Good afternoon. This is the Chorus Call Conference Operator. Welcome, and thank you for joining the Recordati 2021 first nine months results conference call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Miss Federica De Medici, Investor Relations and Corporate Communications of Recordati. Please go ahead, madam.
Thank you, Sabrina, and good morning and good afternoon to everyone, and thank you for attending the Recordati conference call today. I am pleased to be here with our CEO, Andrea Recordati, and our CFO, Luigi La Corte, that will be presenting the 2021 first nine months results. They will be running you through the presentation. As usual, the set of slides is available on our website under the investor section. After that, we will open up for Q&A. I will now give the floor to Andrea. Please go ahead.
Good afternoon or good morning, ladies and gentlemen, thank you for having joined us for the Recordati 2021 first nine months results investor presentation. If you could please move to the first slide of the presentation with the key highlights. I am pleased to have the opportunity to announce another quarter of very solid results for the group. Q3 confirmed the trends recorded during the second quarter with a progressive recovery in the main reference market and operating conditions starting to return to near normal. Even more limited access to medical personnel in many countries and social distancing measures continue to impact certain product categories.
The recovery of several therapeutic areas in SPC, combined with contribution from the new product, Eligard, and the continued growth in the rare disease segment, resulted in a net revenue increase in the quarter of 15.5%, or 17% at constant exchange rates in Q3, compared to the same period clearly in 2020, which had, let me remind you, been most significantly impacted by the COVID-19 restriction measures. If we look at EBITDA on the quarter, we grew 15.4% year-on-year. Net revenue in the first nine months of 2021 closed at EUR 1,156 million, with a growth of 5.7% versus previous year, reflecting an adverse currency exchange rate effect of around EUR 31.6 million, and the contribution from Eligard for EUR 59.4 million.
Net of this effect, growth was at 3.2%, with good momentum in recent months, more than offsetting the full-year impact of the 2020 LOEs of silodosin and pitavastatin, which show a decrease of EUR 23.8 million, and the impact of the pandemic, especially on seasonal flu medications in the first part of 2021. The growth of the rare disease portfolio was significant in the first nine months of 2021, at 20.2%, thanks especially to the increase in Signifor and Isturisa, which basically closed at EUR 90.5 million versus EUR 63.8 million in the same period last year, but also to the solid performance of our metabolic portfolio products.
Financial results are in line with expectations, with EBITDA at EUR 447.9 million, up 2.1% compared to the first nine months of 2020, and with margin of 38.7% of revenue. Growth was driven by a very solid revenue performance, partially offset by planned increases in investments to support the end of portfolio growth, the costs related to integrating and promoting Eligard, as well as the gradual recovery in operations in the territory, with face-to-face promotion across markets now tracking at 75%-80% of a normal call plan. It should be reiterated that margin for the first nine months of 2020 benefited from the sharp drop in commercial operations in the territories following the introduction of lockdowns and of social distancing measures over most of this period.
Net income of EUR 296.4 million increased by 8.1% compared to the first nine months of 2020, reflecting the greater impact of net financial expenses due to exchange rate losses of EUR 6.8 million and the non-recurring tax benefit of EUR 26.2 million euros recognized in Q2. As you will see later in more detail, the first nine months of 2021, we delivered roughly EUR 362.9 million of free cash flow, an increase of around EUR 17 million versus the same period last year, thanks to the increase in operating results and careful management of working capital. Just a few words on sustainability rating.
I am pleased to say that our continued focus on the ESG agenda bears results in an MSCI rating improvement and inclusion in the Euronext MIB ESG index. Consistent with our dividend policy, the board has approved an interim 2021 dividend of EUR 0.53 per share to be distributed in November. Lastly, the board today approved a share buyback program to serve as a stock option plan. Before handing over to Luigi La Corte, who will provide you more details on our financial performance in this first nine months, let me provide some more updates on the Eligard and the endocrinology portfolio. If we move to the next slide, please. Eligard.
The integration of Eligard is progressing well with close to EUR 59.4 million of revenue in the first nine months of the year, which is slightly ahead of the plan and with just under half of this being direct sales of our organization. As of September 30th, 2021, the transfer of marketing authorizations of sales licenses for Eligard recorded in most countries subject to the licensing agreement with Tolmar, except for Russia and Ukraine. We have 30 marketing authorization transfers already completed and 24 countries directly plus six countries directly selling, where Eligard is now being promoted with encouraging feedback from our HCPs.
It is very early days, but we are pleased to see where promotion has started since a few months, encouraging signs of changes in the sales trend with all within market sales returning to growth in Spain and Germany and improvements in other markets, including France and Italy. The development of a new device by Tolmar is progressing. The new device variation filing is now expected in the first quarter of 2022. Thanks to the early transition to direct selling, we forecast full year revenue just over EUR 80 million, in part due to the fast transition to direct sales. If you could move to the next slide, please. With regards to the Endo franchise, the commercialization of Signifor and Signifor LAR is on track, recording net revenue in the first nine months of around EUR 58.5 million.
