Good afternoon. This is the Chorus Call Conference Operator. Welcome, and thank you for joining the Recordati First Quarter 2024 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 Ms. Eugenia Litz, Head of Investor Relations of Recordati. Please go ahead, madam.
Thank you, and good afternoon, everyone. I'm pleased to be here today with Rob Koremans, our CEO, and Luigi La Corte, our CFO. Together, they will present our results for the first quarter of 2024 before opening the line for questions. 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 thank you all for joining us today. I'm very pleased to report our excellent start to the year with net revenue of EUR 607 million and up 10.2% versus previous year, or 10.9% on a like-for-like and constant exchange rate basis. This reflects double-digit growth across both our businesses. Specialty and Primary Care was up 10.1% like for like at constant exchange rate, and our rare disease business was up 13.9% on a like-for-like constant exchange basis. And Luigi will talk you through more detail later on this call. This robust growth was achieved despite continued FX headwinds, with an adverse impact of -5.7% for the first quarter. This was mainly affecting SPC and driven by Turkey.
We continue to achieve sector-leading margins, with EBITDA margin at 40.2% for the quarter, reflecting strong revenue and operating leverage. Our adjusted net income was EUR 163.7 million, up 5.6% versus previous year, with higher operating profit as expected, absorbing an increase of financial expenses and a higher tax rate. We delivered in the quarter free cash flow of EUR 147.1 million, a EUR 43.7 million increase versus pre-previous year, bringing leverage to 1.75 times EBITDA pro forma. Also, we've made very good progress on our key targeted R&D projects this quarter, with expectations to now submit the supplemental new drug application for Isturisa, for Cushing's syndrome label extension in the U.S. during the third quarter this year, following positive feedback from the FDA.
We also submitted the NDA for Signifor LAR in China. With this strong momentum driving the business, we are well-positioned to deliver at the top half of our previous provided financial targets for 2024 and our targets for 2025, pursuing the same group strategy and capital allocation policy. It's now my pleasure to hand over to Luigi.
Thank you, Rob, and good morning. Good afternoon, everyone. Conscious I start probably sounding repetitive, opening the call is always saying I'd like to add more color on what was a strong quarter, but it is what it is. We have delivered once again, and happy to comment on that. And this was really true across the business. And as always, we'll start with Specialty and Primary Care on slide four, which as you would have seen opens 2024 with growth in the first quarter on a like-for-like basis of around 10%, which is really exceptional if you think that it compares to a very strong performance already in Q1 of 2023.
The standout is obviously urology franchise, which becomes our number one franchise, driven, yes, by the strong contribution of Avodart and Combodart, contributing EUR 27.5 million, but also, you know, very strong momentum of Eligard, with really seamless rollout of the new device, and with Eligard achieving double-digit organic growth, in the quarter and, you know, overperforming competitors, in all of the key markets. So very, very strong performance there. But equally strong, you know, to see cardiovascular, GI, other therapeutic areas, remaining on par, with what was a very strong Q1 of 2023. Phasing of sales in international, in Turkey, were very similar to the patterns that we saw last year.
With regards to cough and cold, you will see in a slide in the backup. It was a strong quarter for cough and cold, comparing to an exceptional Q1 of 2023. And the decline in reported figures really is driven by adverse effects in the relevant market. So once again, Specialty and Primary Care confirms itself not just the backbone of Recordati, but also a strong growth driver in its own right. Moving on to rare disease, on slide 5, as you'll see also, clearly a very strong start of the year, with organic growth at a constant exchange rate of just under 14%, with really strong performance in both of our key growth franchises.
You know, we continue to see strong patient acquisition with Isturisa, continue to see double-digit growth of Signifor. And you'll see a pickup in growth on oncology driven by Qarziba, where we are exceeding initial expectations with regards to patient acquisition in Europe and also obviously continuing to penetrate further across other geographies, and good growth also of Sylvant. As Rob already mentioned, we're also happy to report a number of positive progress in some of our lifecycle management programs. We had a positive feedback from the FDA on the data package that we've been working on to support submission for label extension to Cushing's syndrome for Isturisa, osilodrostat in the US.
