Gordon, European Pharma and Biotech Analyst. Today I've got the pleasure of introducing the Recordati presentation and Q&A. We're going to hear from Recordati CEO Rob Koremans. Thanks a lot for joining us today, Rob. Look forward to the presentation.
Thanks, James, and good afternoon, everyone. I'd like to thank J.P. Morgan for the invitation to present. I'm Rob Koremans, CEO of Recordati, and it's a pleasure to be here to give an update on our business, and I believe this will move the slide forward. This is a slide to just the forward-looking statements. It outlines the risks and uncertainties in our business, and I'm obliged to show you this slide. Starting with a little overview of Recordati, our journey started about 100 years, almost 100 years ago. We're proud of our Italian heritage and the rich history that we bring. Over the years, we have evolved into a fully integrated company. Over the years, we've also evolved into two very distinct business units.
One specialty primary care, which covers about two-thirds of our business in terms of revenue, is largely European-centered and is a business that has both branded originated prescription and OTC products in what we call broader Europe. It has extremely nice margins and delivers a mid-single-digit growth year on year. The rare disease business, which is just over one-third of our total revenue, with higher margins and also higher growth, with double-digit growth, and that's a truly global business. We expect that this year will end the year in 2024 in revenues with just over EUR 2.3 billion. That actually is in line with our expectations, which is also our tradition. Recordati has a tradition, and this is in the last decade, of delivering growth.
Compounded average growth rate is just under 9%, but also delivering on our financial targets with at least or even better than promised and committed performance. We are known to also deliver high margins, and the high margins and growth with good cash flow generations allow us to be, and that's something we are very proud of, delivering really good on capital invested, with an average return on invested capital of very close to 20% over the last decade. This is absolutely second to none, and in fact, on the Italian stock exchange, Recordati has been the company with the highest return of total shareholder return in the last 35 years, and that's something we like to continue as a tradition, absolutely.
You see also going forward that we expect 2025 to be able to deliver over EUR 2.6 billion in revenues with our current portfolio, and that the portion of rare disease is increasing. Going forward, it will be getting closer to 40% with that. What allows us to do this, what allows us to grow, is our unique and very resilient business model. First, our business is very nicely diversified, both geographically, many, many countries in the world, but also between SPC, specialty primary care, and our rare disease business. Second, and I already alluded to that a little bit, is the strong financial focus that allows us to continue to deliver on our promises and commitments and deliver very high margins and excellent returns. Then also, what's quite different in Recordati, we are strongly de-risked. In terms of loss of exclusivity, there's almost no meaningful exposure.
Also in terms of R&D, we do not engage in expensive, risky early-stage R&D. We do very targeted, largely de-risked lifecycle management opportunities that we pursue, but the risk in that sense is much more limited than you would see in typical pharma companies. The one thing I'd also like to call out is our discipline. We're disciplined in implementing our M&A strategy, in what we pursue and what we pay for it, and then also discipline in the integration. We're also very disciplined in the overall cost management, which is one of the factors that helps us to continue to deliver very high margins compared to our peers in the industry. Of course, everything evolves and is about people, and I'm extremely proud of the people in our company and the very experienced international management team that is working with me.
M&A has been an important part of our growth, and not doing any early development or significant R&D or having done that in the past, M&A has allowed us, and BD has allowed us to continue to grow and has added on top of the organic growth. If you look back historically, about half of our growth comes organically, and the other half is immediately related and directly related to BD or M&A. Over the last 17 years, we've done 36 deals, have spent about EUR 3.5 billion, and this has helped to create very good value for our shareholders. The things we've done range from single product, single market, to much more ambitious and bigger acquisitions and sizable acquisitions that we've done recently in the last couple of years, and we'll continue to do both of these deals, right?
For us, M&A is a very important part of our growth story and our growth trajectory going forward, and we strongly believe and see that also the environment, the business development landscape remains very favorable for us, for the size of opportunities and the things we're looking at, so we're confident to be able to continue with our model of very focused business development, adding to the organic growth, and that's really, I think, very clear. We are almost 100 years old, but the real internationalization only started some 25 years ago with an acceleration in the last five years. We've started 25 years ago with expanding into Europe for the SPC business, but in 2007 did an acquisition of Orphan Europe, which made our entry. We were probably one of the first to really enter into the rare disease business with that.