We have strong new patient acquisitions in all regions and across all approved indications. Signifor grew around 10% in market terms compared to 2020. We are also still very much on track with Isturisa's launch, and new patient acquisitions are progressing in line with our expectations, contributing to net revenue of around EUR 32 million as of September 30, 2021, mainly in the U.S., France, and other EU countries. We continue to have strong support from top KOLs and patient organizations. Reimbursement price was agreed in Germany in line with expectations, and discussions are ongoing in other European markets. Also importantly, we have launched now in Japan, where we're performing according to plan. Furthermore, as economic conditions continue to improve, we are starting to see improvement also in the gross to net in the U.S.
We remain on track to deliver on the targets that we set for the franchise this year, which is between EUR 120 million and EUR 140 million. At this point, I will leave the floor to Luigi to take you through in more detail on the first nine-month results. Thank you.
Thank you, Andrea, and good morning, good afternoon, everyone. I'm pleased to, as always, take you through in more detail the financial results for the quarter. On the back of another quarter of solid growth, much in line with the trends that we saw in the second quarter of this year, with the continued recovery of our specialty and primary care portfolio, a good contribution of Eligard and strong growth of our rare disease franchise.
Starting with main product sales on slide five and with what is still our key franchise of lercanidipine, you will see that lercanidipine sales at roughly EUR 107 million are slightly up versus prior year, +1%, with good volume growth across markets and initial sales to our distributor in China offsetting a slight decline in Italy and the FX impact on the Turkish business. Turkey accounting for roughly half of the decline on the combination product Zanipress, which also continues to see some level of volume erosion due to generic competition and competition from other combination products.
The metoprolol franchise of EUR 73 million is down by 6%. Now this is on the back of, you'll recall strong growth in 2020, where metoprolol grew 7%, also in part due to a temporary lack of availability of competitive products in some markets, and we are seeing as a result a slight decline in some geographies, in particular in Germany and Poland, this year. As Andrea said, Eligard is continuing to progress very well. The integration is on track, and in fact has been running ahead of plan.
Revenue in the first nine months of EUR 59.4 million includes roughly EUR 26 million of revenue that was recognized by Astellas and EUR 33 million of direct sales by our own organization with all of our key markets now selling directly. As Andrea said, the earlier transition to direct sale has allowed us to slightly increase the guidance for Eligard for the full year to now just over EUR 80 million. Silodosin and pitavastatin clearly continue to reflect the full year impact of the loss of exclusivity in 2020. We do expect both products now to start stabilizing.
You'll see the erosion on silodosin just slightly higher than the one we had forecast at the beginning of the year, due mainly to somewhat higher decline in Turkey, once again, in part due to the headwinds from a foreign exchange perspective, in that market. I would add, it's great to see pitavastatin still growing in markets where generics have not entered, namely Turkey and Switzerland. Other corporate products are at EUR 198 million, broadly flat versus previous year, starting to recover. You recall these are products that bore the brunt of the COVID pandemic and the decline both last year and in the first quarter of this year.
It's great to see the first signs of recovery of the cough and cold portfolio, particularly in Russia, which remains, however, still below the levels of last year and significantly below the levels of 2019. In this portfolio, we're also continuing to see very strong growth of the GI portfolio. You recall significant impact in 2020 on products like CitraFleet and other GI products and ones related to elective hospital procedures. All of those have started to rebound and grow high double digits. Equally, starting to see and continuing to see double digit growth of key products in our OTC portfolio, a call out of Procto-Glyvenol in Central Eastern Europe and Turkey, good growth also of Reagila.
All of these are growing double-digit year to date. Finally, drugs for rare diseases growing by 20% at EUR 279.4 million with very broad-based growth. Yes, a significant contribution from the growth of the Endo franchise, both Signifor before, but particularly Isturisa, but also our legacy metabolic portfolio, which is also growing. I'll call out here actually Panhematin, which, following decline in 2020 at the start of the pandemic, has actually returned to growth in the nine months of this year.
On slide six, you will see that with those results, Rare Diseases now represents just over 24% of our total revenue, well on track to achieve over 25% target that we set out in the three-year plan.
On slide seven, moving to looking at revenue by geography, I'll try and go through this and call out the highlights for each market, but overall and consistent with the picture that we described at the end of Q2, thanks to Eligard and thanks to the growth of Rare Diseases, it's great to see most of our geographies this year are starting to show growth, with the markets which have greater exposure to cough and cold and facing greater FX headwinds being the ones which are still showing a decline. Starting with Italy, still our major market, EUR 195.8 million of revenue in the nine months, a decline of 3.5%.
Again, here cough and cold and continued erosion on Urorec being the main drivers which more than offset the contribution of Eligard, the growth of rare disease, and good growth also of Reagila and the OTC portfolio. Somewhat similar dynamics in France with a decline in the Hexaspray OTC line being more than offset in this case by the growth of rare disease. You recall France being the market where our launch of Isturisa is more advanced, and good performance of Methadone and again here good first contribution from Eligard. Both specialty primary care and rare disease are growing in Germany, which at EUR 111.7 million of revenue is up 11% versus last year.
