Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Recordati Full Year 2023 Preliminary 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 0 on their telephone. At this time, I would like to turn the conference over to Ms. Eugenia Litz, Head of Investor Relations of Recordati. Please go ahead, madam.
Thank you, Sabrina, and good afternoon, everyone. I'm pleased to be here today with Rob Koremans, our CEO, and Luigi La Corte, our CFO, who together will present the Full Year 2023 results. Also joining for the Q&A session will be Alberto Martinez, Executive Vice President of Specialty and Primary Care, and Scott Pescatore, Executive Vice President of Rare Diseases. 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.
Good afternoon, and thank you for joining us today. Before moving on, please let me give a warm welcome to Eugenia Litz, our new Head of Investor Relations, who recently joined the group. Let's start with the full year of 2023 preliminary results. We're very pleased to share our strong performance across the business, starting with the group net revenue at EUR 2.823 billion, up 12.4% versus previous year, or 14% on a like-for-like at constant exchange rate. This reflects strong double-digit growth across both specialty and primary care, which was up 13.6% like-for-like at a constant exchange rate, and rare disease, which was up 14.9% like-for-like at a constant exchange. Luigi will review this in more detail a bit later on the presentation.
This robust growth was achieved despite increased FX headwinds over the recent months, with an adverse impact of -5.4% for the full year, mainly affecting our SPC business. The FX impact was mainly driven by Turkey, which was also offset by higher price inflation there. We have continued to sustain sector-leading margins with EBITDA at 37% for the full year, reflecting revenue growth and our efficiency initiatives. Adjusted net income was EUR 524.6 million, up 10.8% versus previous year, and above the top end of our guidance range, driven by strong operating performance and a lower-than-expected tax rate for the year. We've ended the year with free cash flow of EUR 456 million, a EUR 17 million increase versus previous year, and with a leverage at 1.96x EBITDA. Our key targeted R&D projects are progressing according to plan, with key updates expected in 2024.
With the strong momentum driving the business and excellent execution across the group, we are well positioned to continue delivering profitable growth into 2024 and beyond. Before Luigi gets into details of the full-year results, I'd like to highlight our strong and consistent financial results over the last decade. The successful execution of our strategy has resulted in high single-digit growth over the last 10 years, consistently achieving or slightly exceeding objectives. And once again, in 2023, we delivered results above guidance provided at the beginning of last year. This growth, combined with high margins and cash generation, has yielded significant return on capital, with an average of 15%-20% over the last decade. We are all extremely proud of this and our ability to create outstanding value for all our stakeholders. We expect this strong performance to continue.
Let me now hand over to Luigi to take us through more detail in the performance in 2023.
Thank you, Rob, and good afternoon or good morning, everyone. Delighted to once again have an opportunity to comment on, as Rob has described, what was really an outstanding set of results for 2023, where as a business, we managed to grow strongly revenue across both business units, sustain margins, and continue to build for the future with the deal we did with GSK and the progression of our pipeline projects. Let me start, first of all, as usual, from revenue and Specialty Primary Care specifically, which, as you will have seen from our presentation under Alberto's leadership, has continued to achieve growth rates which are ahead of the relevant markets.
And as you will see from slide 5, really exciting to see all of our therapeutic areas growing nicely, including our foundational cardiovascular TA, which grew primarily thanks to good growth of lercanidipine, not just in our international markets, but actually grew also in most of the markets where we sell directly. They also saw accelerating growth of Reselip and resilience of some of our more mature products in cardiovascular. Just over 23% growth of urology clearly also includes the initial revenue from Avodart and Combodart, and once again underline the key strength of the group in transitioning effectively and smoothly new products into the portfolio. Avodart and Combodart contributed EUR 25.6 million in the later part of the year, and we estimate, based on GSK's input, sales of those two products in our relevant territories in 2023 were around EUR 120 million.
