Recordati Industria Chim

Good afternoon, this is the Core School conference operator. Welcome and thank you for joining the Recordatis 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 Miss Federica De' Medici, Invest Relations and Corporate Communications. Please go ahead, Mel.

Hello, everyone, and thank you for attending the Recordati conference call today. I'm pleased to be here with our CEO, Rob Cormaz, and our CFO, Luigi La Corte, who will present the 2020 first half results. Then we'll be running you through the presentation. As usual, the status guide is available on our website. We are also joined today by our two heads of business units, Alberto Martinez for specialty and primary care and Scott Vescatore for rare diseases. Both gentlemen will be on hand to answer your questions together with Rob and Luigi during the Q&A session. I will now give the floor to Rob.

Thank you, Federica, and good afternoon, ladies and gentlemen. Thank you for having joined us today on the RECRATIT 2023 half-year results. We've really delivered a strong financial performance with continued growth across our business and with ongoing delivery of sector-leading margins. With revenue at 1 billion 44.3 million, up 17% versus previous year, or 15.4 on a like-for-like and constant exchange rate, we confirmed the strong momentum of the group across our entire business. SPC grew double-digit, 10.2% versus last year, or 15% at constant exchange rate. This business performance has been ahead of relevant markets and across all key therapeutic areas. thanks to a continuous improvement of our competitiveness in every single market. Also, rare disease has delivered very strong results, with double-digit growth at 32.2% versus last year, and 15.5% on a like-for-like and constant exchange rate basis, with a very strong growth of both the endo and the onco, fully in line with plan, and very resilient sales of metabolic franchise. The group has been able to achieve these strong results despite strong FX headwinds, especially over the most recent months. The adverse FX impact has been approximately 30 million or 3.3%, mostly concentrated in quarter two and mainly affecting our specialty and primary care business unit. What I would like to highlight is the strength of our profitability with EBITDA at the margin at 38.9% in the first half year. This has been enabled by operational leverage and by very strong continued cost discipline across the business. This brings an adjusted net income of 287.4 million, up 27.9% versus last year, driven by the strong positive operating performance and also lower net financial charges. We are very confident in our ability to convert revenue in positive operating income and even stronger free cash flow. Free cash flow was up 43 million versus last year and reached 261.7 million. This brings to secure a leverage of 1.8 times EBITDA. Our key R&D pipeline projects, such as CYCNE4 in post-bariatric hypoglycemia, CARZIBA in the US, our REC559 program, and our CARBA group launch in China are all in plan, and we are very happy with the progress we're making there. And finally, last, definitely not least, I'm very proud of the recent agreement with GSK. We'll give you a little bit more color in the slides to come. But this allows us really to strengthen our specialty and primary care urology franchise, where we now have a completely leading portfolio in BGH. Thanks to this excellent performance and the strong momentum of the businesses, I'm very pleased to say that despite the very strong ethics headwinds over the recent months and the expected headwinds to come, we can confirm that we are on track to deliver the full year guidance for 2023 as to the updated guidance that we gave in May. So on the next slide, happy to share a little bit more background and color on the agreement for the distribution of two leading brands from DSK's urology franchise in Europe. Avodart and Combodart are indicated for the treatment of moderate to severe symptoms of benign prosthetic hyperplasia and for the reduction in the risk of acute urinary retention and surgery in patients with moderate to severe symptoms of BPH. Recordati will commercialize both products across 21 countries upon completion of the relevant more administrative transition activities which we expect to be finished with the majority by the end of this year, 2023. GSK has received an upfront payment of 245 million, and we will start recognizing revenue and margin upon country-by-country transition, and GSK will continue to receive income on an ongoing basis for the supply of product. The agreement is fully greeted from 2024 onwards, and contributing to top and bottom line already in 23, but minimally so, with a very small contribution in net revenues of 10 to 20 million and a slightly positive EBITDA contribution as well. Our ambition for Avodart and ComboDart is to stabilize and then even generate a modest growth in our key markets. So we're very excited to get this opportunity and be able to bring these two products into our urology portfolio. And we see a number of clear advantages. One, this was clearly in line with our strategy as we set out. We bring in well-established or originated brands in our core therapeutic area, highly synergistic with UroREC and being able to really use the existing sales force that have shown to be able to drive also Eurorack sales post loss of exclusivity. Both products are both loss of exclusivity but are extremely well established brands that we feel confident that we can bring into our portfolio combining with Eurorack and be able to cater to the different needs. but there are different patient segments for all three products, different indications for all three products, and we see a very good opportunity for portfolio management without additional cost to be able to really bring this in a very nice, accretive way. So very happy with this agreement, this long-term agreement with GSK, and we believe this will help us to grow the sales, clearly add to the sales of SPC in urology, and that's an important aspect as well. So this deal, you will start to see the real impact in 2024. And for the results of 2024 so far, I'd like to hand over to Luigi to take us through the financial performance in the first half.