We now plan to submit in Q3 of 2024. We have submitted Signifor LAR in China, and we're still on track to report progress on REC 0559 and the dinutuximab beta potential sBLA for the US by the middle of this year. And, you know, with this momentum in rare disease, with the progress we're making on lifecycle management, really confident around this portfolio being able to sustain double-digit growth for the next years to come. So it's really a strong momentum across both business units. When looking at it geographically, on slide 6, also obviously a very positive picture.
US confirms itself as, you know, by a very small margin, we should say, the number one market for the group with 16%, over 16% growth, close to 18% in local currency, and here really driven by, obviously, the rare disease portfolio there. Very positive growth also in Italy, double-digit, of course, reflecting also the addition of Avodart and Combodart, but good performance against, again, a strong Q1 2023 of our OTC portfolio, and also of rare disease. Spain clearly is the biggest market, as we've commented in the past, for Avodart/Combodart, which accounts for roughly EUR 50 million of the growth there. A comment on a couple of some of the minuses there.
France, minus 6.4%. You may recall France last year started very strongly with an exceptionally strong cough and cold season. But nice to see Germany stabilizing, following the erosion that we saw last year on some tenders. Our business in Russia continues to grow in local currency, close to 8%, somewhat negative, particularly due to adverse effects on a reported basis. And finally, in Turkey, the 13% growth in euro terms really is volume driven, with very significant devaluation in the quarter versus last year, being offset by a very, very strong price inflation, which persists in the country.
So all in all, both seen on a product lens and geography, a very strong revenue momentum, which translates on slide 7, you know, combined with, you know, usual cost discipline and the operating leverage, to EBITDA margin of just over 40%, pretty much aligned to what we saw in Q1 of last year, which was, as you recall, our strongest quarter, in terms of of revenue.
Adjusted gross profit down really due, and we've commented in the past, due to the consolidation, mostly due to the consolidation of Avodart/Combodart, which is dilutive at the level of adjusted gross profit, but being fully synergistic with the rest of the business, really contributes to the operating leverage, which you see particularly at the level of SG&A, down to 25.7%. R&D expenses growing very slowly, as we said, they would. Most of the growth in Q1 is actually amortization at 11.1% of revenue. We do expect this to step up a bit over the course of the year, in line with plan. And obviously, all of this translating into very positive operating results.
At the level of adjusted net income, which itself is also strong, at 27% of revenue, growth of 5.6%, really driven by particularly low financial expenses in Q1 last year. Whilst this year, aside from, you know, general impact on increased interest rates, we also did have around EUR 6 million, if you like, of the increase in financing costs is due to unrealized FX losses, and slightly higher hyperinflation accounting adjustment in Turkey. We do expect the rate of financial expenses to come down from these levels in the remainder of the year. You will find, as usual, the reconciliation between reported figures and adjusted ones in the appendix.
And once again, and this is really a trademark of Recordati, you will see on slide 8, the strong EBITDA translates also into very strong free cash flow performance for the quarter. EUR 147.1 million free cash flow, close to EUR 44 million ahead of last year, and really driven by that operating performance and reduced absorption of working capital versus the first quarter of last year. With these results, and to finish from my side, obviously closing the quarter, and you'll see it on slide 9, with debt down to roughly EUR 1.4 billion, with the reduction basically being equal to the free cash flow, which was generated.
Not much happening in the sort of non-operating part of the cash flow statement in the quarter, with net debt around 1.75x EBITDA on a pro forma basis, obviously assuming contribution for a full year of the GSK portfolio. Which obviously positions us very well for continued growth in the future. With that, I will turn back to Rob for some closing remarks.
Now, thanks, Luigi. I think closing on with our full year at 2024 guidance, so it's clear that we're off to a very good start. And like Luigi said, yet another really good quarter for Recordati. Very, very proud to be leading this team that continues to deliver. And based on the quarter one results, we're very obviously heading towards the higher end, towards the higher half of our guidance for all financial metrics. And in a very good position to continue to deliver and continue to deliver on our growth and profit story. And with that, I'll hand over to you, and we're happy to take any 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 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. The first question is from Martino De Ambrogi of Equita. Please go ahead. Mr. De Ambrogi, your line is open.