In urology, we continue to see Eligard gain market share, and pleased to say the new device has now been introduced in most of the main markets, and we also saw Silodosin returning to growth. GI portfolio continued to deliver solid high single-digit growth for the year, close to 8%, very broad base across both our Rx and OTC portfolio, Procto-Glyvenol, our BioGaia-based products, and the Casen portfolio. Cough and Cold, that you recall we commented quite a bit at the beginning of the year, also recorded a strong year where we gained market share, benefiting also from a strong season, ended the year 9.3% above 2022, and with sales above pre-pandemic levels, absorbing quite some significant headwinds in terms of FX, particularly in the second part of the year.
And finally, as called out also at the nine months, within our other products, we've got some really nice performances in products like Magnesio Supremo, Reagila, and many of our local products, particularly in Turkey, in part offset by reference pricing and exit of tenders from Ortoton, in particular in Germany. So all in all, a very strong year for specialty primary care, thanks to renewed focus on commercial excellence and outstanding, really, if considering these results were achieved whilst also streamlining the organization across many of our markets. But as you will see from slide 6, rare disease performance for 2023 was just as strong under Scott's leadership, with really strong momentum in both our really key franchises, onco and endocrinology, with metabolic sales remaining resilient. A number of great milestones achieved during the year.
Oncology, which was in its first full year after the acquisition, you see achieved revenue of just over EUR 200 million, which is clearly ahead of the expectations that we set when we announced the acquisition of EUSA Pharma, and that's really thanks to higher-than-expected sales of both Qarziba and Sylvant, and both of those really showing significant opportunities for continued growth in the future. Great performance, obviously, also of the endo portfolio, with both Signifor and Isturisa achieving over EUR 100 million of revenue in the year. Isturisa actually around EUR 140 million, both products very much on track to deliver on the mid-term and longer-term objectives that we set. And obviously excited that we've also now, in 2023, filed for Isturisa approval in China and expect to also file in this in 2024 for Signifor. Metabolic, as commented already over the course of 2023, continued to remain quite resilient.
We did see good growth of Panhematin, Ledaga, which part offset what continues to be very gradual erosion of Carbaglu in the U.S. and across some of the European markets. Obviously very happy, we've now had the first commercial sales of Carbaglu in China at the end of 2023, and expect, obviously, to continue penetrating that market in 2024. Finally, in rare disease, obviously excited that we continue to see good progress in our development programs, and we do expect some news flow on that side over the course of 2024, particularly around mid-year, with further interactions planned over the next months with the FDA, following feedback they provided at the Type C meeting we had in November for Dinutuximab beta in neuroblastoma.
We do expect also to engage with the FDA around the regulatory pathway for the extension of the Isturisa label in the US over the course of the next months and expect a readout from REC 0559, where we have completed enrollment around middle of the year. Again, also for rare disease and throughout the business, really solid performance across the portfolio, which you will see on slide 7 is very much the same also if looking at the business from a geography lens. All regions showing really strong growth in 2023. The picture is very much unchanged since we looked at it at the end of September. US has become, as expected, our number one business in 2023 with revenue of EUR 316 million.
Nice to see that's not Italy also growing nicely, 13.6%, obviously on the back also of the start of activities on Avodart and Combodart, but also with broad-based growth on many of our key products, both on the Rx side and OTC. The addition of Avodart and Combodart clearly also behind the acceleration of growth in Spain. We did see in the later part of the year growth rates in euro terms come down in Russia and other CIS countries in Ukraine, but remaining solid above 20% in local currency. Finally, you will have seen that throughout the presentation, we do comment on constant exchange rate growth, both including and excluding Turkey because of the very high devaluation and price inflation, which distorts a little bit the figures.
Once again, and also in the case of Turkey, very, very solid underlying performance with, in euro terms, 31% growth and double-digit volume growth in the year. So really strong performance throughout the business, both in terms of therapeutic areas and geographies. Turning to the P&L, obviously very proud that we once again were able to deliver in line with expectations, expectations that, of course, you'll recall we upgraded during the course of 2023, delivering double-digit operating and bottom-line profits for the year in what was still clearly not the easiest of financial environments.