Thank you, Rob, and good morning, good afternoon, everyone. As I started doing already last quarter, I will take you through, first of all, the revenue of the two business units and then, as Federica has said, Alberto and Scotta are here with us and can add more colour to the results in the Q&A. As anticipated by Rob, both business units really delivered a strong performance in the first six months of the year. As you will see from slide five, Six months into 2023, SPC showing still a growth of about 10%, absorbing what was a very strong FX wind in Q2, and also false normalization of some of the growth that we saw in Q1, which had been initiated from a couple of one-offs, most of which have been now reabsorbed. All of the therapeutic areas are contributing to this result, as you will see from the slide. Our biggest TA, cardiovascular, growing by 8%, led by lercanidipine, which still is benefiting from some of those early shipments in Q1, and which will unwind in the second half of the year. We had continued to be successful in stabilizing sales of metoprol and atravastatin, which in fact showed a small positive evolution, and also saw good uptake of our atravastatin-edetamib combination in France, Resolib. Urology, which thanks to the deal with GSK, will become in the future our biggest therapeutic area. also showed a very strong growth of just over 12%, clearly driven by Eligard, which continues to gain share across markets, but also thanks to a solid growth of Slotocin across several markets, in fact. And, of course, we're now starting to deploy the new device of Eligard with the first markets going live with that in Q3. GI revenue was up 10% behind good performance of both our OTC portfolio and Rx on the OTC side. Obviously, I'll call out Proctogrivenol and some of our probiotics offering, whilst on the Rx side, we saw continued good growth of our bowel cleansers and other products in the portfolio. Coffin Cold, which as you recall was a very strong driver of growth in Q1, is still showing very, very strong numbers, 73.5 million of revenue, up 41% versus previous year. Q2, as you will have seen, has come down closer to 2022 levels, but still ahead, despite some of those benefits that we had in Q1 being reabsorbed. This is really driven by good continued growth across all markets, Italy, France, and Russia. Of course, we still see Q3, Q4 comparables from 2022 for cough and cold has been more demanding, as we've already started seeing a recovery of that segment in the second half of last year, and obviously, as we will see, significant headwind on the Wubo. And finally, other therapeutic areas are broadly stable with growth of products like Regilia, Magnesio Supremo in Italy, offset by some of the erosion on our tender business in Germany. With regards to rare disease on slide six, we are absolutely extremely pleased with the progress of all our key growth drivers on the rare disease side, both delivering sales in the first half in line with the targets that we set at the start of the year for 2023, and on track to deliver on the future ambitions that we have for both endocrinology and oncology. Endo obviously stands out with 65% growth of Easter ESA, with both US, EU, and rest of the world markets contributing to that, but also just over 15% growth of Signifor, which again is a a fantastic achievement. Oncology, you recall, we said in Q1 it benefited from some small phasing benefits, which have unbounded, but still growing by over 13% in the first half of the year, and once again on track, with both Calziva and Silvent contributing to that across regions. both in EIA and the rest of the world, and in the case of silver in the US also. We continue to be very happy with the resilience of our metabolic portfolio, and in fact extremely happy with the growth of tanimicin, which grew double digits in the US and also with growth outside the US. We are starting to see a little bit of erosion on Carboglu from recent generic entries, but well below expectations at the start of the year. CarboGlue is growing in international markets, and as you will have seen from our notes, we do celebrate now having received the approval in China for the launch of CarboGlue, and we're now engaging in pricing negotiations to make that available Chinese patients. And finally, we're continuing to progress the life cycle management initiatives that we talked about earlier this year with more updates to come on those in the second half of 23. So both units showing really solid growth. And the same is really true of all geographies. As you will see from slide 7, clearly with one exception, Germany, which we called out at the start of the year, expecting a reduction in our tender business there. I won't go line by line in the interest of time and maybe just comment those markets which in absolute terms contribute the most. Clearly the U.S. on the back of the growth of the endocrinology portfolio and the growth of the oncology portfolio. Also, the international sales thanks to a strong growth of the rare disease business and contribution of oncology there, but also, as already commented, the early shipments to international distributors of lercanidipine. And then finally, you see Turkey and Russia still contributing strongly to our growth, although with growth rates in local currencies, which have come down quite a bit since Q1, once again, with some of those phasing benefits normalizing in Q2. Still, in the case of Turkey, obviously very strong growth, both in terms of volume and price, with most