And in the last five years, we've been accelerating our commitment and the growth in the rare disease with the acquisitions of the Endo franchise and the Rare Oncology franchise. And then, of course, with the most recent acquisitions that closed just in November of last year with the acquisition of Enjaymo from Sanofi. In the last five years, we've also significantly invested in commercial and operational excellence, allowing us to continue to deliver high-quality products at very attractive margins to the market. And we've started to really invest also for SPC in building a very substantial leading urology franchise in Europe with the additions of Eligard, Avodart, and Combodart in the last years. So with that, over this journey, it's made us into a very dynamic company that we are today, and a company that is very, very well positioned to capture a new era of very exciting growth.
Throughout the years, our strategy has always been the same: organic growth to drive that and complement it with deals with M&A, with BD, always making sure that we continue to drive the high margins that you know us for and keep our balance sheets very, very healthy, so not to engage and commit to any too expensive deals in that sense. I think what we are able to do and what we've been able to do in the last years has also allowed us with the investment in people, in capabilities, in some of the systems, in digital, and notably also in some of the simple and targeted lifecycle management initiatives. We are really well set to continue to grow beyond 2025 and be an exciting company today, but be a surprisingly good and performing company in the near future.
We have some great people that allow us to do that and made the right investments into the capabilities that were needed. So diving a little bit more into detail on specialty primary care, it's where the business started with almost 100 years ago. It's been a very good year in 2024 for SPC. We've seen organic growth on a constant exchange rate in the first nine months of 6.5%, which is clearly outperforming the market, and it's something that we're really happy with. Our SPC business is made of a very diversified portfolio of over 400 brands in urology, cardiovascular, gastroenterology, and in the OTC space. We have built a sustainable and also unique business that focuses on promotion of promotionally sensitive products, brands, mature originator brands with a very, very small risk of loss of exclusivity in markets where also there's an underlying growth dynamic.
The combination of strong brands, very good focus in markets that grow per se, make this business grow at the single digits, mid-single digits that you see. We do that with our own dedicated teams. We're directly present in about 30 countries, central in Europe, but also in Turkey, CIS, Russia, Ukraine, Tunisia, and we have no intent to expand beyond this geographic region for our SPC business. We see ourselves as a very, very good partner to go to for any of these businesses in the cardiovascular, urological, or gastroenterological space in Europe, and probably the partner to go to also to help and maybe bring products to market and very late-stage products in registration, helping them to pick up in those three therapeutic areas.
The solid foundation that we have built, the discipline that we have, the excellence that we have, the track record that we can show will continue to drive mid-single digit growth in the years to come and do that at very attractive margins. Our rare disease business, which is a truly global business, so SPC Europe-centered, but rare disease is very global. The single largest market per se for Recordati is the United States of America, and that is definitely the biggest market for the rare disease business. That global expansion has been happening over the last years, and we have a direct presence in all of the key geographies and all of the continents.
The products that we have in rare disease are more than 20 orphan or ultra-orphan products, which per se is already a very nice diversification in the rare disease as well, centered around three therapeutic areas: endocrinology, hemato-oncology, and metabolic. Again, also here, no meaningful immediate threat of loss of exclusivity in this business, and in general, in rare disease, the dynamics are different for generics to enter, so we see much more resilience, and oftentimes these are biological products with sales that go into the 200, 300, 400 million, not per se the most attractive target for any generic to go after in the first place. This business is now running at about EUR 800 million per year, which makes it about 40% of our total revenue.
It has higher margins than the SPC and continues to be and will become an even more important part of our business going forward. Fundamentals there, the opportunity to grow with our current portfolio, the opportunity to expand and drive the business with the products we have, which we'll show a bit later, make us very confident that we can continue to do double-digit growth in this area also in the years to come. But we'll continue to look at targeted opportunities to acquire new products, bring them in. BD will remain very, very important for this field as well, as well as targeted opportunities within our own current portfolio to do extension of indications and bring these products to new indications in a very concise and precise way that will allow and fuel growth beyond 2025, so we're extremely well positioned.