Particularly pleased of the great work which we did to mitigate the impact of inflation, particularly in the first part of the year, with adjusted gross profit margin remaining strong, just over 71% of revenue, with the slight decline in the later part of the year, mostly due to the integration of Avodart and Combodart, where we share the economics with GSK through the supply price, as announced at the time of the deal. But the slight reduction in adjusted gross profit margin versus 2022 was more than offset by the synergies and operating leverage that we see at the level of SG&A at 28.9% of revenue, which also more than offset the increase as planned in R&D expenses to 12.3% of revenue.
R&D expenses, excluding amortization, still remaining below 7% on a cash basis, and again, very much in line with the guidance that we gave when we set out the plan in early 2023. Happy to see, obviously, other expenses just under EUR 8 million, significantly reduced versus 2022 levels, these being mostly non-recurring costs related to residual integration costs of EUSA, and also the continued streamlining of operations in the specialty primary care business. With these results, we delivered very strong operating profit, as said, with EBITDA just under EUR 770 million, 37% EBITDA margin, as noted by Rob, 14.4% growth versus 2022, and adjusted net income closed just above the top end of the guidance range that we provided at EUR 524.6 million, thanks to both the strong operating performance and the slightly lower tax rate than expected.
And I will note, just in closing on the P&L, thanks to the operating results and the lower non-recurring cost, reported net income up 24.6% versus 2022. As always, turning those profits into cash flow has always been a trademark of Recordati, and pleased to see on slide 9 that 2023 was also very much a year of strong cash flow generation, with free cash flow of EUR 456 million, above 2022 levels, with the strong growth of EBITDA, in part offset by increasing working capital and higher interest payments. Now, of course, the increase in working capital very much driven by the increased volume of business. We did see, actually, inventory days come down in 2023, debtor days slightly increasing. We do feel this is, in current times, a very strong performance. We'll look to tighten the screws further on the working capital in 2024.
But delighted to see that with this free cash flow generation and despite investing EUR 350 million in intangibles, being mostly the upfront payment to GSK and residual milestones to Tolmar and Novartis, and paying dividends of close to EUR 246 million. As you will see on slide 10, we ended the year with, once again, a very solid balance sheet, with net debt of EUR 1.58 billion roughly, being just under two times trailing 12 months EBITDA, when considering a full-year benefit from the Avodart and Combodart products. So we're ending 2023 with very strong momentum, a very solid balance sheet, and obviously well-positioned to continue on our journey of profitable growth. And with that, I will turn back to Rob to talk about targets for 2024.
Yeah, thank you, Luigi. So turning to our 2024 guidance, we are very pleased to announce our expectations for continued growth across all key metrics, targeting double-digit growth in revenue and EBITDA. Specifically, we expect revenue between EUR 2.26 billion and EUR 2.32 billion, reflecting mid-single-digit growth of SPC at constant exchange rate and double-digit growth of rare disease at constant exchange rate, and both of them organically. EBITDA between EUR 830 million and EUR 860 million, confirming sector-leading margins at around 37%, and an adjusted net income between EUR 550 million and EUR 570 million, or at 24.5% of net revenues. And with our continued strong momentum and solid execution across the business, we are extremely confident in our ability to achieve these targets for 2024.
We'll most gladly provide more color on this during the Q&A, but let me turn to the last slide of the presentation to just capture the fact that our overall value proposition has been quite constant in the recent years and will remain the same. We continue to drive organic growth of the business and complementing it with BD and M&A. We will sustain our sector-leading margins, with the current portfolio being forecasted to deliver over EUR 2.4 billion of revenues by 2025, excluding any additional BD transactions, thanks to continued growth of both SPC and rare disease. We have a very strong momentum behind the business, with many opportunities ahead. Our solid track record speaks to the fact that we've been able to consistently deliver, and we expect to continue to be able to do so in the future, enhancing our value going forward. This ends our presentation.
Thank you, everyone, and the team is ready to take your questions.
This is the Chorus Call Conference Operator. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touch-tone 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. The first question is from Brian Balchin of Jefferies. Please go ahead.
Hey, thanks for taking my questions. I've got three. The first is on debt refinancing considerations, just hoping you can share plans for the debt expiring in 2024. Are you going to retire or refinance? And just thoughts on shifting towards more fixed versus floating. Second is your sales guide for GSK products. It looks to be EUR 115 million for 2024, despite sales of EUR 120 million for full year 2023. So can you just help us understand the moving parts there, please? And then just third on Qarziba, what was the feedback from the Type C meeting in November, and I guess what's the path forward from here? Chaz.