of the pricing benefits offset by the very sharp devaluation of the Turkish lira, an indicator of Russia growth really driven by the strong crop and cold performance, particularly in Q1, and also benefit of price decisions taken in 2022. I would flag both of those markets are expected to face significant effects headwind in the second half of the year, because of even when just comparing current FX rates to the average of the second half of 2022. But once again, very, very strong growth across the business. And once again, very pleased, as you have seen from slide 8, that aside from delivering strong revenue growth of 17%, with revenue in the first half of well over $1 billion, continuing to, as Robert said, deliver margins which are absolutely at the top end of the sector. You recall we said at the beginning of the year we were expecting synergies in SG&A to offset pressures at the level of gross margin, adjusted gross profit margin, And you clearly see those synergies are there with particularly selling expenses at 22.4% of sales from 24.2% of sales in the first half of 2022. But we are managing to hold gross margin better than we had anticipated. And you see that is broadly in line with last year. Clearly that benefits from the higher volumes. but also from great work done by the procurement teams and, of course, also the easing of some of the pressures on gas and energy prices. R&D expenses, as expected, are gradually stepping up. You'll see a slight increase in the percent of sales, in part also due to increased amortization, mainly coming from the integration of EUSA. And we do expect these to continue to step up a little further in the second half of the year as we step up the activities behind those lifecycle management initiatives. And many of you, I'm sure, will be pleased to see that when we called out non-recurring expenses of $26 million in 2022, these really were non-recurring. You will see that line coming down significantly. in the first half of 2023 to only $4.2 million, really being the sort of wind-down now of the SPC right-sizing with the first half of last year also reflecting the initial integration cost and one-off cost linked to the AUSA transaction. All of this results in very strong growth operating income, and EBITDA, with EBITDA at $406.2 million, a growth of 21.3% versus the first half of 2022, staying at 38.9% margin. Clearly a strong result. I will remind everyone, historically, our second half has been somewhat lower than the first half, but clearly very pleased with how margins are holding up year to date. And below the operating lines, you will have seen also financial expenses below last year. Now, this really was driven by effects of gains and losses. While effects provide the headwind on revenue, it did provide $4.7 million of gains, which compared to $18.8 million of losses in the first half of 2022. This, combined with the lower of non-recurring costs, translates into very strong results at the level of adjusted net income and net income, with adjusted net income close to 28% up versus 2022, and net income up 50% versus the first half of last year. Very pleasing results and, once again, a very strong job done by their teams to convert those results into cash, which you will see on slide 9. Free cash flow, $261.7 million. It's $43 million up versus last year, absorbing, obviously, the increase in working capital coming from the increase in business and higher financial expenses. and clearly more than funding the increase in the dividend payment in the first six months, and the residual milestone payments made to Novartis for Easterisa, which account for the majority of the $26.3 million increase in intangible assets. Thanks to this operating performance and the cash generation, I'm happy to say Our net financial position remains very solid. Again, despite the final dividend payment in the first half of the year, net debt to EBITDA is at 1.8 times, trailing 12 months. And as you will see from the slightly higher cash balance, obviously anticipating the closing of the agreement with GSK. We funded that by taking down a new 300 million euro new club loan facility in June, which will be our first with ESG KPIs linked to it. We're finalizing those details and we'll announce those shortly. But I hope that you appreciate that we will be putting some money at stake here behind our commitment to sustainability. We expect leverage following the transaction with GSK to be at around two times EBITDA and pro forma below two times for the remainder of the year. And finally, as Rob has already anticipated, and as you'll see from slide 11, We're very happy to say that on the back of the very strong performance, despite the very strong effects headwinds that we had already in Q2 and that anticipate now for the remainder of the year, to the tune of minus 5% in the second half versus 3.3% in the first half of the year, we do confirm the upgraded guidance that we provided in May. The underlying growth of our portfolio is absolutely on track. Our underlying margins are also absolutely on track. Yes, we will have a small contribution in 2023 already from the agreement with GSK, more so at the level of revenue. But clearly, FX impact is significant. Prior guidance was around minus 2%. It is now around minus 4% for the full year at the level of revenue. We're very happy that the momentum of the business allowed us to confirm that upgraded guidance that we already provided. And with that, I will pause and turn the call back to you, operator, for Q&A.