Hello, can you hear me?
Yeah, we can hear you.
Okay. Sorry, sorry, I had a micro problem. So thank you. Good afternoon, everybody. The first question is on Isturisa, referring to the jump in first quarter sales. So I was wondering if it's just a matter of new regions or new patients, what else? And if the +54-55% in Q1 could be considered the floor for the full year, considering the ramping up of sales around the world. The second is a more general question for Rob. Actually, two general questions. The first one referring to a recent interview in which you, Rob, stated the target is to double sales in five years. I clearly understand M&A is essential to achieve it, but could you elaborate on your strategy for this?
The last one, hypothetical, so I don't know if it's true or not. I don't ask you if what we read on newspapers, CVC looking for exit or maybe just refinancing or maybe merger, but just your personal view. In case the scenario is the merger with another player, what could be the ideal player partner for Recordati, in your personal view? So without asking you if there is a searching process, what and other things. Thank you.
Thanks, Martino. As you might appreciate, I'm not gonna speculate on what CVC might or might not do. We are aware that they're looking at refinancing, and I don't see how this impacts our business, quite frankly. And we're very, very glad with the results we're making, and I see CVC as a happy shareholder and a very committed shareholder to our middle and long-term growth. So other than that, I'm not gonna speculate on anything else. When it comes down to our ambition to double by... in the next five years, this is clearly aspirational, right? It was also very clear in the intent. We have incredible good growth in our rare disease business, with thousands of diseases still without a solution.
We have stepped up in growth for SPC now consistently for the last two years. And with that, we have confirmed that we are definitely on track to deliver on the EUR 2.4 billion by 2025. And in order to really double, we will have to also continue with our M&A strategy. So there's no change of strategy. We believe they're really well positioned to live up to that aspiration. But let me make it very clear, this is not an official target that we commit to in any way other than just the aspiration to grow. And I see us extremely well positioned to capture opportunities with our strong finance background, our current performance track record, the people on board, and. And let's also not forget, we're in really good markets.
Yes, we're outperforming markets, but we're growing in markets that are growing, where the underlying growth will continue. So I see Recordati very well positioned to continue to do very well quarter after quarter, and that, the, I, I would, I would leave it at that in terms of the growth ambition. Isturisa is doing extremely well. What you might remember, that's only last year we got real full reimbursement in countries like France and Italy, and it helps with the growth. The U.S. is on an extremely good trajectory and continues to capture new patients and manage the existing patients really well.
If the positive feedback from the FDA makes us optimistic about the opportunity to expand the label on Isturisa to Cushing's syndrome in the US, and that clearly gives us additional potential to promote for, and that will help to further fuel the growth. But the peak sales that we have previously communicated for the moment, I don't want to increase that, but we're very, very happy with the current performance of the teams. I think covered all your questions and leave it at that.
Yeah. Thank you, Rob. And if I may, I was not obviously referring to the name of a potential partner, but just the idea if could be an Asian. I remember in the past, when CVC entered, there were speculation that an Asian without having a distribution network in Europe could have been the best one. So this was my purpose, so I understand that you don't want to discuss it.
I don't want to speculate, but our strategy is not changed, and this clearly is not part of our current strategy.
Okay, thank you.
The next question is from Charles Pitman of Barclays. Please go ahead.
Hi, guys. Thanks very much for taking my questions, and congrats on the good quarter. Maybe just following up again on Isturisa. I understand, like, the improved reimbursement, and it's going well in the US, but I was just wondering if you could talk mainly, maybe around what the kind of competitive dynamics are there, or what the hurdles are to kind of further growth going forward. And maybe if you could just help to give us some idea around what the real commercial opportunity is for Cushing, and how we should think about that over the longer term. And then my second question is just on the REC 0559 trial.
I was wondering if you could just give us some kind of benchmarks on what you're hoping to illustrate from the trial, what factors you're considering that will, you know, help you decide what help to progress into later stage of development. And then just finally on Avodart, obviously, this is a kinda key contributor for the year-on-year growth. But just trying to compare the 1Q 2024 versus GSK reported 1Q 2023 sales, it is still kind of down year on year. So what are the key drivers behind this decline? When should we expect Recordati's recorded sales to grow to above what GSK was recording prior to your agreement? Thank you very much.
