Recordati Industria Chim

Good afternoon, this is the Coruscall conference operator. Welcome and thank you for joining the Recordati results for first nine months of 2024 conference call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Ms. Eugenia Leeds, Vice President of Investor Relations of Recordati. Please go ahead, Madam.

Thank you, and good afternoon, everyone. I'm pleased to be here today with Rob Cormans, our CEO, and Luigi Licorte, our CFO. Together, they will present results for the first nine months of 2024. As always, the presentation is available in the investor section of our website. It is now my pleasure to pass the call over to Rob. Please go ahead.

Thank you, Eugenia, and good afternoon, good morning. Thank you for joining us all today. I'm pleased to share once again our outstanding results for the first nine months of 2024. We are proud of our performance and our excellent track record of consistently delivering at or above our financial objectives over the last decade. For this nine months, starting with net revenue of 1,743,000,000, up 12% versus the previous year, or 9.3% like-for-like at a constant exchange rate. This performance reflects continued excellent growth across specialty primary care, which was up 6.5% like-for-like at a constant exchange rate, and rare diseases, which was up 14.5% like-for-like at a constant exchange rate. Topline growth and operating leverage translated into our usual sector-leading profitability with an EBITDA margin of 38.2%. The adjusted net income was 445.4 million, up 9.5% versus the previous year, successfully absorbing the increase in financial expenses and tax rate. With a very robust free cash flow of 434.3 million, we ended the first nine months with a leverage of just below 1.6 times EBITDA. Now, in September, and a bit earlier than anticipated, ISTERISA was approved in China for the treatment of adults with Cushing syndrome. We remain very optimistic about the overall market potential. Given the strong results year to date and a positive outlook for the remainder of the year, I'm pleased to confirm our full year 2024 financial targets, which were upgraded in July. These targets reflect a strong momentum across the business and our confidence to successfully execute on our plans. I would also like to clarify that these targets exclude any potential contribution from a JMO. Our agreement with Sanofi to acquire the global rights to NJMO reaffirms our continuous commitment to addressing serious unmet needs in rare diseases and is a perfect strategic fit with an attractive product and financial profile. On the following slide, I would like to highlight the key points of the transaction in a little bit more detail. NGEMO provides patients with cold agglutinin disease a novel treatment option as the only approved targeted product. It was launched in 2022 in the U.S., Europe, and Japan, and the last 12 months as of August 24 of sales are approximately 100 million. NGEMO is a great complement to our rare disease portfolio in an area of high unmet medical need and is synergistic with Silvent, with hematologists as the key target physicians. On the financial side, we expect the 2025 revenue of greater than €150 million and peak sales in the range of €250 to €300 million. We anticipate positive EBITDA contribution immediately after closing with margins becoming accretive to our current rare disease business from 2025 onwards. And lastly, I would like to highlight the de-risked deal structure. with an upfront payment and potential commercial milestones, which are subject to the achievement of net sales at or above the top end of our peak sales, year sales expectations. I'd like to remind you that the closing is expected by the end of this year in 2024, pending, of course, regulatory clearances. And as such, we expect minimal financial contribution this year, and they have not been in our 24 outlook so far. We are thrilled to welcome many wonderful new colleagues who played an essential role in making NGMO as successful as it is today, and who we are convinced will continue to play a crucial role in the success of NGMO going forward. It's now my pleasure to turn the call over to Luigi.