Thank you. This is the College School 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 telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone with a question may press star and one at this time. The first question is from James Gordon of JP Morgan. Please go ahead. Mr. Gordon, your line is open. Is your telephone on mute? The next question is from Nicola Storer of Kepler. Please go ahead.

Good afternoon. Can you hear me? Hello? Yes, perfect. Yes, perfect. Okay, perfect. Thank you. Thank you. A couple of questions. The first one on the Avodar Combo Tart acquisition. You talk about you targeting stabilizing revenues while In the press release, I think you talked about the acquisition being margin accretive since 2024. So which kind of profitability should we think being attached to the over 100 million revenues you bought? Is it right assuming something in the 35% range? area flat over time or should we expect a sort of ramp up? How should we think about it? The second one is on your guidance. Your guidance basically is implying slattish if not declining margins in the second part of the year against the growth that we've seen in the first part of the year and against further revenues growth. So, which are the elements that would bring profitability so depressed, keep profitability so depressed at around 35% plus or minus? And very last and quick question, is a clarification on the revenues associated to early shipments in Q1. If I understood well, basically, the unwinding has not started yet, and so you haven't recovered anything in Q2, right? Thank you.

Well, I'll ask Luigi to answer, in essence, all three questions he could answer. I think it's the financial questions here. Maybe Aldep can skip in on the GSK agreement.

Hi, Nicolas. I may pick them in reverse order. That's okay. Sorry if I wasn't clear on the winding. I would say most of what we would have expected to unwind has done so, with one exception really, which is the six, seven million benefit that we'd had in Q1 on their Canadian PIN. That, I think, will probably be reabsorbed in the second half of the year. So I think most of that is actually done, what was going to unwind, because some of the benefits also is translating to the higher guidance that we provided for for the full year. On the implied lower margin for the second half, first of all, I know many of my peers would dive to have a 35% EBITDA margin, so I will call it low, but it is lower, I agree. And if you recall, I mean, one, it's historically been the case, right? We've always had a somewhat softer second part of the year, first of all. I think effects is going to play a little bit overall as well. The R&D activities, as you probably know, when you start a study, you do take a number of costs up front, and we are looking to start the PDH study in the second part of the year. As we always said, we would expect the R&D cost to ramp up gradually, and some of them are lumpy just in nature. And again, the deal with GSK provides a benefit on the top line, and as usual, though, in the transition period, less so at the bottom line level. So hopefully that addresses your question in terms of the phasing of the EBITDA margins, second half versus first half. On the Avidar-Combodart deal, and maybe on the revenue, I will also ask, Alberto to comment. On your point around accretive, what we mean by that is the deal will be accretive to the SPC margin, and particularly thanks to the fact that it's absolutely synergistic. It's plug and play with minimum incremental investment required. I mean, I won't go into the details of the margin structure of the product. We never do it for any of our products, certainly not on the partnered one. But that's effectively what we need. And also, as of 2024, we'll deliver positive, obviously, contribution all the way down to the level of net income. And maybe on the revenue expectation, I'll turn to Alberto.

Alberto Martinez speaking. With Avodart and ComboDart, what we expect is to, first of all, stabilize the cells. These two products lost exclusivity in recent years. We have seen the cells declining, and we have full confidence that the cells will be already stabilized this year, and the expectation is to be able to maintain them over the coming years. potentially with some limited modest low single digit growth as Rob described in the key markets. We do have very strong confidence in our ability to do that because we have a perfect analog with UroREC in our own portfolio with silo dosing, where we have experienced a similar loss of exclusivity. We've seen the cells declining in also the key markets like Italy and Spain, and now the cells have also been stabilized. So our confidence is very, very strong in our ability to deliver on what we have achieved commented.

