Recordati Industria Chim

Good afternoon. This is the Corus Call Conference Operator. Welcome and thank you for joining the Recordati First 9 Months 2023 Results Conference Call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Miss Lucia Abastantuoni, IR Specialist of Recordati. Please go ahead, ma'am.

Thank you, Judith. Hello, everyone, and thank you for attending the Recordati conference call today. I'm pleased to be here with our CEO, Rob Coleman, and our CFO, Luigi Lacorte, who will present first nine months 2023 results. They will run you through the presentation. As usual, the set of slides is available on our website in the investor section. I will now give the floor to Rob. Please go ahead.

Thank you. Thank you, Lucia. And good afternoon, ladies and gentlemen, and thank you for having joined our nine months conference for 2023. And I'm happy to say that we've been able to continue to deliver double-digit organic growth throughout our business, in both our businesses, specialty and primary care, and in the rare disease business, we see this really good momentum of double-digit growth. And this has been achieved notwithstanding fairly strong FX headwinds that we are facing in the recent months, and not just we, anyone exposed to the same geographies. So achieving these results with these strong headwinds is something that gives us great satisfaction. Also, the fact that we've been able to maintain sector-leading margins with EBITDA margin at 38.3% gives us great confidence in the future. Equally important is the ability to transfer and convert the strong revenues to strong free cash flow. And with the free cash flow up $45.5 million versus 2022, and now reaching $391.8 million, we really are very proud of these results. This is a pro forma leverage of 1.9 times EBITDA. Also, in terms of RP, R&D projects, we see very good progress. We are progressing to plan with SIGNIFOR, with CASIVA, with REC559. And with the planned launch of in China, that actually will probably still happen this year, and the filing for the NBA in China has also been filed in September. And consistent with our ambition to strengthen, in a moderate way, our ability to drive affordable innovation, specifically life cycle opportunities in our own portfolio, We've been able to appoint Milan Stravkovic as our head of R&D, executive vice president of research and development, and has joined a couple of weeks ago. And I'm confident that his expertise and track record will help us on our journey of maximizing the opportunity for our own portfolio at a limited expense going forward. And thanks to all of his excellent business performance to date, the strong momentum of the business, I'm very pleased to say that we're expecting to deliver our results for the full year of 2023 at the high end of our guidance. And based on solely our organic portfolio already, we expect to exceed the targets that we set earlier this year in February for 2025 as well. I will now leave the floor to Luigi to give a little bit more color to our first three-quarter results.