Lercanidipine and Eligard are driving the growth on the SPC side, you know, combined with good growth of the rare disease portfolio, offsetting a slight decline of metoprolol, as I said earlier. Spain, a significant contributor to growth, year to date at 36%, just under EUR 86 million of revenue. Here, as I said earlier, Spain saw a significant impact in 2020 on the GI portfolio, which is rebounding very strongly and offsetting the full year impact of generic erosion on silodosin and pitavastatin, with additional contribution on both of Eligard and initial sales of Flaturil, to the tune of EUR 2 million.
Portugal sales of EUR 33.5 million, at once again with good growth of Reagila and a contribution from Eligard, which offset the LOE impact from 2020. Turkey declined up to 14.3% in euro terms, but you will see it growing by 6.3% in local currency. Turkey facing significant FX headwinds this year and which are likely to get even slightly worse in Q4, given recent trends.
Nonetheless, in local currency terms, growth driven by the rare disease portfolio, good growth of pitavastatin and Procto-Glyvenol, offset by generic pressure and local competition on some of our local product portfolio and on the lercanidipine franchise, together with a decline also in the flu portfolio as in other markets. Going to Russia and CIS and Ukraine. You recall we commented Russia decline of 50% in Q1. It's great to see the business starting to recover and now down only by 5.5% in the nine months in local currency terms.
Reflecting the combination of impact on the cough and cold portfolio, which makes up a significant portion of the business in Russia, and also destocking, which we saw in the first part of the year. CIS and Ukraine slightly growing, on the back of the rare disease portfolio. U.S., which, as you know, is focused on rare disease, continuing to grow significantly, 42.6%, achieving revenue of $177.5 million, growth of 51.6% in local currency. As I said earlier, growth here really broad-based, with the Endo portfolio clearly contributing significantly. A very strong growth of Cystadrops, Panhematin and Carbaglu, as well.
Other Central and Eastern Europe and other Western European countries, which combined make up for roughly 15% of our revenue, you will see are both growing by strong double digits. This is on the back of the ongoing rebound in Specialty and Primary Care. I'll call out the good performance of Procto-Glyvenol in Central and Eastern Europe, together with the initial sales from Eligard and the continued growth of the rare disease portfolio here as well. North Africa, minus 18.1%, a revenue of EUR 27 million. Here really it's a combination of factors, or in fact, it masks the ongoing growth of our local business in Tunisia, Opalia, which is growing by 26% or 8% in local currency terms.
That is more than offset by restrictions in Algeria, which have held back our export sales due to the lack of renewal of import licenses, which do not allow us to sell vitamin D3 and Hexa line to that market this year. Finally, other international sales, so sales that we achieved through our distributors of EUR 153.7 million, down slightly by 3.5% versus last year, mostly reflecting the year-over-year impact of cilostazol and pitavastatin, plus a minor product discontinuation of Cardicor, again to the tune of around EUR 2 million.
You'll see from slide eight, you know, the business is becoming growingly diversified, or let's say growingly international, with our legacy market, Italy now accounting for less than 18% of revenue, France, Germany and U.S. both roughly 10% of our total pharmaceutical sales. Moving to the P&L on slide nine. You will see that growth of both revenue at 5.7% or 8.6% at constant exchange rate, and in gross profit as planned, is partially offset by the growth of operating expenses, SG&A expenses of EUR 347.1 million, growing by 11.8% versus 2020.
With selling costs at 24.8% of sales, reflecting both transition costs on Eligard and the royalties that are paid to Tolmar on the product, which accounts for roughly EUR 18 million of the increase. And also with the growth in spend driven by the additional support behind the Endo franchise, and gradually a return to activities in the field, which however, on a year-to-date basis, still remain below pre-COVID-19 levels. R&D expenses around 10.4% of sales are up 12.6%. This reflects the continuation of studies which we've inherited from Novartis on the Endo franchise. And also additional resources and spend and market access and regulatory costs behind both Endo and Eligard.
Increase also reflects roughly EUR 2 million incremental amortization costs related to new products. Other income and expenses of EUR 3.5 million mostly reflect just under EUR 2 million of non-recurring costs related to COVID, significantly down versus last year and hopefully due to wind down in the near future. This leads to operating income of EUR 372.9 million, margin of 32.3%, and EBITDA of just under EUR 448 million, a margin of 38.7%, both growing by just over 2 percentage points versus last year, with margins remaining very healthy.
Of course, not at the levels of 2020, and we've always said and recognized that margins in 2020 were enhanced by the impact that COVID had both on revenue, but also on operating expenses. We do expect that as activities in the field continue to resume, EBITDA margin will trend towards the target that we set in the guidance at the beginning of the year of just over 38% for 2021. Looking finally briefly at the non-operating lines, you will see a significant increase in financial expenses to EUR 22.2 million.