Thank you. Thank you. Maybe just a clarification on this one. When you mean stabilizing revenues, you mean at 115 million or so in 2022, or should we expect a further drop in 2023 and then stabilizing from this lower level?

we should be able to stay at the level of 150 million also in 2023 and beyond.

Thank you. Thank you.

But of course, we will only record sales progressively as transition. So what you will see in our P&L is somewhere between 10 and 20 million for this year. Okay. Next question.

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

Brilliant. Thank you very much for taking my questions. I have an additional one on the out-of-art deal. So on the margin contribution, typically through some of these transfer service agreements, we can see a pure gross margin being recognised. It sounds like from your commentary that it will have a modest EBITDA contribution this year, that that's probably not the structure of this particular deal. Can you maybe confirm that? And then I also had a question on Elegard regarding the phasing of the rollout of the new device. Can you maybe confirm how rapidly you expect the new device to be rolled out across markets and your expected uplift to sales from that? And then maybe just another one on the cough and cold portfolio. To what extent has the benefit in cough and cold been more driven by competitive stock outs versus what we've seen as more of a recovery in underlying demand and what you might view as sustainable market share? Thank you.

Thank you. Maybe I'll take the structure and the cough and cold one quickly and again hand over to Alberto for the new device. You're absolutely right in terms of the structure of the deal. It is different from previous ones. Previous ones, whenever we had in the initial period a straight drop through to gross margin was when we would have economic benefit from the point of closing, and we would book the margin before the sales order to cash transition. In this case, the agreement works slightly different, which is we start getting the benefit once the full transition has been finalized. So that is absolutely why you don't see that effect. I think on cough and cold, we're not going to be able to sort of split. I think it's been a combination of certainly a pickup in demand, and we've seen that across markets, really. And I think we elaborated on the call last time on what's maybe some of the drivers of that in terms of lower immunity levels post-pandemic. But also, I think we were more responsive to that increased demand than others. And we've always said that we were expecting the revenue rates to come back in line with levels closer to the second half of 2022 in the second part of this year. In terms of the new device rollout on Eligar, Dalberto?

The new device rollout of Eligar is fully on track. Actually, it's being launched as we speak In Denmark, the first country will be followed by Ireland and other countries within this year. Larger countries are expected to happen at the beginning in the first quarter of next year. Everything is on track for that to happen. The regulatory pathway is fully cleared and all plans are in place in order to maximize the launch opportunity. upon a very solid trajectory that we are seeing in each and every market, where we have seen a real turnaround We've seen how we have been able, over the last two years, to increase the monthly sales of Eligar by more than 20%, which is quite significant. And this has not only happened in one or two countries, but effectively across the region, so a very successful rebound. We expect the new device to be able to help and to support this continued momentum of Eligar in the market.

That's very helpful. Can I just ask a follow up on the Avidart deal? So, GSK did report some quite strong growth in this product in the first half of the year, which obviously given it's more of a legacy product, we just wanted to gauge your confidence on the levels of inventory that you have available to yourselves for the product. and if you're confident in the supply of that product through, I guess, on the near term. Thank you.

The short answer is yes, we are. We are following that closely in partnership with GSK. We're seeing in-market demand in alignment with the stock. There were some stock issues at the end of last year that were addressed, and that's partly why some of the ex-factory sales were higher, but the sales ex-factory and in-market are correlated, and we are fully confident that the level of stock in the channel will be the appropriate one at the time of transition in each and every market.

That's great. Thanks very much.

The next question is from Brian Balchin of Jefferies. Please go ahead.

Hi, thanks, Brian Jefferies. Sir, I think I missed your answer to the step down in EBITDA in the second half, which I think is implied at 34.5%. Did you say that was?

I cannot hear you really well. It's very, it sounds like you're on Mars. Is that the case?