Charles, hi, I'll start. This is Luigi. I'll start with the third one, which is on Avodart, Combodart. I mean, we're actually very happy with the transition and how it's going. We feel it's off to a good start. We said at the start of the year, when we set out the guidance that we're expecting to see this year versus 2023, a bit of erosion in Germany, because of decisions which had been taken prior to us taking over on tenders. But expect the product to show growth in the key markets, Italy and Spain.
And we reiterate that, that there's gonna be a little bit of a headwind in a relatively small market, Switzerland, which you know had some regulatory changes. But honestly, for us, so far, we feel we're on track, and it's once again an example of very strong execution of our teams of taking new products on.
Yeah, and to the other two questions around REC 0559. So the study is really well on track, right? As we have reported, the last patients been in, and we're waiting for the results to come mid-year. Our hypothesis around REC 0559 has always been that this is a product that is extremely well tolerated and hence can be really used well for corneal healing. And we will comment on it when we see the results, right? I'm not gonna want to now already take a shot at... We don't know the results yet, so it's very difficult to comment on that.
But from everything we know from the molecule, we have a really good chance to deliver on our idea of having a very effective and safe, extremely well tolerated, and friendly to use product. On Isturisa, all of the performance is really down to helping more and more diagnosis. I mean, it seems like people with all of the more news, if you'd like, around in the entire endocrinology space, where the GLP-1s definitely also play some role in creating some sort of awareness. We see an increased diagnosis of Cushing's across the board, and that is something that is positive.
And with Isturisa, which is often recognized as absolutely the best product to treat Cushing's, we capture that opportunity, and I'd like to think that there's also a little bit of our own making with helping doctors and patients to understand this disease and to recognize symptoms and get patients diagnosed. But we see very much an increase in diagnosis, and are able to keep patients also a bit longer on our therapy. As doctors get more experienced, they're able to deal with the product a little better. So very positive. And in the U.S., of course, we're not promoting outside of Cushing's disease. So if and when FDA would approve this, I see an opportunity to increase even the growth rate there. And like I said before, super happy.
And then lastly, for Isturisa, what also would be an interesting opportunity is getting into China. We commented on that before. That process is ongoing, and there's a peak opportunity there of about EUR 50 million. So that's something that we're also working hard to help and achieve. And so everything's going as planned, in fact, a little better, and we're optimistic on Isturisa.
Brilliant. Thank you so much.
The next question is from Isacco Brambilla of Mediobanca. Please go ahead.
Hi. Good afternoon, everybody. Three questions from my side. The first one is on full year guidance. Can you help us understand which could be the main risk factors preventing you from achieving the upper end of guidance? Second question is more specific on three key products in Specialty and Primary Care . Eligard, Livazo and Seloken all reported a solid like-for-like growth in the quarter. Is there any non-recurring element helping this performance? Last question is again on Isturisa, a follow-up. I remember a potential enhancement of the patient base in the region of 30%-40% in case of label extension to Cushing's syndrome. Could you just confirm whether this order of magnitude could be realistic?
Yeah, thanks, Isacco. Let me start with the last one. It's not... That's too high for the additional potential for Cushing's syndrome. You're more looking at something of 20%-25% of additional patients. And it's very difficult for us to know exactly how many patients that currently are being treated, basically by doctors beyond the Cushing's disease, right? We don't promote there, clearly, but you never really know. So but I would put it between 20%-25% in additional potential. Luigi, you'd like to comment on the guidance?
Yeah, and maybe just to sort of build, just to be absolutely clear, you know, we had already sort of, we're obviously very much expecting positive news on Cushing's syndrome in US. And so if you'll recall, when we last updated and upgraded the guidance on Isturisa, we did say that that was included within that. So I think what we're commenting on today is the uplift in prevalence rates really, that you get access to, you know, with the increased with the extended label.
In terms of our guidance, look, the momentum is good, and I think Rob has already said that if we were to call it now, it's more likely than not that we would be on the upper half of that guidance range. It's you know, relatively still early in the year, so let's see. But, you know, we feel really good, and honestly, we don't... The reality of this business is there aren't big, you know, inflection points or risks that could land from one day to the next. So we feel really good and very confident about you know, achieving those numbers.