Thank you, Rob, and good afternoon. Good morning, everyone. Very happy to have yet another opportunity to comment what is a strong set of results. I'll start, as usual, with the revenue on slide five, with specialty primary care, which very clearly delivered, once again, a strong quarter. On the revenue side, continuing to show solid like-for-like growth, constant exchange rate, which you'll see for the nine months is 6.5% constant exchange rates, continuing to outperform the relevant markets on key promoted products. And I would highlight that I know that many focus on individual quarters, which, as has been the case earlier in the year, continue to be somewhat distorted by dynamics in Turkey. which had strong adverse effects in Q3, was benefiting from a positive year-on-year comparable in Q2. And you'll note that excluding Turkey, what we show as like-for-like growth across the exchange rate at the end of the nine months is slightly ahead of where it was at Q2. So, underlying performance of the business from our perspective continues to be very strong. driven by, as was the case earlier in the year, by urology, which clearly reflects the contribution, strong contribution of our combo dark, very much in line with plan, but also continued double-digit growth of Eligard. But also, nice to see a mature product like silodicin continuing to grow, and we had a very good contribution in the quarter on mictonorma, in Turkey. Cardiovascular and GI franchises continue to be very resilient, showing marginal growth, and very nice to see mature products like metoprolol, pitavastatin, and even lirkanidipine in direct markets continuing to gain, to grow volumes and revenue. complemented by the continued uptake of ResLip in France. Cough and Cold, which, as you know and as you'll recall, started the year on the back of a slightly milder flu season and albite still strong, and certainly strong in terms of in-market performance, was behind. first half 2023, you have seen that NQ3 was very much on par despite still being affected by adverse effects. And finally, I'll just call out for SPC the very strong growth and performance in the other bucket, of Magnesio Supremo, our food supplement in Italy OTC product, which drove most of the growth in that segment. So a number of growth drivers across SPC, which again continues to outperform relevant markets. and continues to grow very much in line with our expectation of a mid-single-digit life-for-life growth at constant exchange rate with a solid contribution in line with plan of Avodart and ComboDart. With regards to rare disease, similarly, dynamics very much unchanged for this business as well. That continues to deliver strong double-digit growth. and a business in which we have set a basis for continued growth in the future, certainly with the acquisition that we announced of Engimo, but also recording the approval of Istoriza in China in the month of September. Growth clearly continues to be driven by our two key franchises, And nice to report that all of the key four products within that are really contributing to that. As we've commented before, East Teresa, with 152 million of revenue in the first nine months, clearly is set to become a 200 million revenue product this year. Signifor, 87.4 million year to date, continuing to grow double digit and clearly set to surpass the 100 million mark this year, and continue strong growth of both Carzeba and Silvent, offsetting mild erosion on the metabolic franchise due to the generic entries affecting Carboglu in U.S. and EMEA. Carboglu, which is, however, itself growing in international markets, and within metabolic, we do have other growth drivers as well, such as sister drops. Of course, the key next catalyst in this franchise for the rare disease business is the potential approval of the label extension for Easterisa in the U.S., which as we said, we expect by mid of 2025. And whilst there's no major news to report, we are continuing to progress the work to address the request from the FDA on denotuximab for potential BLA in the US, and obviously continuing the enrollment of patients in the phase two trial for pazirutide and PBH. So once again, also for rare disease, a very strong growth with a number of drivers and a number of reasons to feel bullish as we do around the continued growth opportunity of the segments in the periods to come. Looking, moving to slide seven, very briefly in terms of revenue by geography, everything's still very much consistent with the first six months. with good growth across all of the regions and several showing double-digit growth. Certainly, that is the case of our two lead markets, the U.S. and Italy, which continue to grow strongly, as is clearly Spain. In the case of the U.S., this is clearly driven by the growth of the Endo franchise combined with Sylvent. In the case of Italy and Spain, clearly the addition of Avidar-Combodart, but also growth of both RX and OTC portfolios in those markets. And the only one material change I will call out, and just to reinforce the message I gave earlier versus the picture that we shared in the first six months, you'll have noticed Turkey, which in the first six months was growing by 55% on a reported basis. is growing by 23.5%. Volume growth in the market is still strong, but Turkey, as I said, was benefited from a year-on-year comparison on FX in the second quarter, whilst was penalized in the third due to a recent devaluation. And also, a difference in the timing of price increases, which we know are significant in that market. Price increases in 23 and 33 in Turkey were awarded to the industry in July and so had lacked effectively the full year at the end of Q2. And we've just recently had the confirmation that price increases in Turkey have now been awarded effective November, which clearly then sets Turkey to achieve a higher growth rate in the last quarter of the year. And I think that's all on the sort of revenue side. Moving on to slide eight. Very pleasing, obviously, to be able to comment a P&L which shows pretty much double-digit growth on all the key lines. Revenue 12%, EBITDA 11.8% growth, adjusted net income 9.5%, and net income 11% growth as well. Clearly, this reflects the strong performance in terms of revenue. but also, you know, usual cost discipline, which helps sustain margins at just above 38% mark. As commented in the prior quarter, adjusted gross profit margin decline is mainly due to the consolidation of Avatar Combodart and product mix. But again, those that will be looking at individual quarters would have noticed a slight improvement in Q3 relative to the first six months. We continue to see benefit, obviously, in terms of operating leverage on SG&A, which is down to 20.7 percent of revenue. And you'll see modest increase in R&D expenses, a good part of which is amortization Cash basis, excluding amortization, R&D expenses is only around 6.2% of revenue, very much in line with last year, so clearly being outpaced by the revenue growth. The small growth in other expenses reflecting mostly 2.5 million roughly of costs related to the NGIMO acquisition pending regulatory clearance. So very strong, very strong financial results and very pleased to say on slide nine that this looks set to be yet another year also of strong cash generation supported not just by the strong growth in EBITDA, but also somewhat lower absorption in net working capital despite the growth in volume of business, with these two clearly more than upsetting this somewhat higher interest expenses and income taxes, and leading to a free cash flow of $434.3 million for the nine months, which is close to 11% growth versus the previous year. And obviously, in the first nine months, that's going to fund the dividend and pay down debt, which as you will see from slide 10, clearly reduced versus end of December last year, and with leverage now just below 1.6 times on a reported basis. And clearly, once again, positioning us now very well, and we are very well, very much ready with the financing lined up for the acquisition of NGIMO. And finally, to conclude from my side, and as there are no changes for the full year on slide 11, you will have seen we have reiterated with confidence the upgraded targets that we published in July for 2024. increased across all lines relative to the targets that we set at the beginning of the year. Still expecting solid growth in line with plan of both business units. EBITDA margin around 37 percent. All this despite still expecting effects headwind of around 2 percent. And again, as Rob has highlighted, with minimal contribution, if any, expected in this year from NGIMO subject to timing of regulatory approvals and marketing authorizations transfers. Of course, as we do every year, we will confirm targets for 2025 in February, along with the preliminary results. However, safe to say, we are still very much in line and the business is performing absolutely in line with the previously provided steer that we've given to the market. And with that, we will open the call for questions.