This sounds better. Thank you. Is that better? Yeah. So I think I missed your answer with regards to the step-down EBITDA margin in the second half. I think it's implied at 34.5%. Did you say that was mainly driven by an uptick in R&D, or was there something else there that I'm missing? And then the second one is, does the guide, I'm not sure if you've mentioned this before, but does the guide include the contribution from the GSK deal? Sure.

Hi, Brian. So I'll go through that again. I mean, the step-up is part of it, but, you know, as I said earlier, so first of all, again, putting in perspective, you know, 35% is a strong margin, even in sort of an absolute term. If you look at our history, the second half of the year in Q4 in particular has always been somewhat lower quarter. We know R&D costs are lumpy in nature. We've always said these will gradually step up and often they're most lumpy when you start a study because there's a number of payments which are made up front and we will be starting, we do plan to start the PBH Phase 2 study in the second part of the year, in fact in Q3. We expect there's going to be a little bit of, on the operating side, there's going to be a little bit of headwind from FX. And, again, I think, yes, there will be a small contribution from the agreement with GSK, but more so at the level of revenue. It's typical at the bottom line level. It's a little bit less so in the first quarter. Again, because of the structure of this deal, which is different from the Eligar deal, the Silicon deal, in those structures we have economic benefit from signing, from closing effectively, which meant that for the initial period before us taking over direct selling, we would get a straight through gross margin benefit. In this case, the agreement is structured slightly differently. We will only take benefit as and when we start taking over the sales activity, and that always takes a little bit of time. So that will be slightly dilutive in the next few months. So really it's a combination of those factors, including the fact that it's always been a little bit lower in the second part of the year while still being fairly strong there. you know, fairly strong results. So hopefully that addresses both of your questions, Brian.

Yes. Thank you very much.

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

Thank you. Good afternoon, everybody. Just to finalize on the GSK deal, probably you are not willing to share with us, but What's more or less the cost of the financing for the funding of the deal? And how long is the license? And the second question is on the 2025 guidance. Because as it typically happens, your guidance, long-term guidance, includes acquisitions. And now after this deal, you are already achieving this range in 2025. I don't know if you can elaborate on this because it seems clear that it must be updated sooner or later. I don't know.

Hi, Martino. So maybe start with the last one. Yes, it will be updated sooner or later. And usually, as you know, our schedule is every other year. So we're not updating the 2025 guidance today. Clearly, we're very happy with the really strong performance of the business. Clearly, so far, in terms of underlying business, we're tracking ahead of plan, hence the revised guidance for for 2023. The agreement with GSK gives visibility to, you know, some of that BD overlay component of the guidance as well. But, you know, we're a year and a half away still with a very volatile effects environment, and we simply are not going to – we have an update at 2025, and we're not going to be doing that near term. The agreement with GSK is up to 15 years subject to customary performance conditions and the cost of financing, you know, recordati thanks to our performance, our cash flow, our balance sheet is seen as an investment grade company by our bank partners. Investment grade loans are you know, anywhere between a REBOR plus 170 and 200 basis points, depending on the leverage and the tenor. And that's consistent with what we'll be paying for this new facility. Hopefully that gives you some sense.

Thank you. And two very quick follow-ups. The first is on R&D. What is the projected amount for this year and what is included roughly in 2025 guidance and just an update on the visibility on your Russian business if you see any difficulty or any problem.

So on Russia business corporations are continuing and you've seen in terms of the results obviously not keeping to that sort of growth rate that we had in the Q1, but still solid and continue not having an issue both getting our products to patients and getting our invoices for the products that we send paid into Russia. Of course, we will face significant effects headwind from the ruble in the second part of the year. The average was 62%. In the second half of 2022, it's now at around 100, so clearly that will provide headwind. Sorry, Martino. In terms of R&D, I'll go back to what we said in the plan, which is we expect the cash R&D, so excluding amortization, to go up by one percentage point of sales over the planned period. We didn't quite give a phasing of that then. I won't do it now. Of course, it will go up this year. I won't sort of break out now the P&L, but that was the magnitude of the increase that we were expecting. Okay, thank you.

The next question is from Isacco Brambilla, MediaBanca. Please go ahead.