Yeah, thanks, Brian. Let me start with the last question. So we had a very good and constructive meeting with the FDA in November, Type C. The FDA fully recognizes the unmet need. There was a very good dialogue. They also asked for some further analysis which we will submit in the first half of this year, and this will give a slight delay of two to three months for a submission, but that does not change the value of Qarziba in the US at all. So we remain confident, and we've seen that the FDA actually also strongly recognizes the fact that there is an unmet need. And we'll keep you updated on the further developments. Luigi, you want to take the first question of Brian?
Yeah, hi, Brian. I guess at the Recordati level, frankly, the debts maturing, loans maturing in 2024 is really a non-event in the sense that we will part repay those through cash flow, part and we're actually in the process already of finalizing a couple of bilateral loans with banks to replace them. I think you may be referring to perhaps refinancing needs of our majority shareholder, Rossini. All I know is, and I think they've stated, they will look to refinance those over the course of 2024, but I don't really have any more insights on that process, to be honest. So hopefully, that addresses the part of the question that relates to Recordati.
Thank you for the question, Brian, on the GSK products. I can confirm that the expectation for 2024 of EUR 115 million is actually in line or above the initial expectation that we had for these two products in 2024. The driver of the deviation is mainly a decision that GSK took back last year to exit unprofitable tenders. That's a decision that we have also taken for our own products. It's somehow providing around EUR 10 million impact in 2024 versus 2023, but that is partly offset with the growth that we are not only sustaining but now also adding in Spain and in Italy.
So, as I said, it's consistent with what we expected, and in the case of Germany, it's more of a one-off effect, and we will expect moving forward to continue to see the growth in the two main markets, Italy and Spain, and driving the growth from EUR 115 million onwards in the following years.
The next question is from James Gordon of JP Morgan. Please go ahead.
Hello, James Gordon, J.P. Morgan. Thanks for taking the question. Two questions, please. The first one was about on-market assets, in particular the Endo franchise, which has been a key growth driver for the rare disease business, so Isturisa and Signifor. And I know there are some newer branded drugs potentially coming to market and also generics of some older drugs. And the drugs don't all work the same way and don't all treat exactly the same symptoms, but things like GR2 antagonists and steroidogenesis inhibitors. So my question is, how durable do you think this strong growth of the Endo franchise is going to be? Is there lots more market expansion still to happen? What's your penetration looking like? And do we need to keep an eye on any of those competitors, or are they not really directly competing with you? So that's the first question, please.
Second question was on guidance. So the 2025 guidance is at least EUR 2.4 billion of revenues, but if we take the midpoint of this year's guidance, that's about 5% revenue growth if you just did EUR 2.4 billion. So is there anything for next year that could cause a bit of a slowdown versus the growth this year? Last year, 9% last year, about 10% this year. Or is it that that guidance just hasn't been updated yet, but you might update that at some point? And if so, when might you do that?
So hi, James. It's Luigi. Let me take the second one and just to clarify. The updated guidance or steer that we gave in November for 2025 was revenue from current portfolio above EUR 2.4 billion. Now, we didn't really sort of specify more in detail than that. So I don't know what number above EUR 2.4 billion you're picking to work out that growth rate. We provide usually an update in terms of midterm plans every other year. So the normal cadence would be at some point in the first part of 2025. Obviously, we have also a lot of things, as we said, reading out over the course of this year. So expectations should be that we would keep to that same cadence in terms of further updates. Now, of course, if situation changes and warrants a further update, we'll provide it.
Again, our guidance for 2025 was revenue above EUR 2.4 billion from the current portfolio. Yeah, hopefully, that addresses your question. Scott?
Thanks, Luigi. Thank you, James, for the question. This is Scott Pescatore. I'm happy to tell you a little bit more about the growth of the endocrinology franchise both in Europe and in the U.S. As you've seen over the last year since we launched the franchise in the U.S. and in Europe, we've seen significant growth across all markets and all regions. As you see from the slides, we grew the franchise at 41% versus last year versus 2022 and 2023. We anticipate continuing that strong growth in 2024 and beyond. We have a very, very strong customer base both in the U.S. and in Europe.