Luigi. Thank you, Rob, and good morning, good afternoon, everyone. I will, as usual, provide a bit more color on the results, and in time, obviously, for Rob to take you through more detail on the guidance. You know, switching to slide three, As Robin said, the business has performed really well over the last nine months and into three. With both business units really delivering and driving solid growth, double-digit in both instances at constant exchange rates. I'll start with specialty and primary care on slide three, which again continues to grow double-digit 8% headline report. It obviously absorbs significant effect headwinds over the last two quarters with all of the therapeutic areas really growing in line with the head of development markets. The standoff performance obviously continues to be a cough and cold portfolio with growth of 23.8%. versus last year, and almost similar increase relative to pre-pandemic levels. And this is really back on a very strong first half of the year, with revenue from cough and cold in Q3 starting to normalize and was, in fact, very close to the level achieved as expected in 2022, also due to the weakness of removal. Urology growth was equally strong, in fact in absolute terms an even larger contribution to our growth for these nine months. This is really driven by the continuous in-market performance of Edgard which continues to gain share and which we're very happy to report we've now started the transition. of the new device across those markets, and mainly Ireland, Portugal, and Denmark. And we expect now the condition to follow across the region in Q4 of last year and beginning of 2024. And clearly also the first nine months and Q3 results reflect the first contribution of 3.8 million, which I'll come back to in a minute. I'm very pleased also with the resilience and actually growth of our cardiovascular portfolio led by the Canadian, particularly with sales to our international partners growing. And also continued solid growth of our gastrointestinal portfolio, both on the OX and OTC side. side. And, you know, within the other products, growth of only 1.2 percent, but that is a mix of a number of products, where Nike, Regia, Maldonado Supremo, and others, all set by some of the pressures we anticipated at the start of the year, and we're just following the journey from left-wing pricing and just decision to let go of some tender business there. I'd like to think that these results confirm the ability for our organization to sustain sales of our established products and really drive growth of our growth drivers and sustain the mid-term growth of many single digits, which is what we said we aim to deliver over the years ahead for SBC. But clearly, since the announcement in July of the latest deal with GSK, you see on slide four, we've been busy. Busy working through the transition of the sales and distribution activities related to our commodart. And as hopefully you will appreciate, we have once again confirmed our track record of being able to integrate new business quickly and effectively with five markets already going live in the month of September and are contributing to revenue. Further ones have gone live since. And we clearly, thanks to the effectiveness and the speed with which the transition is being managed, we're very confident to deliver at the high end of that 10 to 20 million wage that we provided. And we've stayed actually transitioning the last few days, you know, maybe going to do slightly better than that. But, you know, once again, very pleased with both the market performance and the ability to integrate This leads to an exciting business, which allows us to further strengthen our leadership in urology. But switching to 5.5 for rare disease, clearly we are just as proud and pleased with the performance of our rare disease franchise, continuing to go high, double-digit, with, you know, really driven by both our endocrinology and oncology franchise, which are absolutely, in fact, deliver. all the expectations that we set, both mid-term and longer-term, to highlight. Some of you may have noticed, at $150 million value for the first nine months, our aerial ecology portfolio already achieved the initial sales expectations we set for a full year, 2023. So clearly, we have anticipated a regular decline this year, moving ahead of the plan, thanks to both the strong growth of Corvilla and also some very strong continued patient uptake of the Syriza and double digit growth of the Signifor on the necrology side, which will be a key growth driver over the next year for the group. And again here, a nice milestone achieved over the first nine months. For those of you who have made the fine print, Easter Eid is achieving close to $100 million in value in the first nine months of this year and continues to grow. In the briefing, as mentioned, we have now filed for regulatory approval for Easter Eid in China, following the approval already earlier this year of Carrebleu, which we hope to see, we expect to see further commercial sales in charge of the carbon rule already in the coming months of this year. And finally, we'll say, you know, we're very pleased also with the resilience of our metabolic portfolio, with growth of anemic in the U.S., the lagging in Europe, offsetting the erosion of carbon rule, in the U.S. and E.A., but, you know, probably itself is growing international markets. And we'll continue to do so. And, you know, in the fall, it will be further sustained by the increased penetration in international markets. And I think Bob has already touched on the update on the lifecycle management programs. Just recently, we were ready for the ITV team. which is now scheduled for the next week for VIVA, VLA in the U.S., and hope to really involve first patients in the PBA study on the zero side in the next weeks, and expect to grow the enrollment of patients in the REC 55932 study by the end of this year, all as expected. And clearly this performance a year to date and the momentum of our project gives the company a really strong foundation to continue growing as we promised double digit over the coming years. And we need to design a project that can provide a further growth beyond that. On slide six, very obviously, again, we didn't see all regions really contributing to the growth.

Of course, this quarter we celebrate the continued very strong performance of the U.S.