Also, the year for rare disease has started really well. The year-on-year growth for the first nine months of 2024 was 14.5%, and we're very, very happy with that at constant exchange rates. And then the latest addition to our portfolio product that we're very happy with, the deal closed in November 2024, so we're only weeks into owning it, and we are fully focused on making sure that we do the integration as fast and as effective as we've always done and as possible. In the nine months before, in the 12 months, sorry, of September 2024, the product was doing about EUR 100 million in revenues. We expected in 2025 it will do at least EUR 150 million, and we see peak potentials in the indication that it's registered for, which is CAD or Cold Agglutinin Disease. It's the only product registered for that indication.
It's a very serious disease, a very rare beta cell lymphoproliferative disease that impacts patients quite significantly in their quality of life, and the treatment is addressing an extremely clear medical unmet need and is very effective. So we're very happy to have this product in. If you look at the opportunity there, of course, it's interesting to explore potential new indications, but we focus initially on making sure that we really bring the product in, integrate it well, and we'll come back to you with any ideas around potential new indications. And what's also attractive about it is that it has a very long IP. The exclusivity is until 2036 in the U.S. and Japan, 2037 in the E.U. And again, it's a biologic peak sales expectations of EUR 250-300 million. We'll also not make it the most logical candidate for generic competition in that sense.
We're very happy with this product. Already in 2024, in the last four weeks of the year, we've been able to register some sales very much in line with what we expected. We're off to a good start. The people that were working with this product at Sanofi in the U.S. and in Japan, the ones that we wanted to bring in, have come over, and that seems to all work extremely well as well. What is also interesting for us in this product is Japan, where this is really putting us on the map in Japan for rare diseases. It doubles basically our size and is a very interesting and good product to help them build our rare disease in Japan also even further.
So extremely happy with this acquisition and extremely happy with the way it's progressing and the way we're executing on the integration. Now, if I look at the five of the key strategic pillars for growth in rare disease and go a little bit more into detail, we have endocrinology, which is made out of two products, Isturisa and Signifor. Isturisa is first in class, is best in class clinical profile for Cushing's disease and Cushing's syndrome. There's a very strong new patient uptake that drives and will drive the growth going forward, and then we're awaiting mid this year a decision from the FDA on the extension of the label to Cushing's syndrome, which will bring very, very nice additional opportunity for Isturisa. Signifor really is performing much better than we could have hoped for when we acquired it.
And since the acquisition, we've been able to, across the world in every single geography, really drive the revenues and get patients in. So potential is really still there. And there's an upcoming revision and update on the acromegaly treatment guidelines where Signifor plays an extremely important role and which stems as optimistic also for the future outlook of Signifor. So the two endocrinology products are both set for growth, for significant growth going forward, and are a very important element of our growth in the rare disease, as is hemato-oncology, of course, now with Enjaymo added to that. We already touched on it. We continue to launch in the countries where it's not yet on the market or where it's not yet reimbursed.
As this product has been only fairly recently launched by Sanofi, there's still a lot of opportunity going forward in the current indication of CAD, and that's something we're very focused on continuing to roll out the product further in the world. For Silvant, we've seen an extremely nice step up in diagnosis and treatment rates, which is currently about 30%, but that still leaves a lot of room to improve. It's not a Castleman's disease that Silvant is aiming to treat. It's not an easy therapy and not an easy diagnosis. Continuing to educate and train and drive the market is important. Then, for Qarziba, it's extremely well established in Europe and much of the rest of the world, with the exception of the U.S. for the treatment of neuroblastoma.
We see broader usage possible in other indications as well, but also a good opportunity to expand into the U.S., where we are expecting a meeting with the FDA on the data. The initial signs from the FDA are very encouraging. They recognize the unmet medical need in this market here, and we hope to have a meeting with the FDA also mid-2025. Metabolic is actually where it all started, often ultra-rare diseases. We've seen some generic impact over the last two years on a product like Carboglu, but in essence, we expect metabolic going forward to be fairly stable. Important products, still important for us. We'll definitely support it, but this is not where we would expect the main growth to come from. And then I already talked about it a little bit.