We're anticipating to grow that customer base, getting new patients from existing customers and new customers as well and new patients from those customers, and then continuing our geographic expansion with our continued rollout into markets like Latin America and, of course, in China. So we anticipate seeing both Isturisa and Signifor significantly growing without too much of an issue that we've seen like we've seen in the past.
The next question is from Martino De Ambroggi of Equita. Please go ahead.
Thank you. Good afternoon, everybody. My first question is a follow-up on Isturisa, Isturisa, endo franchise, as you prefer. Specifically on Isturisa, trying to translate into figures what you commented in your last answer, you achieved EUR 242 million, which is the high end of the guidance range you provided for 2023. May I ask you what is a reasonable range for 2024? And as you provided EUR 300 million-340 million as a range for 2025, probably we are high end, if not above that range. This is my first question. The second one is similar but on oncology because in this case, you are above the previous guidance range. So the same question is repeated also for oncology. So probably the EUR 250 million high end of the ranges can be even more looking at the growth path and a follow-up later.
Hi, Martino. It's Luigi. So I think and I'm taking the question because I think I may have answered to maybe with others on this before. We actually, I think, already signaled in November that when we upgraded the guidance for or actually gave an updated steer for 2025, that it's likely that those franchises are going to be at the high end of those ranges that we provided, right? As you rightly point out, the momentum is very strong. We're certainly on track and, in fact, on track to be at the high end of those ranges that we provided for 2025. We didn't provide detailed, and I don't think we ever do really on a product-by-product basis for 2024. So I'm afraid that we're not going to give a lot more on those that we've given.
But I can only reiterate what Scott has said, which is we're very confident on the strength of the portfolio and the ability for rare disease to continue growing at double-digit over the next years, both for Endo and for oncology. Hopefully, that addresses your question, but not fully for 2024.
Yeah, so I understand. The second part of my question is on the growth for 2024 in terms of sales because if you consider GSK portfolio consolidation in rare diseases growth, basically, the SPC implicit growth is probably 1% or maybe 2%, which is lower than the usual growth. So I was wondering if it's just a matter of Forex or is there any consideration on prices and overall for the portfolio?
No, you're exactly right, Martino. It is the Forex. Most of the Forex pressure that we expect, as was the case this year, we expect to impact on SPC, and that's why actually we've called it out to help on the modeling. We do expect SPC to grow mid-single digit at cost and exchange rate. Obviously, 2023, we said it many times, was a very strong year. Of course, that mid-single digit is organic, and then you have, obviously, the additional contribution of Avodart and Combodart on top of that.
Okay, and very last on the EBITDA margin because if you grow more in rare diseases rather than SPC, there is a positive mix effect. So what are the missing pieces justifying a stable EBITDA margin?
We're very proud of our 37% EBITDA margin. No, but I think yes, yes. So organically, the businesses, rare disease, will grow at a higher rate. But on SPC, we have the addition of the full year of Avodart and Combodart. So actually, if you work out the numbers, yes, we will end up the year with a higher share of rare disease, but not by much, right, because you've got that additional component on SPC. We will have, as you may have seen on the slides, we do expect the benefit, obviously, of the operating leverage. We are continuing to drive efficiencies. We always look for efficiencies in the portfolio. On the other hand, we are going to invest a little bit more in R&D in line with the plan that we had set out.
And also a little bit, we do have a number of programs on the system side, but we feel very confident around maintaining the margins at current strong levels.
Thank you, Luigi.
The next question is from Charles Pitman of Barclays. Please go ahead.
Hi. Thank you very much for taking my questions, Charles Pitman from Barclays. Just maybe starting with the tax, I was wondering if you could just give us a little bit more detail on how come you ended up reporting a lower-than-expected tax rate in FY23 and if you could just dive a little bit more into the expected impact of the OECD tax reforms you were talking about in your press release this morning and how you expect those to filter out over FY24/25? And then maybe just a second question on SG&A and costs. So given your kind of continued growth and expansion into the U.S., kind of how should we think about SG&A given the expected increased cost and necessary marketing that goes with increasing your exposure in this region? And to what extent does your efforts within digital kind of play a role in these efforts?