Thank you. This is the Coruscall conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. We will pause for a moment as participants are joining the queue. First question is from Nicholas Torre. Kepler, please go ahead.

Hi, good afternoon. Thanks for taking my question. I was looking at EBDA margin evolution this year compared to previous year by quarter. We have had Q1 slightly up, Q2 down, Q3 up, Q4 implied in the midpoint of your guidance down. So, What is your comment about this erratic trend in profitability? Is there a specific reason why this has been happening and how should we look at it maybe going forward? Thank you.

Hi, Nicolo. It's Luigi. I'll take that question, which we do get pretty much every year at this time of the year. We do have some phasing to our quarterly EBITDA margins. It tends to be very strong at the beginning of the year in Q1, and that's a combination of both cough and cold business, which does have a healthy margin. Also, As we said, over the years, we've seen many of our international distributors, the ones where we ship, let's say, in very lumpy amounts, tend to get their orders in early in the year. And the opposite is true particularly on the international distributor side towards the end. So it's a little bit less heavy on those. Both of those businesses have higher than average margins. There's also a little bit of a skew to Q4 of activities in this case. And again, this year will again be a year where Q4 margin is going to be somewhat lower than other quarters. And again, that's just historical phasing. And we are also starting to put a little bit of investment in to prepare. for the expected approval of this RISA broader label in the US. There's nothing more than that really to it. And again, there as well, unfortunately, Turkish lira and the rules around accounting in hyperinflation economies do create a little bit of volatility as well, because any change to the Turkish lira needs to be reflected retrospectively for the full year, which, you know, does create a little bit of volatility in the P&L, unfortunately. I hope that addresses the question.

Thanks, and maybe another one. Sorry if you already answered this question or already deal with this. I connected later at the call about this to re-approval in China. Which are your expectations about that, about the phasing, the ramp-up, potential revenues?