As Andrea mentioned, this reflects FX losses of EUR 6.8 million in part due to just consolidation adjustments due to the volatility in exchange rates, and a couple of million due to FX losses on hedging of intercompany transactions. This compares to a period in the first nine months of 2020, where we actually recorded EUR 2.6 million of exceptional gains, if you like, on two currency swaps which we closed and which were no longer treated as hedges.
These additional FX losses are more than offset, obviously, by the non-recurring tax benefits of EUR 26 million, which we incurred, which we reported in Q2, and which reflects in a net income of EUR 296.4 million, which has grown by 8%, just over 8% versus 2020. Adjusted net income, which reflects the impact of the FX losses, but strips out the non-recurring tax benefit, is down by 1.3% versus last year. Moving over to slide 10, you will see again, once again, margins on both our businesses remain very strong, with Rare Disease now representing close to 30% of the group's EBITDA.
Finally, on slide 11, as we've done in the previous two quarters, we've included a summary and breakout of our cash flow performance, which hopefully you will see was very strong in the first nine months of 2021. With free cash flow of just under EUR 353 million, up by close to EUR 70 million versus the first nine months of 2020 and over 100% of net income in the period.
This and the improvement versus last year being really driven by working capital, where 2020 was impacted by combination of increases in inventory, both due to the start of sales of the Endo franchise, but also as we work to sort of build additional safety stocks at the beginning of the COVID crisis. It also reflected the timing of supplier payments, with both of those, you know, contributing to the positive performance in the first nine months of this year.
I will point out, you will see that actually on a cash basis, interest paid is broadly in line with last year, and income tax paid slightly higher due to the benefits in 2020 of both the 2019 significant non-recurring patent box that we reported in Italy, and also lower payments on accounts which many governments allowed companies to make in the midst of the COVID-19 pandemic. That free cash flow went into dividends of EUR 109.4 million in the first nine months.
We paid EUR 35 million to Tolmar, EUR 15 million to Almirall, and we had net purchases of shares to the tune of EUR 29 million, net of receipts from proceeds from exercises of stock options. Finally from my side on slide 12, that strong cash flow contributes to a very solid net financial position at the end of September, with net debt of just under EUR 715 million being roughly 1.24 x trailing 12 months EBITDA. With that, I'll hand back over to Andrea to talk about the outlook for the remainder of the year. Thank you.
Okay. Thank you, Luigi. Just please turn to slide 13 of the presentation. With respect to our full year outlook, we confirm, like we said in the press release, our guidance range, expecting the full year results at the lower end of the range. I remember the guidance range was giving net revenues between EUR 1,570 million and EUR 1,620 million. EBITDA was between EUR 600 million and EUR 620 million, and adjusted net income between EUR 420 million and EUR 440 million.
The underpinning assumptions behind this lower end of the range guidance are based that the recent trends show SPC returning to growth with good momentum and progressive recovery of market conditions post Q1. However, rebounding the COVID and cold portfolio is unlikely to fully offset the higher impact in the first part of the year, coupled with obviously the market headwinds that we're seeing in Central and Eastern Europe and Turkey. Also, we assume no significant new waves of COVID restrictions in the latter part of the year. In fact, headwinds are a bit worse than what we actually planned at the beginning of the year, and we expect something between -2% and -3% negative impact.
On a positive note, as already mentioned, Eligard continues to be on track ahead of plan. We continue to see robust growth of our rare disease franchise across all regions, clearly driven primarily by the Endo, not only, also our metabolic portfolio is actually performing very well. For example, also Panhematin, like mentioned by Luigi before. EBITDA margin is on track to be above 38% of revenues. The second half reflects seasonality as well as a return to a higher level of activity in the field. Financing costs of around EUR 28 million are expected, with reflecting clearly what we mentioned already, about between EUR 6 million-EUR 7 million of FX losses.
We expect the tax rate to be around 17%, reflecting the planned actual benefit from the reverse merger, and additional Q2 non-recurring benefit of EUR 13 million from the (Mogliano Patent Box) setup. That brings us to the end of our presentation, and I think we can move to the Q&A. Thank you.
Excuse me. This is the Chorus Call conference operator. We will 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. We kindly ask to use handsets when asking questions. Anyone who has a question may press star and one at this time. The first question is from Brian Balchin of Barclays . Please go ahead.
Hi. Thanks for taking my questions, I just got two. First, I was hoping to gauge your confidence levels in achieving your 2023 endocrinology targets, just given an expected increase in penetration of lanreotide and octreotide in the EU in 2022. The second one was just if you could give us an update on the timing for the approval of ARS-1, and then if we should still be expecting data for your neurotrophic keratitis asset second half of 2022. Cheers.
Thank you, Brian. Starting with the first one, level of confidence on the 2023 guidance, on Endo, we see no reason to change that, frankly, and we think we're on track. We're going well. We're continuing to see, you know, growth of Signifor whilst increasing penetration of Isturisa. We said we would start achieving reimbursement in key European markets just about now. We're doing that. From our perspective, on Endo, we are on track.