Thanks very much.
Thanks, Charles. Let me interrupt. Let me take the second question. Our footprint in the U.S. is actually what we need. So we're not going to expand the footprint. We're not going to up our expenditure. We will see actually improved performance, probably, in the U.S. because with that same team, we do expect to sell more than we sold in 2023, right? So I don't, and we're very, and I think long before anyone in this room joined Recordati, Recordati was already very, very cost-conscious, and we continue to be that. So I don't expect any negative impact at all on SG&A. If anything, we continue to benefit from the right-sizing and the commercial leverage and the impact we're making in the market. And for the tax question, let me hand over to Luigi.
Hi, Charles. On the tax side, we had obviously, within the European Union in particular, as a result of the pandemic, there were a number of programs to incentivize investments. We've taken those opportunities that we thought were appropriate. So we had a little bit more benefits on that side, a little bit higher benefit from Patent Box in Italy. We also had, if you like, a one-off benefit, which we did in adjusting our income in Turkey where hyperinflation effects became relevant for tax purposes for the first time this year. So there were a number of things which helped push down the tax rate when we rolled up the final numbers at the end of 2023. For 2024, statutory tax rates are increasing. As you know, there's this OECD guidance to at least achieve a 15% tax rate in various jurisdictions.
We estimate that will push our average tax rate closer to 23% for 2024. That's consistent with the guidance that we have given for adjusting that income for the year. Hopefully, that addresses your question, Charles.
The next question is from Niccolo Storer of Kepler Cheuvreux. Please go ahead.
Thank you. Good afternoon, everyone. I have a couple of questions. The first one is on your margin guidance for 2024 and specifically on your gross margin, if you can comment on whether you see further erosion on an adjusted basis going forward or not. The second one is on your revenues growth guidance, in particular, SPC. You say you see mid-single-digit organic growth at constant exchange rates. At the same time, you say that you see Forex headwinds. I was wondering if your mid-single-digit organic growth guidance is already including also some price adjustments in Turkey, which clearly have supported 2023 figures or not. Then, if you can maybe elaborate last question, can elaborate a little bit more on digital spend you mentioned as a reason which contributes to keep margin at 37% in 2024 you expect to envisage. Thank you.
Hi, Nicolas. On the digital, I think like many companies, we're experimenting a little bit with improving our impact on customers or improving our efficiency using Generative AI in things like medical writing or supply chain. That will come with some of these use cases and some spend to that. That's not anything earth-shocking. If anything, it should improve our performance further. My bet will be that many of the more alert pharma companies are doing this at the moment because of the opportunities that are there. We have done it already in 2023 and will continue to drive this omnichannel and now also embedding more and more where possible and where beneficial also some of the artificial Generative AI, sorry, initiatives. There isn't any super substantial spend all of a sudden on digital.
Let me pass to Luigi for the questions on gross margin and maybe also on the SPC. I think that's an easy straightforward.
Yeah, and I probably, Rob, if you don't mind, I'll just add on the digital side, I guess that's digital/systems and simply just one thing I'm quite proud of. You'll recall in February 2023, I'd announced that we're gone live with a new SAP system in Italy. It's now gone live in four other markets in Europe with zero disruption to the business and, in fact, with the business really rallying around implementation. So very happy with that. On the gross margin, we're not going to go, as we've never done, exact line-by-line guidance for the P&L. I will say we do expect the I talked about Avodart and Combodart having a slight dilutive impact at the level of gross margin, but then obviously positive impact in terms of operating leverage on SG&A. We'll continue to see some of that.
But you already saw that in a way in the Q4 gross margin of 2023. And the revenue growth for SPC, yes, of course, that includes Turkey as well. But you may be aware, Nicolas, the Turkish authorities are actually putting in place quite some programs to reduce inflation, stabilize the Turkish lira. So at this stage, we're not expecting to see as significant price increases in 2024 as we saw in 2023. Should that be different? I mean, what we have seen to date is that price inflation being then offset by higher devaluation. So as it stands, yes, Turkey is included in that guidance for SPC, and the level of devaluation is included in that sort of average of between 2% and 3% adverse effects for the group. Hopefully, that makes sense.
