been normal business, if you'd like sustainable business. What we did have on the Onco franchise, in light of the launch of Signicor in China, we've had shipments of that in oncology in China. And that is, yeah, in terms of loading the channel, so that's a bit higher than what you would expect in a normal quarter.

But it's not much, Isako. I think, you know, clearly the metabolic portfolio performance in Q2 stood out. Q2 was a little bit weaker, on the other hand. But, again, I think it's – no, SPC, we stand by comments we've made in the past around seeing the potential to continue to grow at, you know, around low-to-mid single-digit, depending on the year, and With some products, you're likely to grow more and some likely to grow less.

Thank you. Many thanks.

The next question is from Emily Field of Barclays.

Hi. Thanks for taking my questions, just two for me. You know, obviously, with the death to evisauration are falling below 2, and you mentioned that there's still a lot of attractive opportunities out there from them in ASI, particularly in rare disease. Just curious, you know, if you have an upper bound in terms of a leverage ratio that you'd be willing to go to, just obviously given the broader macro environment, those are numbers that are being watched closely by the market. So just any color you give around that. And then I believe you mentioned in the prepared remarks that Costco's flu has returned to pre-pandemic levels. You know, some of the earlier data, particularly out of the U.S., indicates that we could see very high levels of influenza in particular this year. So I know it's a tough comp with numbers getting back up there, but sort of how are you thinking about this season maybe potentially offering some growth on top of that? Thank you.

Emily, thank you for the question. On BDM&A, our guidance has not changed on that in terms of us wanting to operate at levels not too different from the current ones, but with the flexibility of going up to a maximum of three times. It's really a compelling opportunity of scale came up. The good news, obviously, is the result that we achieved in this first part of the year with that leverage going very quickly down from 2.4 to just under two times, which is similar to what we did already after the signature for a Teresa deal, where it went very quickly from 1.9 to 1.2. On the flu, yeah, we also see, as you said, the potential for this to be a strong one, and that's reflected, if you like, in the updated guidance that we provided. And one of the things that we have obviously more visibility on today, and one of the drivers of, amongst others, obviously, the sustained performance, the resilience of our metabolic portfolio, the recovery in some of the markets that have led us to upgrade the guidance.

And maybe, Elisabeth, just one comment on M&A. It's not just on rare disease where we're looking to make acquisitions, right? For us going forward, Both businesses, we want to continue to invest. And also on the SPC side, we're actively looking at potential things, and we will continue to pursue opportunities there.

Great. Thank you.

As a reminder, if you wish to register for a question, please press star and 1 on your touchtone telephone. For any further questions, please press star and 1 on your telephone. We have a follow-up question from Joe Walton of Credit Suisse.

I'm sorry, the line was a little bad, so I may be asking you to repeat some of this. But you talked about higher clinical trial startup costs, which would be impacting in 4Q. I wonder if you could just tell us a little bit about R&D spending as we're going forwards. I know that you keep a lot of your amortization charge within R&D, and that's expanding it a bit. But could you just talk a little bit about the underlying numbers of trials or what you're actually planning to do over the next few months that might see the R&D of the percentage of sales increase? Thank you.

Hi, Jo. Yeah, I mean, I will reiterate what I said. I think... First of all, as you've rightly highlighted, close to more than 40% of the cost in R&D line is amortization, and it is increasing on the back of the recent deals. In terms of the key programs that we're running, of course you know about the MTA program in neurotrophic keratitis. where the phase two is running, has been enrolling. The pace has been a little bit slower than we would have liked, so we've initiated some new sites and also made some tweaks to the protocol to accelerate the recruitment. We have, I believe, spoken before about the intent to complement the data package that we have on ISTORITA with real-world evidence that should further support potential future application for the expansion of the indication in the U.S. We're also running a non-interventional study to help provide the physician with further experience on ISTORITA. We should also support the further rollout of Isuriza in Europe as we progressively get a reimbursement. And at Q2, you recall, we talked about us seeing potentially new opportunities for additional indications also on Signifor, post-bariatric hypoglycemia, where we've seen there was some interesting data in a different population run by Novartis, and we are currently discussing with the FDA what a potential clinical path for developing Signi4 in that additional indication could look like. We haven't finalized the discussion yet, which is why we've not provided yet a lot more guidance or set a lot more expectations on that. We want to have those discussions finalized. And we're also still exploring And on SILVENT, potentially a new indication, we talked about a potential use in the patients with cytokine response in conjunction with CAR T therapies, and there's other things that we are evaluating. I'm not going to go into more detail than that in terms of the study by product or specific timelines. I think we're probably more likely to do that when we give a broader update on the mid-term outlook, if that makes sense, which again will be at some point in the first part of next year. We've done it in May historically. We'll see at least in the last couple of years, we still have to sort of finalize a view as to when is the right time to do that. I hope that's okay for now, Joe.

Yes, thank you. Gentlemen, Mr. Medici, there are no more questions registered at this time. Okay, thank you very much.

Thank you all for your time and interest and looking forward to engage and continue to share our progress.

Thank you.