Going forward, some additional lifecycle management opportunities in PBH, post-bariatric hypoglycemia, an important opportunity for pasireotide. We expect to be able to complete enrollment of the phase two study that is currently ongoing by the middle of this year as well. That is an important potential indication that if it were to come and bring it to market, it could more or less double the revenues of Signifor. Then also for Qarziba, there are promising early signs in Ewing sarcoma, something we're exploring initially, and we'll keep you updated on that. Of course, we'll continue to really look at BD going forward. If I look at those five key products today, combined, they do about EUR 600 million in revenue.
We've already communicated that we expect that this can go up to EUR 1.1 billion and their possibilities to go beyond that if there are favorable market conditions around, for instance, the labeling in Cushing's syndrome in the U.S. And then with the additional opportunities in PBH or in Ewing's, those things will come on top and will come clearly after 2025. So these five growth drivers have today already quite significant potential, and there might even be more if we manage to get these products used in different indications as well. And then to finalize and to close, we're very happy with 2024, very happy and proud of our results with very good net revenues at high margins and strong cash generation. We're on track to meet our already upgraded financial targets for the 2024 year and will sustain our strong EBITDA margins. For 2025, the momentum continues.
With the current portfolio, we expect to reach over EUR 2.6 billion in revenues this year. Combine this growth with the high margins and the good cash flow generations, we should be back to two times our debt level in leverage. This is all very encouraging and will allow us to continue also on our BD M&A trajectory. We have a very clear dividend and capital allocation policy, which we will not change. In terms of M&A, we've done the integration of Avodart-Combodart very well in 2024, and we're in the middle of doing the Enjaymo integration, but we're looking really forward to continue to launch this product further, and we also look forward to do more M&A.
And then in terms of milestones, if you like, for 2025, already indicated them in the talk, but there's an important milestone coming up from an FDA decision on the label extension to Cushing's syndrome in the U.S. by the middle of this year. Also the enrollment completion in phase two for pasireotide, also in the middle of this year, and also in the middle of this year, the meeting with the FDA around Qarziba, which would be an important milestone for the potential bringing the product to market in the U.S. So with that, in conclusion, I think we are extremely well set to continue our success story. The business momentum is as strong as ever. Our objectives are clear, and we're very well positioned for a promising 2025. Thank you.
I would like to invite Luigi La Corte and Scott Pescatore with me here to help and answer questions. I'm happy to take questions from you, James, or from the audience.
Thank you very much. We've got just over 10 minutes to do a Q&A, and you can try and raise a question through the app, although I can't vouch for its abilities. You might be better off just putting your hand up if you do have any questions. Does anyone have a question they'd like to start with? Otherwise, you're going to get some from me. Maybe I'll start with one, which was something people have asked me about. There was a story towards the end of last year, which was saying about with relation to the CVC stake and an Italian private company called Angelini. So this, okay, yep.
The story was on Bloomberg was suggesting there could be some sort of merger between Recordati and Angelini, and I think the suggestion was that CVC could maybe sell their stake to Angelini, and then these two Italian companies would be merged together, so I guess first question is, are there discussions ongoing about Recordati merging with Angelini?
No. No, there are no discussions ongoing. I mean, we are a company that is always active in the M&A field, having a private equity in our shareholding. The combination will always give rise to rumors and speculations, but there are no discussions between Angelini and Recordati ongoing.
And maybe just a bit more broadly, even if that discussion isn't ongoing, conceptually, could something like that make sense? Would it be useful? Could Recordati's business model be enlarged and you get scale advantages?
I'm not sure that scale is our biggest option. I think what Recordati is, is a fantastic predictable growth story with incredible and high margins and a very nice return on capital. Anything that would help us grow faster, grow better, bring new capabilities on, I think is more important than just creating scale, I mean, in general, and also scale, for instance, in the countries like in the US where we have, that's our more significant market already today. It's not that we are subscaled to do what we need to do with our rare disease, so I would much rather look at something that would bring growth opportunities, additional growth opportunities, additional capabilities, rather than something that is just about scale. Angelini is a wonderful company, wonderful lead. I'm sure that there could be some sense to that, but as I said, we're not in discussion.
