Good afternoon. This is the Recordati conference operator. Welcome, and thank you for joining the Recordati 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. Federica De Medici, investor relations and corporate communications. Please go ahead, madam.
Yeah. Hello, everyone, and thank you for attending the Recordati Conference Call today. I'm pleased to be here with our CEO, Rob Koremans, and our CFO, Luigi La Corte, who will be presenting the 2023 full style results. They will be running you through the presentation. As usual, the set of slide is available on our website in the investor section. We are also joined today by our two heads of the business units, Alberto Martinez for Specialty & Primary Care, and Scott Pescatore for Rare Diseases. Both gentlemen will be on hand to answer your question together with Rob and Luigi during the Q&A session. I will now give the floor to Rob. Please go ahead.
Thank you, Federica, and good afternoon, ladies and gentlemen. Thank you for having joined us today on the Recordati 2023 half year results. We've really delivered a strong financial performance with continued growth across our business and with ongoing delivery of sector-leading margins. With revenue at EUR 1,044.3 million, up 17% versus previous year or 15.4% on a like-for-like and constant exchange rate, we confirm the strong momentum of the group across our entire business. SPC grew double digits, 10.2% versus last year, or 15% at constant exchange rate. This business performance has been ahead of relevant markets and across all key therapeutic areas, thanks to a continuous improvement of our competitiveness in every single market.
Rare disease has delivered very strong results, with double-digit growth at 32.2% versus last year and 15.5% on a like-for-like and constant exchange rate basis. With a very strong growth of both the Endo and the Onco, fully in line with plan and very resilient sales of metabolic franchise. The group has been able to achieve these strong results despite strong FX headwinds, especially over the most recent months. The adverse FX impact has been approximately EUR 13 million or 3.3%, mostly concentrated in quarter two and mainly affecting our Specialty & Primary Care business unit. What I would like to highlight is the strength of our profitability with EBITDA at the margin at 38.9% in the first half year. This has been enabled by operational leverage and by very strong continued cost discipline across the business.
This brings an adjusted net income of EUR 287.4 million, up 27.9% versus last year, driven by the strong positive operating performance and also lower net financial charges. We are very confident in our ability to convert revenue in positive operating income and even stronger free cash flow. Free cash flow was up EUR 43 million versus last year and reached EUR 261.7 million. This brings to secure a leverage of 1.8x EBITDA. Our key R&D pipeline projects, such as Signifor in post-bariatric hypoglycemia, Qarziba in the U.S., our REC-0559 program, and our Carbaglu in China, are all in plan, and we are very happy with progress we're making there. Finally, last, definitely not least, I'm very proud of the recent agreement with GSK.
We'll give you a little bit more color in the, in the slides to come, but this allows us really to strengthen our Specialty & Primary Care urology franchise, where we now have a completely leading portfolio in BPH. Thanks to this excellent performance and the strong momentum of the businesses, I'm very pleased to say that despite the very strong FX headwinds over the recent months and the expected head headwind to come, we can confirm that we are on track to deliver the full year guidance for 2023, as to the updated guidance in that we gave in May. On the next slide, happy to share a little bit more background and color on the agreement with for the distribution of two leading brands from GSK's urology franchise in Europe.
Avodart and Combodart are indicated for the treatment of moderate to severe symptoms of benign prostatic hyperplasia, and for the reduction in the risk of acute urinary retention and surgery in patients with moderate to severe symptoms of BPH. Recordati will commercialize both products across 21 countries upon completion of the relevant, more administrative transition activities, which we expect to be finished with the majority by the end of this year, of 2023. GSK has received an upfront payment of EUR 245 million, and we will start recognizing revenue and margin upon country by country transition, and GSK will continue to receive income on an ongoing basis for the supply of products. The agreement is fully agreed from 2024 onwards, and contributing to top and bottom line already in 2023, but minimally so.
With a very small contribution in net revenues of EUR 10 million to EUR 20 million, and a slightly positive EBITDA contribution as well. Our ambition for Avodart and Combodart is to stabilize and then even generate a modest growth in our key markets. We're very excited to get this opportunity and be able to bring these two products in into our urology portfolio. We see a number of clear advantages. One, this was clearly in line with our strategy as we set out. We bring in well-established or originator brands in our core therapeutic area, highly synergistic with Uroxatral, and being able to really use the existing sales force that have shown to be able to drive also Uroxatral sales post loss of exclusivity.