Hi, good afternoon to everybody. A couple of questions from my side. This one is on U.S. performance. Could you give us a detail of the performance at constant perimeter? excluding the premature second wing to the oncology franchise in the first half of the year. Second question is a follow-up on your medium-term guidance. I appreciate you cannot update your business plan every six months, but considering the strong delivery on M&A and the current robust momentum, it is fair to state that you are clearly adding at least towards the mid to high end of the guidance range provided for 2025?

Thanks for trying again. We were absolutely happy with current momentum and very, very confident on business performance underlying both in our rare disease business and in the SPC specialty primary care We're doing better than we planned, and we continue to see the good momentum. But a year and a half is a long time, and we haven't really, like Luigi said, updated anything. And who knows? So I don't want to speculate. Recordati has never speculated, and we'll not start that now. In terms of performance in the U.S., I'd like Scott, because that's all rare disease, comment on the the extreme strong performance that we did see in the U.S., where our business in the last three years has actually more than tripled. So we are very happy with that, and that is all in terms of rare disease. I don't want to speak for Scott here, so over to you, Scott.

Thank you, Rob. This is Scott Pescatori, and thanks for the question. As Rob and Luigi had mentioned, the business in the U.S. continues to be very, very strong. It's our fastest-growing market. and all three franchises are growing very, very nicely versus last year. The endocrinology business continues to have significant growth on Isteriza and very, very strong growth also on Signifor. Our metabolic franchise is resisting the generic impact on Carboglu and Cystidane, and we have very, very nice growth on Panhematin in the metabolic franchise, so very good performance there, contributing to our overall growth for the metabolic franchise. And with regards to oncology, as we've mentioned before, we've fully integrated the team not only in the U.S., but globally. The team that's working on Silden in the U.S. is doing a fantastic job growing that product by double digits this year, and we anticipate continued strong growth as we prepare for the entry and the launch of Carciba, which we're working on as part of our development programs as well.

Okay, thanks.

The next question is from Neil Alexander of Deutsche Bank.

Hi, how's it going? It's Neil from Deutsche Bank. Just one on Carzaba. The Type C FDA meeting, it was previously communicated that the outcome would be Q3 2023. That's now moved to the second half of this year. So it'd be just good to get your thoughts on any regulatory hurdles and any reason for the change. Thanks.

Thanks for the question. There really isn't any change in that sense. It's a slip of two weeks from the end of September to the beginning of October, and that happens with FDAs. But there is no other thing than this, so we're very strongly committed to this and confident that we're on the right track. And that's the only reason for making this slight adjustment. Thank you.

The next question is from Janish Mehta of Thermira Credit. Please go ahead.

Hi, guys. Thanks very much for the presentation. Just a couple of quick follow-ups. The first one was just on Russia. I know you grouped the exposure among several other countries. Can you just call out what proportion of your total revenues is coming from Russia? And then the second question was around the existing debt maturities. Can you just remind us? when those mature, and the new facility that you've just taken out, when does that mature as well? Thank you.

All right. Russia is $58 billion of revenue in the first half of the year. That maturity, to be honest, are noted in our sort of detailed financial accounts. They're over the next seven years in various chunks. Really not going to be able to go into that sort of full detail now. And the last question was around... Okay, so hopefully that helps. Again, we publish full details of our funding facilities in our detailed financial statements, which will be coming out Monday, I believe. Thank you.

The next question is from Alex Simon of TKO. Please go ahead.

Thanks for taking my call and congrats on the results. Could you please bring more color on the lower gross capex in H1 this last year? Is it phasing? And do you have guidance for fluid capex?

Thanks. Thanks, Alex, for the compliments. We are also really happy with performance. I'll pass to Luigi on the lower capex. We do not have a a policy of saving on CapEx. We do the maintenance we need to do and investments that we need to do.

So off the top of my head, I'm not... CapEx was actually higher than last year by a couple of million. It's never been a big line of our cash flow statement. It's slightly higher than last year. So I'm not sure I fully understood your question.

I was reading your financial statements in terms of investments in PPE and intangible assets.