We got the approval in September, which was a bit earlier than we expected, and that's positive news. Is Teresa China is a beautiful opportunity, and we expect peak sales there in the range of 50, 50 million euros. And with Isterisa, there's a fantastic development and a very upbeat and optimistic. Luigi already alluded to us now investing into the Isterisa label extension for the United States, going from we hope to be able to get the approval to extend the label to Cushing's Syndrome as well in the U.S., and that will give a... an additional potential of 20% to 25%. And we see with all the dynamics in the U.S. market that we're very well positioned to capture there a really good opportunity and help patients and financials who make something attractive. Of course, we invest now, and that opportunity is there. So Isterisa, not just in China, but also in the U.S., and continued development all over the world, is a very good and continued growth story and opportunity The momentum isn't stopping at all. In fact, we'll probably do better with all those things happening.

These 50 million more you might expect from China are on top of the big sales guidance you provided.

No, Nicolo, the China... And also the label extension for Esterisa US. Both of them have been in the guidance we earlier gave. 400 plus million, right? Exactly.

Esterisa. Okay. Thank you.

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

Thank you very much for taking my questions. Just two, if I may, both kind of more product focused. Firstly, just on the metabolic portfolio and the carboglu erosion in US and EMEA being offset by growth in the international markets. Could you just give us a little bit more detail on how we should think about that portion of your portfolio going forward? Should we assume kind of low single-digit erosion to the overall legacy Red Sea's portfolio is more likely now, or is that likely to kind of trough in the near term and be offset by that international growth? And then just the second one on the kind of apparent slowdown in growth of Eligard and the use of portfolio. Just, again, also how to think about that going forward. Is this just the impact of strong competition? comps from 3Q last year and if you could just explicitly detail any potential impact of phasing or one-off impacts from shipments that we need to keep in mind. Thank you.

Yeah, so Charles, maybe I'll have a start, and then maybe we can ask Scott Pescatori, who's here with us, to provide a little bit more color. I think, to be honest, to your sort of suggested slowdown on on-call, frankly, you know, we've always said that individual quarters can be lumpy, and I honestly do not make a lot of that. I think if you take oncology and you sort of annualize the revenue of the first nine months, you'll see that it's already getting, as some have commented, close to you know, what we indicated being peak sales for that franchise. So, you know, we feel very strong about the health and the growth prospect of that portfolio. Metabolic, you'll recall when we gave the plan, we said that would be flat to slight decline over the period as a result of, you know, those growth drivers being upset by short-term erosion in U.S. and EMEA. But again, I'll pass maybe to Scott to give a bit more color.

Thanks, Luigi. Hi, this is Scott Pescatori. Hi, Charles. Yeah, as Luigi mentioned, I mean, we see the portfolio relatively flat in the coming months. But remember that there's a number of products within that portfolio. So while we do have a decline of Carboglu, we are maintaining a lot of the volume there in the U.S. and also in Europe. Obviously, subject to price adjustments based on tenders or individual patients in the U.S. from a commercial perspective. But also, you know, we anticipate to continue to grow pan-Hematin and system drops within that portfolio. So as Luigi mentioned, we tend to see that to be a flat growth moving forward.

That's great. Thank you so much.

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

Oh, thanks so much for taking the question. Just a quick question actually on NJMO. Just looking at Sanofi's Q2 results, I mean, it's delivered another very strong quarter, growing 80%. So, I mean, perhaps unlike some acquisitions in the past that maybe have been products that are more mature, this is still very much in aggressive growth phase. So I guess the question is, you know, as you go through the transfer from Sanofi to yourselves, Presumably it's creating quite a bit of disruption and uncertainty at the Sanofi end. So how do you minimize the risk of that disruption sort of disturbing the launch phase of this product and ensuring that you can maintain the momentum through Q4 and obviously when it comes on board at Recordati? Thank you.

Hi, Alistair. This is Scott Pescatori. I'll take that one. No, it's actually a very good question, and I can tell you that we've had some early interactions with our Santa Fe colleagues over the last few weeks, both in the U.S., in Japan, and in Europe, and they've been incredibly helpful in the transition so far. As you know, we obviously haven't closed the deal officially yet, but the early integration that we've been able to do and the communication we have with Santa Fe has been very, very positive. So we anticipate minimal disruption as we go through the integration, mostly because we've had discussions with the people that are impacted by the acquisition. They're very excited to join our company. We're excited to have them. And we're doing all that we can do in the immediate term to welcome them. And then, of course, after the closing anticipated towards the end of this month, we'll bring them on board and make them fully on board with our organization. And then, of course, obviously, all the document transfers and everything else that we have to do in order to make the integration flawless. But, you know, the early indications that we had so far are incredibly positive, and we're very, very, very excited to welcome all the NJM employees.