business on the back of the end of the long COVID-19 growth. The U.S. has now become, for the first time, the first business unit for the group. But it's nice to see that it's not the sole driver. And clearly, Italy are also growing double-digit, as are many of the other markets growing either by single or double-digit themselves. The one exception is Germany. We said at the beginning of the year we would expect erosion from investment pricing on the water-to-oil and power stock and institutions that grow from tender business with very, very low margins. But, you know, other than that, very solid performance across multiple geographies. In terms of outliers, you know, Turkey clearly at 32% growth in Euro terms is fantastic, supported by growth, doubled its volume. And price increases awarded and achieved by our teams in excess of the very sharp evaluation in the market. Russia, the U.S. and other C.E. countries also growing high-level digits, also offsetting the impact of devaluation, and clearly that's very much in the back of a very strong hot and cold portfolio beginning this year, and also the carry-on of price increases taken particularly in 2022. And finally, to follow up, our international sales rose 21%, and that's really a reflection of the addition of the Onco portfolio, the strong growth of the R&D business in the international market, and higher sales to distributors, which on the European Union, which is here, have bought earlier than in previous year in federal licenses. So a very, very robust top line. And equally robust P&L, which you will see on slide 7. Thanks to the very new roles and leverage that provides and the continued cross discipline, you know, our margins have remained and remain stronger. You know, gross profit margins are holding up better than anticipated at the start of the year. 71.5% on the adjusted basis. If it is like in New York, the first nine months of last year, we always had, you know, we would see at some point some impact from inflationary pressure, which is coming through. You know, given the increase in inflation rate over each of the months, we would expect it to be relatively much more mild in February than had been expected in February. We did take a level of gross profit and adjusted it through up to the unwind of the non-cash fair value step-up of the acquired inventory of EUSA, also in the value to the higher sales of the ecology products. As you may expect, the growth of 6.6% and the 28.2% of revenue clearly reflect the benefit of the synergies. and efficiency initiative that we were announced and initiated last year. R&D cost very much, you know, gradually increasing, partly due to the additional monetization of roughly $7 million. But also, we've started to progress some of our, like, site management initiatives, stripping out of monetization, and we've seen it so well with over 700% which we decided it would grow to over the plan period. And finally, confirming the non-recurring nature, you would see that other expenses of the $5.6 million would be mostly residual costs related to FTC-like sizing significantly below last year, which also would be reflected in the one-hour costs related to the acquisition of a new job. This has led to a very strong financial result. EBITDA at just under $596 million is at 38.3% of revenue, a growth of 15.4% over the last year. And yes, I'm fully aware that it is slightly above the plus amount of 37% regarding the full year. I would like to say as adults and in fact very consistently in the case of the group, somewhat lower margins due to non-region mix, particularly with regards to the international sales portfolio, gradual step-up of the savings activities, which will involve a year or two for results. very, very strong performance and also a level of adjustment in the income. We received growth of 26% and 14% respectively, reflecting strong operating results which absorb 49.1 million of financial recurrences slightly above last year but are I'm very, very happy to see the strong revenue and profit growth translate into increasing cash flow. On the 8th, we've seen a free cash flow of $391.8 million, over $45 million ahead of last year, reflecting really, really strong results, which offset obviously the increase in working capital, strictly driven by the increase in business and higher cash interest expense. Obviously, in the first nine months, we claimed that we made upfront payments to GSK of 245 million euros. The residual of 70 million euro payment to Colmar, which was due upon approval of the new device across the key markets. And in the middle of the year, obviously, the residual milestone of $20 million to Novartis for Historia. But, you know, thanks to the great free cash flow you've seen on July 9th, you know, we managed to afford both this and the dividend payment made in May with a net debt of $1.5 billion, just $84 million above the number at the beginning of December of 2022. We leveraged two times on a quarterly basis. And with that, I will hand back to Rob to close the non-opinion on the guidance. Thank you, Luigi.

Again, this is very strong information, and despite the sharp increase in the current sequence, in the recent months, it's clear that we will likely end 2023 at the high end of the upgraded guidance rate provided in May. All businesses are performing well and this combined with the fact that we now also have Avodart and Comodart equally clear that we will exceed the target set for 2025 and this combined with the fact that we now also have Avodart and Comodart equally clear so we're not factoring any BD or M&A activities that we will continue to do. But the current portfolio alone, we're now likely to deliver both revenue in excess of $2.4 billion and also a slightly increased margin compared to what we have been sharing with you in February of 25, margins to stay around 37%. Like I said, our strategy does remain unchanged. So in addition to this strong organic growth, We feel well-positioned to continue pursuing accretive and growth M&A and BD opportunities and we're engaged in this as we speak. We are committed to growing, maintaining our margins and very clear capital allocation policy with a very strong balance sheet. and equally committed to treating the planet in the right way and having a sustainable development, they were also making very nice progress to date as advertised by some of the ratios. So with that, I would like to end our presentation and basically hand back and open the floor for questions and answers.

Thank you. 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 1 under touch tone telephone. To remove yourself from the question queue, please press star and 2. Please pick up the receiver when asking questions. Anyone who has a question may press star and 1 at this time. The first question is from Charles Pittman with Barclays. Please go ahead.

Hi. Thank you very much for taking my questions. Sorry, I just want to kind of go back over the comments with respect to the FY25 guidance. And I was wondering if you could just help us think about the expected contribution of AVIDART and also like the contribution of the 1Q phasing benefit seen this year. Is that just expected to kind of carry on now? Is that still expected to unwind? And then just maybe, secondly, if you could just speak to the level of synergies and commercial strategy that you've identified between Avidart and your existing urology portfolio, as Avidart's now kind of been folded into the Recordati portfolio. Yeah, just any further thoughts you can give us around how you further expect to extract value from this acquisition. Thank you.