It's also not the direction that I see as the most likely and best way forward for Recordati.
Thank you. Sort of connected to that, if I shift to M&A. So you've done a deal, so you've acquired Enjaymo. I mean, it looks like quite a good deal, isn't it? It looks like a product that's got long duration, and it looks like it's got a high margin, and it's growing quite a lot. So if it's such a good product, why have you managed to buy this then? Why have Sanofi not kept what looks like a really good product for themselves?
I think what's great for us might be just very small for Sanofi, right? We're a EUR 2.5 billion company that's very, very significantly smaller than Sanofi is. For them, this was maybe priority number 15. For us, it's one of the two top priorities in the company. We'll focus on it, and I think that's been something that is probably the reason why Sanofi said, you know, this is too small to really get excited for us, and we should focus. They also need to focus as we do, but for us, this makes all the difference. I would agree. It's a good deal with very good opportunities to continue to grow at very attractive margins, and most importantly, actually delivering something that is badly needed for patients in need, addressing a true unmet medical need in this.
It fits perfectly to our already existing portfolio. There's a nice overlap on the hematologist, and that actually makes sense for us as well. It's, in every sense, a good deal for us.
How does a deal like this come about? Are you out there looking at which companies have got assets that would be attractive to us, and you approach them, or do they come to you? How do these things happen?
Both things happen, right? So we have a very clear list of targets we would like to have. We have our wish list, and we constantly evaluate opportunities for both businesses, for the SPC and for the rare disease business. But then also, we are well known to do deals, having done over the last 17 years, 36 of them. So also companies reach out to us, banks reach out to us. In this specific case, there was a bit more of a public process, but oftentimes, for instance, the GSK deal was our initiative, and we approached them because we thought that this would be an attractive opportunity for them and us. So you see both of these things happen.
And we have a fantastic M&A team, and they're very well integrated and connected, and they evaluate a lot and are able to do that fast and do that very well aligned with the rest of the business. So super proud and happy with that team.
Are these normally competitive processes? Did you outbid other people for this asset, or is it more, it's a bit of a unique discussion?
I think good assets will always have competition, and has always been the case and will be the case going forward. What I think is good on our side is we're able to be fast. We can decide fast. We're well prepared. In the case of EUSA, which we did only two days after I joined, so a lot of the prep work was done before, but we had looked at that company two or three times quite in depth, and when the opportunity then really came, we were able to move fast. I think on this Enjaymo, I mean, you will never find out how many companies really were in the process, but we know we were not the only ones, but we were able to be fast and competitive and convince them that we can be a good partner in such a deal.
Having experience is important there as well.
And maybe just to build on that, because I think this is distinctive for Recordati. I mean, particularly in the rare disease space, I mean, not many players can offer a global footprint. And combined with the track record that we have, not just in executing, but integrating opportunities quickly, many of these deals, not all the value is upfront. Some of it is downstream. So if you're on the other side and you want to maximize the value that you get, many conclude that we are a great partner to do the deal with.
And does CVC sort of feed into this a bit as well? Do they say to themselves, "Oh, this looks like an interesting asset," or are they more like they just have to approve a deal that you want to do?
They're part of our board, so as the board members, they need to approve. The board needs to approve these sort of deals. Of course, CVC has a fantastic network. NIDs, they would bring IDs, but most of this actually comes through ourselves. I see CVC as very committed board members, very committed, but not very involved in the day-to-day running of the business, always asking good constructive questions and helping us to continue to improve our business, but not involved in these processes.
What do you think the accretion profile will look like for this asset then? What's the impact of doing this deal going to be at the bottom line over the next couple of years?
It's immediately accretive from 2025 onwards, right? It made a very small contribution in 2024 for the last four weeks. And the average of the rare disease margins are good, and this product is above the average of rare disease, so it will help to keep the margins high. Let's also be realistic. It's expected to do EUR 150 million on a EUR 2.6 billion, so it's not going to all of a sudden get the margins up by 10%, right? So we have to be realistic about that as well.