In terms of ARS-1, I mean, the product is currently, as you know, under regulatory review by the European authorities, and we are working with them to answer some of the questions that came up from the said authorities. The process is ongoing, with some delay compared to the original plan. Based on the current planning, we expect the regulatory decision to be in late 2022. Regarding MTA for neurotrophic keratitis, as you know, it is in phase II. It has obviously suffered some delay in recruitment due to the COVID restrictions that impacted, you know, a lot of the centers that were actually recruiting patients for the study. The study is ongoing. We are recruiting patients, and we're seeing an increase in the patients.
We expect, you know, the last patient in around November 2022 and the clinical study report out by the second quarter of 2023.
Great. Thank you very much.
The next question is from James Gordon of JPMorgan. Please go ahead.
Hello. James Gordon, JPMorgan. Thanks for taking the question. Two, please. The first one was just about the outlook for deal making and to what extent does COVID-19 slow things down a bit? Hopefully things get better there, to what extent do we see an acceleration in licensing? What are you seeing in terms of ability to do in-person diligence? Has that made a difference, and could that change? The second question was just heading into 2022. We're not looking for specific guidance at this time, but the key puts and takes for us to think about, how much rebound in field activity could we see and how much of a headwind could that be? Is something like a flat EBITDA margin still the most likely outcome?
Look, I mean, deal making, the connection was not very good. I apologize. If I understood correctly, you're asking if there were any kind of impact on deal making due to recent times. I mean, as you know, the ambition remains. We keep on working on plenty of different dossiers, both for in-licensing opportunities in SPC, but also in rare diseases, including also the whole M&A. You know, part of our strategy is still valid and is obviously being, you know, it remains very ambitious. We are, like I said in June, we have a lot of potential deals under review and evaluation.
We feel that the pipeline is rich in opportunities at the moment, but you know, given as always, it's tricky to be definitive on timeline, and at this moment in time, honestly, I cannot give you any more information or cannot say anything else at this stage. Believe me, we are very busy reviewing and assessing many, many opportunities.
James, on your second question in terms of Andrea, I think mentioned, we're now already sort of running at 75%-80% in terms of field activity. Clearly we're still seeing, you know, the kind of things we're still not seeing is sort of large scale events and sort of group gatherings that, you know, we will look to. I think, as many organizations, we have learned to leverage even more digital over the pandemic. But we're not gonna give out today a sort of margin guidance for 2022. You'll have to stay tuned for that.
We're very clear in terms of where we set the guidance for a three-year plan being, you know, around 38% of EBITDA, and we'll stick with that. You know, again, we'll provide a sort of a more crisp view for 2022. It will be in February when we set out the targets for the year.
Thank you.
The next question is from Martino De Ambroggi of Equita SIM. Please go ahead.
Thank you. Good afternoon, everybody. Sorry to bother you on the same question on M&A, but you were particularly vocal in the last call, and you are today. So I just wondering if you can provide us just a qualitative perception of some step ahead, if any, I don't know, on the very busy pipeline that you mentioned. This is my first question.
Martino, I obviously cannot give you a lot of color on something that has not been kind of, you know, finalized yet. I mean, we are a listed company, as you know. I reiterate what I said. Yes, I was vocal in July when we had, you know, the last call and I'm still vocal now. It depends, you know. Deals are very different in shape. There's a lot of, you know, variables to be taken into account. I can tell you we are working on various fronts, and when the time will come to communicate something, we will do so. At this moment in time, I cannot give you more color around this for obvious reasons. Thank you.
Yeah. Yeah, obvious reason, yes. The second question on the Endo franchise. If I look at, I know very well profitability on a quarterly basis doesn't make a lot of sense. If I look at the last four quarters since you start sales of Isturisa, profitability of Rare Diseases is a little bit lower than what it used to be in the last couple of years. Is it due to the launch costs or just I don't know, temporary effect of some variables or probably just there is no particular reason justifying it?
Hi, Martino. No, I mean, it's a combination of obviously, I mean, you know, we are in launch phase on the Endo portfolio. As you'd expect, you know, we did put additional resources on the ground to support that. We do have sort of the costs that we are taking on of additional both market access and regulatory resources to support that. Particularly where we're going into a sort of new markets.
I would say, and I think we may have touched this on the previous call, that if you're comparing the evolution to, you know, last year, the end of the rare disease margin would have been slightly flattered, particularly in the first part of 2020 by the accounting of the Signifor revenue during the transition from Novartis, where we accounted for it on a sort of gross margin level at the level of net revenue. There is a little bit of that, which is similar to what we have this year on Eligard for the SPC side. If you look at it on aggregate, the two kind of balance each other out.
If you're looking at rare disease particularly, there is a little bit of an effect of that. It's a combination of these factors rather than there being any sort of particular other type of reason.
Okay. Just to check if there is nothing structural due to the end of franchise development.