So, Charles, maybe I'll start. So thank you for the question, first of all. And, you know, maybe I'll start with, you know, your question on the guidance out to 2025. You know, obviously, Q1 phasing benefits have no bearing on the 2025 guidance. That was sort of transitionary in nature. So by definition, they will not affect. With regards to Avodart and Commodart, you know, as we've set out in the past, you know, you know, our 2025 targets included and assume contribution from, you know, potential deals that we may make. So, obviously, you know, to the extent having done the Avogadro and Commerdale deal, that goes to, if you like, fulfill that part of the assumptions. But I think it's fair to say, I mean, if you look at our performance this year, The business is clearly performing better than we have set out at the beginning of 2023. I think if you even just take 2023 as a point, I mean, yes, we'll be adding 20 million a day of outs from Alibaba and Commodart. We said at the start of the year, within the 2023 guidance, we're expecting 1% to 2% effects. We now said it's very much in fact to be around 4%, to be ready 4.3%. in the first nine months, I mean, that more than sets the contribution from Avogadro and ComboDoc. So I think, well, it's fair to say Avogadro and ComboDoc fulfill the expectation that we would continue to be able to deal, and we've done that, and I'm very proud that we did. I think it's fair to say, and this is also why we wanted to emphasize this, you know, it is our current portfolio, which is really tracking ahead of expectations both on the special care side and on the rare disease side. Hopefully that addresses your question.

And maybe Charles on Avodart, Comodart itself. In urology we have a very clear portfolio strategy with Avodart and Comodart addressing very different patient segments and the very different patient needs and indications than, for instance, for Eurorack or Aligarh. So the revenues from the product where we now put on from GSK, the commercialization and distribution, it's about $115 million. We also communicated that we expect to do a mild growth of this. And what's really pleasing is to see that we're able to convert this distribution to us sooner than expected. We're delivering fast. And the initial feedback from the market also is very positive. So I'm very happy with this deal. I think it's really a good value generator and fits perfectly and will not go at cost but, in fact, completely builds on the presence we've built for Eurorack and Aligard and fits nicely into the portfolio without any cannibalization or any negative competition. Thank you very much.

The next question is from Alex Simon with TECO Capital. Please go ahead.

Hi. Thanks for taking my question and for the results. Would you please provide some more on how you intend to approach refinancing of your 2025 ? Thank you.

I'm sorry, but I think you've dialed into the wrong conference call. This is the Recordati. We have nothing to do with the high-yield bond maturing 2025, which I think relates to our majority shareholders. So apologies, but I have no info on that.

Can we go to the next? Next question, please.

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

Thank you. Good afternoon, everybody. The first question is on the rare diseases. First, is Tourisa plus Signifor? Am I right in assuming that this year will beat the 240 million, which is the high end of your guidance range? And for EUSA, you already stated that it's going better than expected. I suppose also 200 million, which is the high end of the guidance range for EUSA. is also possible. And apart from referring to the 2025 guidance, apart from the inclusion of GSK acquisition, am I right in assuming that excluding GSK, what is going better than expected is mainly the rare diseases business also for 2025 expectations, or am I wrong? These are the first two questions. I have another couple of later.

Thank you, Martino. Maybe just a very brief first part and then I'll pass to Luigi. But I think what's really going better is our entire business, right? We see the momentum in SPC and our specialty primary care where traditionally I think the growth, we always looked at something around 3%. We're now much more going into a couple of percent higher, which is really very nice. So we're very confident and we see the stabilization of the old portfolio and the strategy really working out on driving growth platforms within SPC. And you're also right to see that our rare disease business is performing better. The oncology, what we set out for the target for all of 2023, the 150 million, We already achieved after nine months, so a great momentum, very good momentum in endo, and we don't see that end anytime soon. But both businesses really contribute at the moment to a good momentum, and that is also the basis for adjusting the guidance. And it's not a firm, in that sense, but I'll ask Luigi to give some color on that. On both our businesses, on the organic and now combining also Avodart, Combodart into it, we are extremely likely to get to the $2.4 billion at least.