Both products are both loss of exclusivity, but are extremely well-established brands that we feel confident that we can bring into our portfolio, combining with Uroxatral and be able to cater to the different needs. There are different patient segments for all three products, different indications for all three products, and we see a very good opportunity for portfolio management without additional cost, be able to really bring this in a very nice, accretive way. Very happy with, with this agreement, this long-term agreement with GSK. We believe this will help us to, to grow the sales, clearly adds to the sales of SPC in urology, and that's an important aspect as well. This deal, you will start to see the real impact in 2024. For the results of 2024 so far, I'd like to hand over to Luigi to take us through the financial performance in the first half.
Thank you, Rob, and good morning. Good afternoon, everyone. As I started doing already last quarter, I will take you through the, first of all, the revenue of the two business units. Then, as Federica has said, Alberto and Scott are here with us, and they can add more color to the results in the Q&A. As anticipated by Rob, both business units really delivered a strong performance in the first 6 months of the year. As you will see from slide 5, 6 months into 2023, SPC showing a still the growth above 10%, absorbing what was a very strong FX wind in Q2.
Also, false normalization of some of the growth that we saw in Q1, which have benefited from a couple of one-offs, most of which have been now reabsorbed. All of the therapeutic areas are contributing to this result, as you will see from the slide. Our biggest TA, cardiovascular, growing by 8%, led by Lercanidipine, which still is benefiting from some of those early shipments in Q1, and which will unwind in the second half of the year. We had continued to be successful in stabilizing sales of Metoprolol and Simvastatin, which in fact showed a small positive evolution.
Also saw good uptake of our atorvastatin/ezetimibe combination in France, Reselip. Urology, which thanks to the deal with GSK, will become in the future, our biggest therapeutic area, also showed a very strong growth of just over 12%, clearly driven by Eligard, which continues to, to gain share across markets. Also, also thanks to a solid growth of Lomexin across several markets in fact. Of course, we're now starting to deploy the new device of Eligard with the first markets going live with that in Q3. GI revenue was up 10% behind good performance of both our OTC portfolio and RX.
On the OTC side, obviously, I'll call out Procto-Glyvenol and some of our probiotics offering, whilst on the RX side, we saw continued good growth of our bowel cleansers, CitraFleet, Cardilax, and other products in the portfolio. Cough and Cold, which, as you recall, was a very strong driver of growth in Q1, is still showing very, very strong numbers. EUR 73.5 million of revenue, up 41% versus previous year. Q2, as you saw as you will have seen, has come down closer to 2022 levels, but still ahead, despite some of those benefits that we had in Q1 being reabsorbed.
This is really driven by good continued growth across all markets, Italy, France, and Russia. Of course, we still see Q3, Q4 comparables from 2022 for cough and cold as being more demanding, as we'd already started seeing a recovery of that segment in the second half of last year, and obviously as we will see, significant headwind on the ruble. Finally, other therapeutic areas are broadly stable with growth of products like Reagila, Magnesio Supremo in Italy, offset by some of the erosion on our tender business in Germany.
With regards to our rare disease on slide 6, we are absolutely extremely pleased with the progress of all our key growth drivers on the rare disease side. Both delivering sales in the first half in line with the targets that we set at the start of the year for for 2023, and on track to deliver on the future ambitions that we have for both Endocrinology and Oncology. Endo obviously stands out with 65% growth of Ifyra, with both U.S., EU and rest of world markets contributing to that. Also just over 15% growth of Signifor, which again, is a fantastic achievement.
Oncology, you'll recall, we said in Q1, it benefited from some small phasing benefits, which have around, but still growing by over 13% in the first half of the year. Once again on track with both Kyziva and Sylvant contributing to that across regions. Both EMEA and rest of world, and in the case of Sylvant, U.S., also. We continue to be very happy with the resilience of our metabolic portfolio, and in fact, extremely happy with the growth of Tanumytin, which grew double digits in the US, and also with growth outside the U.S..
We are starting to see a little bit of erosion on Carbaglu from recent generic entries, but well below expectations at the start of the year. Carbaglu is growing in international markets, and as you will have seen from our notes, we do celebrate now having received the approval in China for the launch of Carbaglu, and we're now engaging in pricing negotiations to make that available to Chinese patients. Finally, we're continuing to progress the lifecycle management initiatives that we talked about earlier this year, with more updates to come on those in the second half of 2023.