Your question on, on SPC, the, the performance, and the outliers. No, on Eligard, it's... The team is doing a fantastic job. It's going well, and we do expect, you know, solid growth in 2024. I think for the, for the others, the, the metoprolol, I think there was good traction in Central Eastern Europe. But some of our mature products, I think we've commented in the past, that you just need to be a little bit careful about taking one quarter and extrapolating, because sales are lumpy. You know, we sell also to international distributors, which buy in bulk. One year they may buy one quarter, the other year. So I'd say, look, we've always said we have a number of growth drivers.
Even within SPC, those growth drivers are doing great, and we're doing a great job sustaining the mature part of the portfolio, while I will remind everyone also having right-sized the business over the last two years. So I think a really strong performance there.
All clear. Many thanks.
Great.
The next question is from Navid Mukhtar of PGIM. Please go ahead.
Hi, thanks for the presentation. Two questions from me. Firstly, in terms of your core divisions, core markets in Europe, can you maybe just give me an idea of how the underlying markets have performed versus your underlying performance? Because I'm trying to understand what kind of market share you're gaining or whether you're growing in line with the market. Second question I had was on France. When I look at the split of geographic revenues in the first quarter, I see most of the divisions are up except for France. So maybe you can just comment a bit about what's happening in the underlying market in France. Thank you.
... like I commented for Europe, and that's true for all of our markets. We're a bit fortunate in the selection and the focus of our markets in that sense, geography, but also the markets we're operating in, with a strong focus on urology, cardiovascular, and gastroenterology, which represent for SPC the majority of our business. The markets are growing at 5%-6% or so where we are operating, but we do 4% better, right? So we're outperforming the markets, and this is consistently, has been consistently the case in the last two years.
What makes me optimistic about the future is the fact that underlying there is population growth, I mean, aging population, so an increase in prevalence and incidence of the diseases that we have solutions for, which is very good. And we're able to really bring our products to the attention of prescribers and pharmacies in a right way. So we have a very strong basis there. Also, if I look at rare disease in Europe, this has been growing basically above expectations. The first quarter has been very good for Europe. And where in the past we've seen a mid-single-digit growth for Europe, we've now seen double-digit growth in Europe, and that is really extremely good.
But that's also on the back of us having recently obtained reimbursement for products like Isturisa in countries like France and Italy, which are major markets and help us to really focus on that. So we see really good traction for also our rare disease products in Europe. And Europe is a good and important base, but that's clearly the rare disease opportunities for the future are global, and with a specific focus also on the US, where we're doing so well. Luigi, you wanna answer the second question?
Yeah, on France, very, very simply, as I think I mentioned in my opening remarks, you know, France, we have a strong cough and cold portfolio. That portfolio had an exceptionally strong Q1 of 2023. Also on the back, I think, the season last year was so strong in France that, you know, a number of companies struggled with supply. We were there and able to gain share. And, you know, it has obviously, therefore, compared to a very strong Q1 of 2023. France also happens to be one of the markets where we saw a little bit of erosion on Carbaglu in Europe.
But again, I would obviously not make that much of a single quarter. The portfolio is strong and is strong across our geographies from our perspective.
Okay, thank you. And just to confirm that, in France, there was no impact on reimbursement or price cuts for you guys?
We're not as exposed as some other companies. We've had a little bit of impact there, but you know, we're talking a few million EUR, not significant numbers.
Great. Thank you.
For any further questions, please press star and 1 on your telephone. The next question is from Bruno Permutti of Intesa Sanpaolo. Please go ahead.
Good afternoon, everyone. I have some questions related to M&A. So, if you see some room in for M&A in the next few months, and in case looking at the market around you, where you see the more interesting opportunities in terms of which market segment are you considering more interesting in the current market environment? And then, just a question related to the amount of the non-cash charges from PPA, only to have a confirmation that around EUR 35 million it is the correct assumption for the whole 2024. And okay, that's it.