And maybe if I can just add to that, you know, this is not new for us, right? I think when we did the Novartis deal in 2019, we picked up... you know, seeing it for which was ready on market, but a product like this Teresa, which was due to be launched and due to be launched in the midst of a pandemic. And despite that, you know, the team did a fantastic job to get to the product where it is. So I think we've got quite some experience in the group in order in terms of how to address that. And maybe sorry, I wanted to go back, I realized that, you know, we we missed giving a response to a question on on any guard and maybe I can ask also alberto to to to comment, but you know there's no change to the market performance of the product very much in line with our expectations alberto do you want to.

Here was the previous question from Charles he was referring to a potential is low down of any guard and what I can tell you is that in market performance continues to be. Equally strong, we see 14% from IQVIA on a September year-to-date basis, which is consistent with our reported growth of X-Factory 12%. And Eligar continues to be the only product in his class that gains market share. So we remain certainly happy with the exceptional performance of Eligar as we have launched the new device throughout the year very successfully.

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

Hi, good afternoon, everybody. Two questions from my side. The first one is on revenue guidance. Can you give us an idea of what may drive you between the lower and the upper part of this guidance? Is this like for like growth or forex? Second question is on It's probably for Luigi if you can recall us sort of overview of group financing of Recordati after Ingemo, sort of the split variable versus fixed financing, average cost, and how we should think about 2025 financial charges versus this year.

I'm sure Luigi is happy to give a little bit of an overview on the financing. I mean, our momentum on the two businesses that continue to really grow and fully in line with our own expectations, fully in line with our own plan, and clearly not trending to the lower end of the guidance, but we've always – I'd like to be cautious and not overpromise on things that you cannot completely influence, impacts of hyperinflation in Turkey. can have an impact, so I don't want to overpromise, but business is doing well, and we're very happy with the momentum, and hence our confirmation of the guidance that we increased in July. We're fully on track to deliver on that. Luigi, you want to comment on the financing?

Yeah, sure, and of course, you know, as you said, the ISACO FX, particularly as a reference to the Turkish lira and the way it needs to be accounted for does provide As Robert said, we're very confident and very happy with the momentum. In terms of the financing, we have fully secured the financing for the transaction. As you know, it's $825 million. U.S. dollars up front, all of which we will finance through a new syndicated loan facility. I'm very much on track to finalize that. The cost will be very much in line with you know, our existing facilities. I'm not going to comment on the fixed versus variable because we need to still decide of, you know, obviously of that amount, how much we will swap to fix, but we're aiming to keep around that sort of 50-50, 40-60 split. The one thing I will say, very happy that we bought the majority of the U.S. dollars which are required for the acquisition before the results of the U.S. elections. And so we were able to, I guess, do most of those purchases forward, obviously, before the U.S. dollar appreciated in the last few days. I hope that addresses your questions, Isako.

Yes, yes, many thanks. Maybe just a qualitative follow-up. How should the higher debt versus lower interest rates play out in financial charges next year versus this year?

No, I think you should still expect an increase in financing expenses. Obviously, I mean, it's a big, it's not a small acquisition that we've done, though having said that, it clearly you know, very happy that on the hopefully evil most of of closing that leverage is back down to below 1.6 times. And you will have noticed we don't even have to say pro forma in the sense that it is just my just below 1.6. Even just in our reported basis. We do expect to end the year somewhere between 2.4 and 2.5 times. But then of course, we'll continue to deliverage. I think you're still I'd expect the financing cost for next year to still be higher than 2024, but as always, we will provide the targets for 2025 in February when we report the preliminary full-year results for this year. Very clear. Many thanks.

Ladies and gentlemen, there are no more questions registered at this time.

So thank you all for having joined us this afternoon or morning, whatever part of the world you are at. Thank you and looking forward to meeting with you soon again. And have a great weekend.

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