Thank you, Martino, and obviously echo what Robert said. Just to maybe slightly correct, the high end of the guidance that we provided for this year on the endo franchise was $250,000, because we said $222,000 to $250,000, and for Onco it was $185,000 to $200,000. I'm not going to, I mean, obviously, as we said, the business is doing well. I'm not going to dissect this year's higher end of the revised by business. Obviously, the businesses are doing well. I think I'd expect these businesses to be at the higher end of those brackets, but I wouldn't speculate now, you know, where exactly and is it going to be just south of the top or just north, but, you know, we're very brief, but as Robert said, it's not just rare disease, but it's also the specialty and primary care. We had said that we would grow SPC on the constant exchange rate four to five percent over the plan years. This year is clearly doing better and we expect to go back to around that sort of growth rate, but obviously starting from a higher base and having already secured now, a nice accretive deal which fits very nicely in the portfolio. So again, once again, for us, it's a really broad-based overperformance versus expectations at the beginning of the year.

Okay, thank you. Two follow-ups, one on East Tourism China. What is the timing you expect to start marketing activity? And I don't know if you could remind what is the potential contribution of China in this field. And in the last question, in one of your slides, you said capture opportunities within our pipeline, just to understand what are the most important ones apart from the products we already know and we discussed during the call, but what is not included in your 25 guidance and maybe could be added in the best case scenario.

So on China, we have Carbaglue that is going to be an important door opener for our own organization in China. We always said we would be expecting first sales beginning of next year. We now see it coming at still this year, which is good. And we also shared for Carbaglue the peak sales expectations to be something like 15 to 20 million euro based on our current know-how. Isterisa has been submitted in September of this year. Typically, you would expect then an approval towards the end of next year with a launch in a couple of months later, so somewhere in the first half of 2025 for sure, but maybe even a little bit sooner. That's always a bit difficult to predict with China, so I'd like to be cautious there and not over-promise. Isterisa is an interesting product. We believe it has a potential of about 50 million. which we also shared for China. So the opening of China, where we are already present in the oncology franchise through our partner Beijing, but this for the metabolic and endocrinology franchise is where we feel we are very well positioned to do this. And we're on track, in fact, going a little faster than anticipated. So we're very happy with that. I hope that answers your questions on China.

Yes.

And the other question, sorry, there was a second question.

Yeah, what is not included among the opportunities within your pipeline?

So if you look at the opportunities that we're addressing in our current pipeline, and we do see opportunities mostly in the endo and on-core space, But to tackle those, it's really label extension, and typically this will come beyond 2025. So our approach there is very modest step up of activities, really driving affordable innovation there within low risk, but also fairly low investment, increasing by about 1%. of sales over the three-year period from 23 till the end of 25 are expenditure. But doing this will also generate future growth, which for us is equally important. We want to grow today, tomorrow, but also in the mid-term and long-term future. And within this portfolio, we see some opportunities. We'll share that when we have more data, but I think I would like to stop there and basically stay with this answer so far. I hope it helps.

Thank you, Rob.

The next question is from Alistair Campbell with RBC. Please go ahead.

Good afternoon, and thanks for taking my questions. I've got three, if that's okay. First of all, Eurorack, you know, historically, or certainly early in the decade, that was a bit of a headwind with some loss of exclusivities. But actually, delivering really impressive growth this year. I wonder if you can just help me understand what I should be thinking about for the trajectory of Eurorack going forward. Is that something that should continue to be a very positive growth driver or should we think being more of a sort of stable franchise from here? Secondly, just really a modeling question on the PPA adjustment. Was it bigger in Q3? I wonder if that's kind of most of it done now for the year or should we be expecting more in Q4 and indeed more to come in 2024? And then just finally, just in terms of M&A and what you're thinking about, I mean, I suppose I was broadly thinking maybe you'd favor RRD over SPC. Obviously, SPC is performing very well. The GSK transaction is off to a great start. So I wonder how you think of the balancing M&A opportunities between SPC and RRD. Thank you.

Thanks, Alistair. So let me start with your last question. We've always said that both businesses are equally important. And overall, our business is really performing. So there's no immediate pressure to do a deal. We will continue to be as disciplined in the capital allocation as you've always seen Recordati be. But having said that, clearly, I mean, I would be very happy if we could really do a rare disease deal with a strong focus on the U.S., where ultimately the biggest opportunities for this business will be. the entire organization and the ability to do something fast and leverage it as best as we can there. So that would be very high on our wish list, but it's always difficult to exactly plan what happens when and we continue to look at opportunities for both businesses with the discipline that I stress. Maybe on your first question, Eurorack is doing really well thanks for the compliment and I think it shows the model of Recordati that works if you are able to select molecules even after loss of exclusivity there is life in them and you can really generate profitable growth and that's what we've seen with Eurorack I would expect though that going forward this is going to be more of a stabilization and that in the entire portfolio We will see some modest growth more for the AboDAV ComboDart now and continued growth also for AnyGuard. But Eurorack specifically, I don't expect it. It will be more stable.