No, no. You know, the Endo franchise, of course, you know, Isturisa pays royalties, but on the other hand, the U.S. is a significant growth market. As is often the case, margins in the U.S. tend to be higher than in the rest of the world. You know, no, there's nothing structural to that. I think it's really a timing again, which is I think I've often commented when asked around the margin guidance. You know, you have to bear in mind that when we take a launch asset, you know, the first years of a launch, you will see, you know, a bit of additional investment going into the business.
Okay. Last on the Endo franchise, you guided for EUR 120-EUR 140 sales this year. Looking at the trend, you are perfectly in line with your guidance, but I see it quite hard to achieve the high end of this range. I totally ignore what could be the contribution of Japan.
I won't give specifics in terms of where we expect to land on the range. Again, particularly in the case of the Endo portfolio, where there's a significant contribution from the U.S., as you may recall, the U.S. have faced quite some headwinds in terms of FX effects at the beginning of this year. Still, if you look on a sort of year-to-date basis, I think it's around 8%-9% negative from an FX rate perspective if you isolate the U.S. Obviously there's a little bit of that in there.
As we said, we're very happy with the progress so far with other launches tracking, and confident we will hit the range that we set out at the start of the year.
Thank you. Very, very last, on the free cash flow, it is mainly driven by working capital change. As I understand, it's just one-off, so there is nothing structural on the working capital that could last for a longer period.
No, I think I was asked the question on the call at Q2 where someone was, you know, asking whether we'd start seeing working capital sort of trend back to more historical level. Again, we did increase the level of stocks a bit last year just to be on the safe side during COVID. You're starting to see a little bit the reabsorption of that as the supply chain improves.
There is a little bit of, yes, one-time event where many of our suppliers in 2020 did ask to work with a slightly shorter payment terms on our side to provide some support during COVID, which we were happy to do, given the flexibility that the group has.
Okay, thank you. Thank you very much.
The next question is from Jo Walton of Credit Suisse. Please go ahead.
Thank you. A few questions. A simple one to start with is why the new device for Eligard isn't filing until next year? I think we originally thought that would be happening by September- October time. More broadly, I wonder if you could tell us just a little bit about your view of the background to the markets. An awful lot of the European markets that you're in are effectively government funded. Governments are, you know, increasingly strapped for cash. Are you seeing any signs of, you know, any constraints, any issues in pricing new products? Some other companies have said that it's getting tougher to get new product pricing through, and I know you've been looking for reimbursement of Isturisa.
Perhaps you could talk particularly about Turkey as an example, because that seems to have had some problems. I know some of that was foreign exchange related. Do you think that that foreign exchange problem will ultimately mean that the Turkish government becomes, you know, less generous? Could this become a, you know, a longer-term issue? My next question would just be a quick one on your comment about stabilizing for Livazo and Urorec. You know, we've seen declining rates of sort of 30% or so. When do we think we could go back down to, you know, maybe only, you know, 0%-5% decline? Is that reasonable for next year, or do you think that the decline will continue for longer?
My final question on Isturisa, at the Capital Markets Day, you indicated that you thought you might have 145 patient starts on Isturisa in 2021. Are you still on track for that number? Thank you.
Okay. Jo, thank you for the questions. I may take them in just slightly different order if that's okay. In terms of challenges from government funded systems, you know, again, I'll probably repeat what I said in other instances. At the moment, we're certainly not seeing a sort of broad-based sort of landscape change across payer markets in Europe, nor in the U.S., for that matter. You know, pricing is still very much decided at country by country level, which provides a natural hedge in the sense that it would take all markets and suddenly all countries suddenly to coordinate to suddenly lead to a significant impact.
I know that Turkey on the backdrop of usually Turkey does allow, and we did see it last year. I mean, in the face of significant devaluation of lira last year, you know, Turkey did allow a generous. Well, again, it's you know, it did allow a level of a price increase through the industry, which didn't quite fully recover the effects of the devaluation, but recovered quite a chunk. We'll find out in the next month if they'll do that again for next year. We don't have reasons to believe they wouldn't. I think they may have put in place some limitation on prescriptions of certain product classes, but they only impact certain product classes.
Again, it's difficult to generalize. Negotiating prices for new products has always been difficult in Europe, frankly, unless you come forward with, you know, very strong innovation and a significantly better clinical proposition relative to existing standards of care. We believe on the case in point that Isturisa does that, and we think that was recognized in Germany. Again, it will be a country by country negotiation.
On LOEs, we really, I think if you look at the numbers, you would see that I think what you see there in a year-to-date erosion, if you look at quarter-on-quarter, you should see that, on silodosin and pitavastatin, it is starting to significantly reduce the decline. Silodosin has now fully lapped the year. It did have a little bit of FX headwind in Turkey and slightly higher erosion in Italy. By and large, it's stabilizing, as is, as we expect pitavastatin will be. To your question, yes, absolutely. We do expect those to start stabilizing now and certainly for 2022, on the basis of current environment.