Okay, sorry. Intangible assets, okay, sorry, CapEx, if you look at slide 9, CapEx is, I guess, a fixed asset. It's just, you know, we just happen to have had a lower amount of milestones. On a number of our licenses, we have sort of milestones, payments, attached most of what you see going through there in the last couple of years have been linked to the agreement with Tolmar on Eligarg and some residual milestones due to Novartis on East Teresa. We had some, first part of last year, we had some payments to Tolmar for the progression of the new device, the regulatory milestones around that. We have another one which we'll be paying in Q3, the last one, 70 million milestone for the regulatory recognition of the new device across all the key markets in Europe. The milestones, only three that are due to the market are pretty much finished, but it's really just a phasing of payment of milestones linked to some of the licenses that we took out over the years. Hopefully that addresses your question.

Thank you. That's it for me.

The next question is from Charles Pittman of Barclays. Please go ahead.

Hi. Thank you for answering the question. I just got a first question on cost. So I was just wondering if you could kind of run us through, because all of you have shown very good cost controls and cost initiatives. If you could give us a bit more insight into kind of what those initiatives are doing.

Sorry, Chad, we can't hear a word of what you're saying. Is that any better? Is that a little bit better? Maybe if you go slower.

My first question is cost initiatives you've used. and whether or not costs to take out, and whether or not reducing energy costs has played a role in your tight cost control so far. And then just secondly, what potential of carbon in China could be. Thanks very much.

I'll try and interpret your first question. Cost initiatives in China. Sorry, it comes in a bit staccato, very bumpy, so it sounds like the line is not very good. But yes, we've had a number of cost initiatives across our company, not only in terms of procurement, where we look at energy and securing the right contracts for the right price, but also in terms of right-sizing our commercial footprint, which we have done quite successfully, and a number of other things in terms of operations. I think this Rekordaert has always been very good at managing the cost. Anything specific, if so, let me know. For launching in China, I'll pass to Scott. We expect that launch to happen early next year in China. It is an interesting product. What I'm very excited about is not only the opportunity for capital in China, but the fact that this brings us with an organization in China that is already getting on the ground and active and training and being a good basis for future launches, such as Isterisa, which probably have more potential than the Carver Blue in China per se. But I'll pass to Scott to answer.

Thank you, Rob. Absolutely, and I have to first say that we're very excited about the positive news on the approval of Carboglue, because as Rob mentioned, we committed to invest in starting a business in China. We are going at it alone, and as you know, it's not an easy task to get products on the market from the ground up in China, so we're very pleased first with the approval of Carboglue. And as you also know, you know, Carboglue is lost to exclusivity in other markets. So the opportunity to grow that product in China is very good news for us. As Rob mentioned, there's modest growth in the peak year in China, I think 15 and 20 million with Carboglue. But really the full potential, as Rob mentioned, that we see in China is the opportunity for us to bring the endocrinology portfolio to fruition there, which is what the team is currently working on now. So as I said, I think this is the first step in the right direction for us to realize the investment that we're putting in China, and we anticipate more good news when we bring the product formally to market by the end of this year or early next year, and then onwards with our endocrinology portfolio.

I'd also maybe just add, Charlie, to your first question on costs. First of all, just to remind you and everyone, the focus of what we did on specialty primary care was really work on improving the commercial effectiveness of the organization, also reallocating resources from primary care to specialty care. We really think that bears fruit, not just on the cost base, but also in acceleration of the growth rate in SPC, which continues to grow above the relevant markets. Another driver of benefits has been synergies from the integration of EUSA, and I think you heard me also speak of synergies which we expect now from the agreement with GSK, being two products that we bring on with very limited or close to nil additional investment required. So those opportunities will continue to present themselves. So if the angle of the question was, are you done, we always continue to look for opportunities to improve. So hopefully that addressed your question, which we couldn't quite hear so well.

Thank you very much.

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Thank you, operator. I think we can end the session here. I'm very pleased to have shared with you and discussed the excellent performance and strong momentum across both our businesses fully in line or even ahead of plan. The fact that we just did a good agreement with GSK strengthens our urology SPC business franchise and that significantly improves also the position we have in that and makes us very confident for the future. So our current performance makes us very, very happy. And the thing that is on all of our minds is can we really, and that's unpredictable for us, is the ethics headwinds. I think we've highlighted to you that we want to really be prudent on that and that this is part of our continued commitment to the full year guidance based on that strong momentum. But with the ethics in our face, we still feel very, very confident that we can make close the year as we have increased our guidance and I'm very optimistic about our future. So thank you for joining us today and hope to see you in person soon. Thank you.

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