And Alistair, on your second question, and thank you, by the way, for the opportunity to further clarify. If you look back to what we sort of published yesterday, You know, following the deals, the fair value uplift that was done in the acquired inventory was to the tune of $140 million. There was $50 million, which close to $50 million of that which unwound and you will find in the 2022 results. You know, really expect the number for this year to to be higher than that that we were expecting in line. And obviously, you know, the business has been growing a little bit faster. And also, we've been going through some of the, if you like, intermediary stock that we acquired a little bit faster than expected, so hence the true-up that you saw in Q3. So, you know, I would expect the full year number, I would expect to still see some in Q4 and the residual in 2024. It does depend a little bit on the specifics of which products get sold of Kazirai and Silvent Inventory. So I'm not able to give you a very precise estimate of what would be Q4 and 2024, but the full number was 140. and that you should subtract from that what's been taken today, this year, and last, and the residual will in part be done Q4, in part be done Q1, Q2 next year. Hopefully that helps.

Yeah, super helpful. Thank you.

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

Yeah, thank you. Thank you for taking my question. Three questions. One is a follow-up from the very last one on inventory uplift effect on figures. Did I understand well? You said, Luigi, 140 million over the three-year period, 22, 33, 34, right?

Yeah, that's what I would expect, and that's still very much it is. The 140 million is obviously a given. That won't change. And it's just the speed with which we go through that inventory that determines how much of it we take in one period or the other. And, you know, it's been on a positive side that we've been going through it faster than expected originally.

Okay, perfect. Thank you. Other questions? First one on gross profit and gross margin. If I focus specifically on Q3, I see that we have nearly 200 bps less than last year. So if you comment on which items have moved the margin in this direction and whether we should expect this to clearly continue into following quarters. The second one may be a comment on the metabolic franchise. Again, Q3 performance, double-digit decline, which have been the drivers. Thank you.

On the gross profit margin, I think there is a little bit of noise in the number, certainly at the reported gross profit level from the PPA adjustment. In any single quarter, there will be a number of factors. The first half of this year, we benefited from very high volumes, particularly in Q1, with therefore an overabsorption of the fixed cost base on the manufacturing side, and some of that has unwound in Q3, combined with, and I always said, you know, we would at some point see a little bit of the effect of inflation, which I always said does take a little bit of time to come through. We're not going to give sort of detailed P&L guidance for Q4, but no, I wouldn't expect So yeah, I wouldn't take Q3 as a sort of proxy for next year, if that's the, yeah.

And Nico, on your question on metabolic, we're very pleased and happy with the growth of both Panhematin that is really almost found the second youth again, and it's really growing quite nicely, and we're super happy with that. And also Ladaga is growing quite nicely versus last year. On Carboglu, we see generic impact, mostly on impacting the prices, frankly. We have two generics in the U.S. market. We had anticipated even a bigger impact, to be careful. We maintain our patients, actually are able to capture also new patients, and there's a huge loyalty of both doctors, patients, and families to the product, but clearly with the generics on the market, we sell at lower prices, and that's what you're seeing. And that's not US, that's also, it's not just US, that's also happening in Europe. But then we also said, like Carbaglou, in a couple of weeks, we'll see the first sales in China coming, and with products like this, and I've seen that in the past as well, in the so-called emerging markets, you still have opportunities years later And that's what we're seeing here. So for these products, we continue to be positive. So metabolic for us remains an important pillar of the business. Clearly not the growth driver per se, if you combine everything in metabolic. And the growth drivers are endo and onco. But meta is a very nice business. And there's many products. Another example would, for instance, be that we have in Japan is also doing quite nicely. So wherever we focus on these ultra-rare products, oftentimes for ultra-rare diseases, we can really make an impact, and we continue to benefit from it also long after loss of exclusivity. Does it help?

Thank you. Perfect.

The next question is from Isako Brambilla with Mediobanca. Please go ahead.