I think, I mean, I don't recognize the 140,000 patients, but I'll maybe answer in a different way. We believe to be on track in terms of patient acquisitions in the U.S. Obviously we were aware of competitive products in pipelines when the guidance was given out. Of course, we will prepare for the potential launch of new competition in the U.S. We're quite confident with the clinical profile of Isturisa, and very happy that we will have had at least a two-year advantage to penetrate the market, which is always good. On new device, I don't know what I can say.
Yes, I think, as we said, very happy with the Eligard transition. The multiple dosages that are undergoing the LDP process to prepare the file. It just looks like it's gonna take us and Tolmar a little bit longer to be ready for that. We don't anticipate it being an issue, frankly. It's just gonna take a little bit more than anticipated. I hope I've addressed all your questions, Jo.
Yes, just one final one if I could, just to go back, push you a little bit on marketing. You said that you're 75%-85% of the way back in terms of field force activity. Do we expect that will go back to 100%, or are there things that you've learned in the COVID world that mean that, you know, some things that you now do perhaps digitally that you did in person before, you'll continue to do digitally? So just wondering whether there will be a full rebound back or whether there's some, you know, permanent cost savings.
No, I think, as I mentioned, Jo, we don't expect that things will go 100% back to normal. You know, we're sort of looking at that also as we think about 2022. The reality is that we've seen that the business and particularly mature products can be supported with a slightly lower level of in-field effort and complement that with digital. We will be looking at that and certainly will continue. We'll look at the opportunity that provides.
Things will not go back to fully 100%, just like and again, I think I made the example before, I wouldn't expect as much spend on things like international conferences, really national conferences and events as once was the case. I imagine a lot of that will be digital going forward.
Thank you.
The next question is from Giorgio Tavolini of Intermonte. Please go ahead.
Hi. Good evening, everyone. I have three questions on my side. During the presentation you were mentioning the Panhematin in the U.S. I was wondering if you can provide more color on the legacy metabolic products, Panhematin in the U.S., Carbaglu in Europe. The second is on the patent box for the next years. Are you considering the option to extend the patent box for next years according to the regime, new regime introduced by the Italian government that allows revaluation of the brand costs up to 90% for tax purposes? The third one is on a
On the first two questions, as you know, Giorgio, we don't give out sort of, you know, specific revenue by product on rare diseases for commercial reasons. But on Panhematin in U.S., I would say, we're very happy that, while the product, you recall we commented in 2020, we had planned for a very gradual erosion because we believed, and we still believe that Panhematin will continue to be an important treatment option for patients, even in the face of competitor launch in the U.S. Unfortunately, we saw erosion in the first part of 2020 higher than expected due to the impact that COVID had, which penalized an infusion product like Panhematin relatively a bit more significantly than expected.
We're very happy that we've seen that bounce back. We already saw that stabilize in the back end of 2020 and very happy that we've actually seen that return to a level of sales which is actually ahead of last year in the nine months. Actually, on this, a big credit to our team in the U.S. that's been doing a fantastic job in really revitalizing the metabolic franchise. Carbaglu in EU, I mean, it's a product that has been, as you know, is a very mature product. It's faced competition now for years and has continued to perform well.
Again, I think we had said in our three-year plan presentation, not expecting significant growth from that.
We're seeing a stabilization.
Yeah, absolutely. On the patent box in Italy, a short answer, yes, we will be looking at the option, and we've kind of secured our options around that. We're looking to sort of continue taking benefit. As you know, I think it's a little bit up in the air in terms of right now what exactly that means. The short answer is, yes, we believe at this stage we should continue to benefit from that. We're gonna have to see how the recent decree sort of whether or not it gets confirmed in the same format as it was published a few days ago.
On the impact of flu, we're still running, even though we've seen a nice recovery in Q3. Unfortunately, our flu business is overweighted in markets where wearing of mask is still prevalent. It's still down versus 2020, and still running at around 60% of the 2019 levels. You know, we're seeing good signs, certainly seeing good signs of recovery in Russia. I hope I've addressed your questions, Giorgio.
Yes. Thanks a lot for your answers. Thanks.
The next question is from James Vane-Tempest of Jefferies. Please go ahead.
Yeah, hi. Thanks for taking my questions. Just one actually. Luigi, can you remind me the sensitivity of the business to foreign exchange? I mean, you mentioned currency is a little bit worse instead of the slide said around 2%-3%. From memory, I think it was roughly 1.5% per year planned in your business plan. If we just say, for example, that you know, it's an incremental 1%, you know, if there's, say, a EUR 15 million impact to the top line, is that sort of half of the EBITDA level? That's like an EUR 8 million impact to the EBITDA level. Just to help us kind of understand if it's more the low end, how much of that impact is being due to FX versus underlying reasons. Thank you.
Hi, James. First of all, just to be clear in terms of the FX impact this year, you know, a lot of that has been due to the evolution of FX, particularly over the course of 2020, and then the sort of full effect that that has over the course of 2021. You know, the way things are looking at the moment, it's certainly gonna be higher than the sort of 2 percentage points that we sort of foresaw at the beginning of this year.