Are you in digestion mode for a while now after this deal? I think you said you're still going to be below two times in terms of net debt to EBITDA. At the conference as well as meeting investors and analysts, have you been shopping?
Absolutely. You should never stop shopping because I think those deals take time. We've been bringing about 70 colleagues from Sanofi over, and that's going really well, and I don't know how you feel, Scott, but absolutely, I don't think we need a long time to digest this.
No, I mean, the integration is going very, very smoothly. It started before the closure of the deal, but after the deal closed at the end of November, the colleagues were officially on board, and I can tell you that they're very, very pleased to be with us, and things are going very smoothly, primarily in the U.S., where we have the bulk of the business, but also in Japan and in the markets in Europe. So we're very pleased with it. It's not an easy process as any integration, but this one is going very, very smoothly so far. And we have a great partner on the other side with Sanofi. They've been very cooperative with us, and we've had that from day one. So I think that's very important as well, that we're working well together.
They have all the interest in the world to make it smooth for us, and of course, we have all the interest to make this product a success for them as well, so.
So as well as the sort of bandwidth to integrate something, there's the firepower to do another material deal this year. You could still go and do something else.
Absolutely. I mean, we've always said from a leverage perspective, our cap is three times EBITDA by over the course of 2025. We'll be back at below two times. I mean, the business is continuing to not just generate profits, but cash. So absolutely. And if deals come in this shape, immediately accretive, obviously, you can do even more, but we have at least one turn of EBITDA to go before that cap. So no, absolutely. And Scott has already digested this, so.
And so the deals you've done since becoming CEO, and in fact, I think most of the deals in Recordati's history have been immediately accretive deals, but you also mentioned sort of scale isn't really the most important thing. You're more focused on growth, so could another deal be one that is a product that isn't even immediately accretive, but it would be one that's more about that growth angle? Are you buying late-stage pipeline rather than accretive?
It could be, but let's not forget we also, when we did the Novartis deal, which was before I joined, with bringing in the two products, Isturisa was not on the market, and it required investments for a good two years and was not immediately accretive. Yet I think that many people here would agree with me if they followed that this was one of the better deals that we maybe probably even really a very good deal to do. I would be very happy to do a new Isturisa tomorrow, right? What we will not engage on is discovery. After proof of concept, yes, but it all has to fit, and it's a question of how you really manage your portfolio, what is required to bring the product successfully to market.
But I would definitely not upfront hard rule things that are not yet on the market, and we need to still develop. We've invested in the team. With Milan coming on board, we have a very capable R&D structure that can help and launch products and bring them successfully to market in the entire world. I feel we're very much capable of doing that. And then it's a question of how does it fit in the portfolio and how does it impact the overall financials and how does it create value ultimately for our company.
Makes sense. I can see we're almost out of time. We're flashing amber, baby. Just a final question would be the margin. So I believe you said medium term, the margin's going to stay about 37%, but you've got a rare disease business that's higher margin than your primary care business, SPC, and you've been doing deals in rare disease that are making you even more rare disease. So even if you don't do anything else, isn't your margin going to end up going up, not staying flat if you keep on getting more and more rare disease and that's higher?
If we do what you say, if we do nothing else, then probably it does, but there's always something that you do, right? So give an example on Isturisa and Cushing's syndrome. We expect the FDA decision in the midst of this year, but ahead of that decision, we've already engaged in bringing in the extra people we need on the ground, medical people, making sure that when we get that extra label, we are immediately able to go after all of the opportunities for Cushing's syndrome. The same will be true for anything else. So you need to also invest to not only have perfect growth this year, but also in the years to come, and we'll always keep that balance, but you're right.
Rare disease has a higher margin and is a very attractive business and is growing fast, but it also requires some investment, limited and at fairly low risk, and that will then help. And it depends also a little bit on the deals we would do if there's a product that you still need to bring to market, and of course, that's not going to be immediately accretive. But we are well positioned and committed to continue to keep this margin, which I think is already quite a fantastic margin. And if there are opportunities to go beyond that, of course, we'll do so.
Great. Thank you. Well, I think with that, we're out of time, so thank you very much for joining us.