Hi, good afternoon, everybody. Just one question from the side that others have already been answered. Focusing on the specialty and primary care segment, if we look at figures, including Turkey, looks like performance over this quarter was broadly flattish year over year. Just wondering if you can provide us a bit more color on drivers of this performance, if there is anything hinting at the structural slow down or is it just normalization of extraordinary stockings in the first quarter and normalization of cold products since in the first part of the year?

Thank you. No, I mean SPC was really down to the FX impact. I think if you were to back out the impact of FX on SPC in the quarter of it would still be just above 10% growth. Don't forget, and you know, from my perspective, that's actually quite impressive given that Q3 starts comparing against a quarter last year where we did start to see the cough and cold business already starting to recover post-pandemic and was slightly ahead of pre-pandemic levels already last year. So, So, no, not at all. The business is performing well into Q3 with, you know, if you're adjusting for effects, an underlying growth still of 10% in the quarter.

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For any further questions, please press star and 1 on your telephone. The next question is a follow-up from Isacco Brambilla with Mediobanca. Please go ahead.

Hi, sorry, just one quick follow-up from my side on Fulier 25 targets. Any additional color on Fulier? You are commenting this is based on current perimeter. First, assume you are still committed to consider M&A opportunities over the coming years. Also, with Avodar-Compadre integration proceeding at pace, maybe this is more a question for Rob. Do you see the structure ready or ready now to potentially show M&A in the coming months?

Thank you, Isako. Thank you for the opportunity to clarify. Now, we're very committed to M&A BD partnering, and we're absolutely ready to take on the next opportunity. We're actively pursuing some, and it's always been an important part for Recordati, and it will continue to be an important part for Recordati. But you're right, even without this, we are very, very well positioned because the business is just doing quarter after quarter very well. We're very well positioned to now exceed the guidance that we gave for 25 and exceed the 2.4 billion in revenues. But absolutely committed to doing the right deals, but also equally committed to making sure that from a deployment of capital point of view, the return of the capital should be really attractive, and it's not just doing deals for the sake of growing but it's really generating long-term possible growth in areas where we can make a meaningful contribution to patients and rare disease very often able to address unmet needs and in SPC really making meaningful contributions to the quality of life for big diseases like hypertension or prostatic hypertrophy and so we commit to that and we'll continue to commit.

The next question is from Laura Humsey with MFS. Please go ahead.

Hi there. Thanks for taking my question. And apologies if you had mentioned this, but just regarding M&A, what is your financial policy in terms of leverage? Like what's sort of the maximum you would be comfortable sort of reaching for the right opportunity?

Yeah, so thank you for the question. There's no change to what we sort of said when we drafted the plan on that. We said the key pillars of our strategy and value proposition are unchanged. The plan to 2025 for Seoul leveraged between 1.7 to 2 times. But we did say, and we've said this at least since the last five, six years that we do feel as a business, thanks to the strong cash flow performance, we could have the flexibility to go up to close to three times. It's really a right opportunity of scale came up that requested it. And, you know, you've seen, you know, biggest deal we did today, immediately after the deal, we went to 2.5 times. And then very quickly, we were down to, you know, below 1.5. Now we've done GSK, where We're at 1.9, and if ever we did do something which takes us up too close to those levels, we clearly do it with an intent to then deleverage pretty quickly. So our commitment to keeping a solid and healthy balance sheet is as strong as the commitment to continue driving organic growth and enhancing that with BDNM&A. I hope that answers your question. I think, Operator, we probably have time for one more question.

All right. So the last question is from Paul Conlon with Amundi Asset Management. Please go ahead.

Hello. Thanks for taking the question. Just one question, actually. Do you have any intent to get back into the bond market in the short- to mid-term future, as against, say, working with term loans?

We've not been, but I'm aware, in the bond market, at least not sort of public bond. We've done a couple of private placements in the past. So, again, you know, right now we're very happy with the conditions we get from our relationship banks. So, no, no near-term need. or desire to look at other financing options. But, you know, these are the kind of things you evaluate over time based on market conditions.

Okay. Thank you very much.

Thank you, Paul, for that last question. And thank you, ladies and gentlemen, for having joined us today. I mean, we were pleased to report yet another strong quarter for Recordati, which now sets us really well for – exceeding not only the 23 initial guidance and we're now going to end really at the top end of our May guidance, but also improve both the margin and the revenue expectations for 25. The business is doing extremely well and we'll keep you updated with any relevant developments as we've always done. Thank you for having joined today. Bye.