Probably not as high as 3%, with the big driver of delta being the Turkish lira relative to the expectations that we had, which were effectively the round of sort of consensus FX rates at the beginning of 2021. In terms of modeling the impact of sort of a 1 percentage point on revenue on the bottom line, I think the honest answer on that one is gonna have to be I'll get back to you. I don't have a sort of precise number in mind.
There is a level of hedge obviously, particularly when it impacts in places like Turkey, because as you know, a significant part of our portfolio in Turkey is also locally produced, but it's not all of the portfolio. Whether it's a half or a bit less than a half, I'll have to get back to you, but it's certainly not 100%.
That's great. Thank you.
The next question is from Katerina Tchakalski of BlackRock. Please go ahead.
Hi. Can you give me guidance as to what extent you're seeing any inflationary pressures from labor, raw materials or logistics that other industries are seeing? If you could just give us an idea of how much of your cost base is each one of these, the labor, the logistics and the raw materials, if they are significant at all. At least we've heard some CDMOs, CMOs talking about some packaging materials, significant inflation because of foils and because of, you know, wood-based materials that they're planning to pass on to pharma companies. I was wondering to what extent are you affected by that?
Also, can you talk a little bit about negotiating prices for new products, but to the extent you've seen massive inflation, what is the mechanism for you to pass that on to these countries with whom you have a negotiating price or a reference price?
Thank you, Katerina. To be honest, we can point you to the relevant pages of our earnings release for detailed points around the sort of breakout of our cost base between labor, materials and other. The short answer though is, you know, you can't compare us to a CMO, frankly, our P&L structure is completely different. Do we see inflationary pressures? Yeah, we see a little bit, but frankly, it doesn't impact a pharmaceutical company as significantly as a CMO certainly, and other sectors. Also, being candid, I mean, pricing, I mean, in the industry is certainly not comparable to other industries either. I mean, we have flexibility on OTC.
We have flexibilities in some markets, you know, Russia, in Turkey, a little bit in the U.S., but you know, we've always taken also a prudent approach with pricing, it being a sensitive topic in the industry. Yes, there is a little bit of pricing power. But at the same time, we don't really see I don't think we are as subject to inflationary pressures as other sectors if you're comparing us to very different ones. We see a little bit of a pinch on that in cost of goods next year, yes. If you look at, you know, a level of stocks relative to purchases, the raw materials is, you know, north of six months.
You know, that provides some buffer as well, and we do tend to fix energy contracts for a relatively long period of time. You know, that's where you're seeing a lot of inflation. Long answer to say, I'm not sure it's gonna be as relevant for us as other sectors you may be following. I hope that gives you at least some flavor. Again, to the extent that we publish data externally, we can point you to the numbers in the financial reports.
Okay. Thank you.
The next question is from Isacco Brambilla of Mediobanca. Please go ahead.
Hi. Good evening, everybody. A couple of questions from my side. The first one is on Eligard. It looks like the integration is proceeding very well. Can you give us a figure of the trend in market sales for Eligard such as you have been doing for Signifor over the last year, and also a qualitative comment on how it is comparing with the underlying trend of the reference therapeutic area? The second question is on the M&A arena. I appreciate you cannot disclose much on your intense M&A pipeline, but how are multiples evolving in the industry?
Are you observing any kind of pressure on acquisition multiples due to the presence of new players interested in consolidating or acquiring assets in the industry? Thanks.
In terms of your first question, I'm not sure I caught all of it, but on Eligard, relative to its reference market and like for like, I think as we shared in our three-year plan presentation, you know, Eligard, you know, due to the lack of support, was a product that was, you know, gradually declining in a market that was sort of broadly stable, so you know, losing a little bit of share. It is very early days, so we're not gonna get overexcited quite yet.
As Andrea said, we're very pleased with the early signals of what we see in markets where the promotion has already started since the early months of this year in terms of either stabilizing or actually seeing some growth of the product. As we've always said, we expect the news of the new device next year to act as a further catalyst to that. You know, it's, as I said, very early days. I mean, the trend overall is still broadly in line with the trend of the last few years with the product you know slightly underperforming its relevant market. Where we started promoting, we're starting to see that picture change.
It's very early days, so to be taken for the time being. Sorry, on the Business Development, maybe I'll add my voice to Andrea so that you hear it also from me. I don't know what else we can say other than say that we're actively in due diligence on a number of opportunities. The beauty of the game is that until you sign the deal, you don't know if and when you will have a deal. There's no point trying to speculate on timelines, you know, frankly, or if and when things will happen. When they do, you'll hear it. Before then, you'll continue to hear this kind of response.
On the multiple side and so forth, honestly, we've always had competition on assets in the past, and we haven't seen any drastic change, you know, on this competitive aspect. Yes, I mean, there's always been competition. Some people are willing to pay higher multiples, others are not. Nothing has changed from the past, honestly.
I'm also fresh from meeting with some banks suggesting that, when you look at multiples, in the sector, they've come down a little bit, in the last few months. You know, it always be very specific to the asset.
Okay, very clear. Many thanks.
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