Thanks, Bruno. Now on M&A, if M&A continues to be an extremely important part of our strategy, like I stressed before, has always been and continues to be. We see really good opportunities. I'm not gonna disclose what we're working on, but there are definitely a couple of projects that we are working on. We always said, for us, both businesses are equally important to maintain. The most recent deal was with the partnership with Glaxo around Avodart/Combodart. I would be very happy if the next one could be in rare disease, but it's always extremely difficult to predict what lands where first. We're looking at opportunities for both of our businesses. I think we're extremely well positioned.
I don't see that the current market conditions are so different from a year ago, quite frankly. They have always been good assets. We're always competitive, and we manage to secure them as needed, and I'm very confident in our team's ability to continue to do that. And we definitely have the commitment and the means to be able to complete, so optimistic about that.
... Yeah, and, on the, your, your question around the, the non-cash charges which arise from the acquired inventory of EUSA, yes, that's, that's broadly, right. I mean, it will depend ultimately, by the, the volume of sales, on Qarziba, but, we've- we're, we're pretty close to finishing the, the inventory. There, there may be a, a, a small long tail, and that's simply because some of it is, was also sort of, you know, ingredients and things like that. It may take a little bit of time, but, yes, your, your, your estimate is, is broadly, is broadly right, and it's pretty much effectively what is left over. Which I would expect us to complete in 2024. There may be a small tail still in 2025.
Okay, thank you. And if I may, just on possible milestone payments that are related to the advancement that was the mission you are planning to do, is there something that we should consider in 2024?
I'm sorry. I'm not sure I understood the question. Is it your question on milestones, or I wasn't-
Yes. If in relation to the possible submissions in the next quarters. If we should consider some milestone payments to be made in 2024, or nothing in the pipeline?
Sorry, nothing material to.
Nothing material.
There are small milestones which are attached at the different sort of regulatory stages of REC 0559. But they are sort of in the sort of lifetime of that study. So I wouldn't expect it to be in 2024. And you know, if you like, the only one that we have material which is attached to, but it's we're talking EUR 25 million which is attached to our portfolio, is on the potential approval of Qarziba in the US.
Mm-hmm.
You know, we're not expected in 2024.
We would be very happy to pay.
Yeah, we'd be happy, very happy to pay it, but I think no, yeah, I think this year is not a realistic scenario. I would have thought.
Yeah. Thank you. Thank you.
The next question is from Giorgio Tavolini of Intermonte. Please go ahead.
Hi, good evening. Thanks for taking my questions. I was wondering on the R&D costs, you now expect a slight increase in Q2, Q4 compared to Q1 to support the key programs. You had 11% growth in R&D costs in Q1. So I was wondering what is a slight increase for you? I mean, if- and how much to which extent, I guess, the label extension of Isturisa to the Cushing to the Cushing's syndrome, and the potential approval of Qarziba US could affect this increase in the R&D expenses?
Thanks for the question, Giorgio. So I just point back to what we said early 2023, where we said that we were expecting R&D costs to go up versus, if you like, the 2022 base by roughly 1 percentage point of revenue. You was in sort of excluding amortization. I think if you run the numbers, you see we're probably halfway there, not so... So I think that's the order of magnitude that we're talking here. It's not significant. Milan is doing a great job. We're seeing progress, and you know, we're keeping the spend under control. And I'm sure he'll want to continue doing that.
Many thanks. Just a follow-up. Are you going to make a further right-sizing on the SPC business, or you completed the program? Thank you.
I mean, that's something that... I mean, in terms of, the things that we, that sort of planned and announced, that's, that's done. You've seen there's very little cost, coming through in terms of non-recurring. The little that there was, there's some very residual, sort of cost attached to, the EUSA integration. It's the kind of thing that we always review, right? Depending on how the business evolves, the portfolio evolves. But, you know, in terms of, what we set out to do, that's been done, but, but it is something that, we continuously review.
Thank you.
Mr. Koremans, this was the last questions. Back to you for any closing remarks.
Thank you. And thank you all for having joined us today in what was again a very strong quarter for Recordati, delivered by our teams. And I feel we're in a very strong position to continue to do so, and look forward to reporting on that in the near future with you. Thank you all, and have a wonderful day.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.