Great. Thank you. Thank you both.
The next question is from Alistair Campbell of Royal Bank of Canada. Please go ahead.
Hi there. Afternoon. Thanks for taking my question. I was actually just thinking about the REC 0559 data readout mid-year and just having a quick look at your trial. I mean, obviously, it looks like a 100-patient trial. And it actually looks not too dissimilar in size to the trials that got Oxervate approval in the U.S. and also actually similar endpoints. So it strikes me that the data actually could give a very deep insight into whether this is a real product or not. So with that in mind, assuming we get good data, sort of 3 questions really. First of all, what extra work do you think you need to do then to progress to market?
Sorry, Alistair, could you increase the voice a little bit? We can hardly hear you. It's very faint. So you're asking about REC 0559, but we're not sure what the question specifically is. Sorry.
Yeah, it's just assuming we get good data mid-year, we're trying to understand really what further work do you think you have to do to get the product to market? Also, in terms of ideally, how would you like to differentiate the product? Is that going to be on efficacy or convenience? And then just finally, given what you're seeing in the market, can you maybe remind me what sort of market opportunity you see for this one? Thank you.
Hi, Alistair. Let me just give first answer and then also hand over to Scott. I mean, obviously, we've completed enrollment in phase two. Last patient's not completely finished. We expect data mid-year. Phase two data is always a bit speculative. So to start to announce all sorts of differentiation on the basis of this, I think we have to be very careful. But what we do see and know from Oxervate is that it's very cumbersome in the administration and really leading to problems for patients and fairly painful in the use. And so far, we've not observed any of that in REC 0559. Of course, it will go through the, depending on the outcome of the data, if they are positive, we'll go into a phase three program for REC 0559.
We have good hope for this product, but I've learned to be very cautious with products still in phase two. I think it's right to do that here. Scott, anything new?
No, no. Thanks, Rob. Thanks for the question, Alistair, because this is obviously a key trial for us and a key development program. As Rob mentioned, I mean, we're very pleased that the phase two completed enrollment and looking forward to the next phase and looking at the data and then moving into phase three and bringing this to market as quickly as possible because we do anticipate there'll be benefits versus Oxervate . There certainly is a place in the market for REC 0559. It's our objective to push this forward as quickly as we possibly can to get this to patients.
Maybe one part of the question.
We have flagged that this is an above EUR 100 million opportunity, which compared to the Oxervate revenues, as I'm sure you're aware, is fairly modest, right? But frankly, before we haven't seen the phase 2 data, I'm a bit reluctant to make any other projections on the opportunity there.
That's a good thank you.
The next question is from Isacco Brambilla of Mediobanca. Please go ahead.
Hi. Good afternoon, everybody. Couple of questions from my side. First one is on the very short-term outlook. The reason for asking is that in the first quarter, you will face an extremely tough comparison base. So it would be helpful to understand if your guidance is assuming a positive like-for-like performance in the first quarter of this year. Second question is actually on M&A or, say, cash redeployment strategy. In November, you were quite vocal in indicating the commitment to continue your consolidation campaign. We'd be just curious to understand how things are moving and if this commitment is renewed for 2024.
Hi, Isacco. Thanks. On the M&A year, we continue to be really focused on this. And I see good progress, but I've learned not to shout hooray before the ink isn't really dry. And then we'll share it immediately with you, of course. But what I can say is that our pipeline of opportunities is definitely not smaller than anytime before. And we're very committed to continue to pursue that. What we always said, it's both businesses are equally important. But with the most recent deal on the SPC side, we would be delighted to announce something on the rare disease side. But we'll continue to explore opportunities everywhere because it's very difficult to really time those things. And we continue also to be as disciplined as Recordati has been in the past.
On the first-quarter expectations, I think it's probably good if Luigi comments or maybe Alberto, but yes, last year's first quarter was very good, extremely good. To be equally good this year would be a good achievement. But let me pass to Luigi or Alberto to maybe comment a bit more.
No, I think you've said it, Rob, and you're absolutely right, Isacco. I mean, last year Q1, we said it last year was high. Let's see. I mean, there's a lot of coughing and squeezing in Europe at the moment. So in terms of incidence of flu, it looks robust. But let's see. I mean, last year Q1 was high. Of course, last year Q1, we didn't have Avodart and Combodart. So we'll see the growth from that. We're going in the year with strong momentum. But of course, yes, the organic growth for Q1 will compare to a strong Q1 2023.
Okay, clear. Thanks, Bob.
Mr. Koremans, that was the last question. Sorry, I have just one registered from Bruno Permutti of Intesa Sanpaolo. Please go ahead.
Yeah, good afternoon and thanks for taking my question. I would like to know if you have some milestone payments that are expected during 2024. And again, on R&D, if the 13% on sales could be a good estimate by 2025. And lastly, particularly on the rare disease business, do you see any possible change in the U.S. market related to the next election? So any potential impact or nothing should change?
Thanks for your questions, Bruno. So maybe to start with the US, it's difficult to speculate. But what we do know, and that's, I think, absolutely what is key for Recordati, you focus on products with a very strong unmet medical need where you bring really good value to patients. I would argue that and those patients really depend on the products for their quality of life or sometimes even the fact that they are still alive. So it's, for me, would be unexpected and unlikely that a new government would all of a sudden change these policies, right? Also, the existing government has already done something, for instance, the IRA, to help and maybe mitigate strong price increases into the future. And that's how we have planned. We've really planned for 2024 also to not exceed inflation with our price increases.
I don't see that this is going to. Any new government is going to make a dramatic, but yeah, I'm not a political specialist, and we don't have crystal balls that are any better than you. But this is how I would expect things to happen there. The other question.
Thank you. On R&D.
So yeah, hi, Bruno. So this is Luigi. On the milestones, no, we're not really expecting, I think, we paid now the main sort of milestones that we had on deals which were already done. We paid the EUR 17 million to Tolmar. There's no sort of milestones on the GSK agreement. We paid what was left on the Novartis agreement. The next Q1, which is on my radar, I think we've disclosed in the past that we have about between EUR 20 million and EUR 25 million, which will be due on eventual approval of Qarziba BLA in the US. And we'll see when that comes. But that's it in terms of future milestones from existing deals.
In terms of R&D as % of revenue, I'll stick with the guidance that we gave with the plan when we did the plan when we announced the plan in February of 2023, where we said, if you recall, that we'd expect R&D, excluding amortization, to increase by roughly 1 percentage point over the planned period. If you strip out amortization and compare 2023 to 2022, you've seen it's gone up by, I think, around 40 basis points. So obviously, we're tracking in line with what we said. But that's still the guidance I would work with.
Thank you.
The next question is a follow-up from Martino De Ambroggi of Equita. Please go ahead.
Yeah, thank you. Very, very quickly. The Free Cash Flow used to be similar to net profit. This year was penalized by working capital. So just understand what is the expectation for working capital in 2024. And presumably, Free Cash Flow will be in excess of EUR 500 million this year.
Yes. I think that in terms of working capital, I mean, as the business grows and we are projecting still the midpoint of our range on revenue is a 10% increase. We are a big company. I would expect a level of increase for 2024 as well. Hopefully, not to the same degree, I would say, as was the case in 2023. Barring if we were to take a new business, which brings with it additional inventory, then that may change. But I would expect a number, hopefully, below EUR 100 million for sure. But again, it will depend on a number of things.
Mr. Koremans, there are no more questions registered at this time. Back to you for any closing remarks.
Yeah, let me thank everyone for having joined our call. We, as you could feel, are extremely proud of the achievements in 2023 but look forward to 2024, which is off to a good start. We're very confident to continue our momentum with beautiful opportunities. We'll keep you updated on some of the developments for all of the relevant developments in the company. As we have also indicated, we're making really the planned progress on our R&D programs. For any relevant update in 2024, we keep you updated there as well. Thank you for having joined. Look forward to our next interaction. Like to close the call.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.