Both units showing really solid growth. The same is really true of all geographies. You will see from slide 7, clearly with one exception, Germany, which we called out at the start of the year, expecting a reduction in our in our tender business there. I won't go line by line in the interest of time, and maybe just comment the those markets which in absolute terms contribute the most. The U.S. on the back of the Endo and the growth of the Endocrinology portfolio and the addition of and growth of the Oncology portfolio.
Also the international sales, thanks to strong growth of the rare disease business and contribution of Oncology there. Also, as already commented, the early shipments to international distributors of Lercanidipine. Finally, you will see Turkey and Russia still contributing strongly to our growth, although with growth rates in local currencies, which have come down quite a bit since Q1, once again, with some of those phasing benefits normalizing in Q2. Still, in the case of Turkey, obviously very strong growth, both in terms of volume and price, with most of the pricing benefits offset by the very sharp devaluation of the Turkish lira.
s a transcript of an earnings call. ## Transcript: **Rob Koremans:** Good morning, everyone, and thank you for joining us today for Recordati's first half 2023 results conference call. I'm Rob Koremans, CEO, and I'm joined by Luigi La Corte, our CFO, and Scott Pescatore, EVP Rare Diseases, and Alberto Martinez, EVP Specialty & Primary Care. Federica De Medici, our Head of Investor Relations, is also with us. Before we start, I'd like to remind everyone that during this call, we may make forward-looking statements. These statements are based on our current expectations and projections and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.
Please refer to our financial reports and SEC filings for a more detailed discussion of these risks and uncertainties. I'll begin with an overview of our performance in the first half of 2023, followed by a more detailed review of our Rare Diseases and Specialty & Primary Care businesses. Luigi will then provide a financial review, and I'll conclude with our outlook for the remainder of the year. We'll then open the floor for your questions. So let's start with the highlights of the first half of 2023. We delivered a very strong performance in the first half of 2023, with net revenues growing by 17.5% at constant exchange rates to EUR 1,048.5 million.
Once again, very pleased, as you have seen from slide eight, that aside from delivering strong revenue growth of 17%, with revenue in the first half of well over EUR 1 billion, continuing to as Rob said, deliver margins, which are absolutely at the top end of the sector. You recall, we said at the beginning of the year, we were expecting synergies in SG&A to offset pressures at the level of gross margin, adjusted gross profit margin. You clearly see those synergies are there, with particularly selling expenses at 22.4% of sales from 24.2% of sales in the first half of 2022.
We are managing to hold gross margin better than we had anticipated. You'll see that it's broadly in line with last year. Clearly, that benefits from the higher volumes, but also from great work done by the procurement teams, and of course, also the easing of some of the pressures on gas and energy prices. R&D expenses, as expected, are gradually stepping up. You'll see a slight increase in the % of sales, in part also due to increased amortization, mainly coming from the integration of EUSA. We do expect this to continue to step up a little further in the second half of the year as we step up the activities behind those lifecycle management initiatives.
And many of you, I'm sure, will be pleased to see that when we said when we called out non-recurrent expenses of EUR 26 million in 2022, these really were non-reoccurring. You will see that line coming down significantly in the first half of 2023 to only EUR 4.2 million, and really being the sort of wind down now of the FDC right sizing, with the first half of last year also reflecting the initial integration cost and one-off costs linked to the EUSA transaction.
All of this results in very strong operating income and EBITDA, with EBITDA at EUR 406.2 million, a growth of 21.3% versus the first half of 2022, and staying at 38.9% margin. Clearly a strong result. I will remind everyone, historically, our second half has been somewhat lower than the first half, but clearly very pleased with how margins are holding up the year to date. Below the operating lines, you will have seen also financial expenses below last year. Now, this really was driven by effective gains and losses.
While FX provide a headwind on revenue, it did provide EUR 4.7 million of gains versus EUR 18.8 million of losses in the first half of 2022. This, combined with the lower non-recurring costs, translates into very strong results at the level of adjusted net income and net income, with adjusted net income close to 28% up versus 2022, and net income up 50% versus the first half of last year. Very pleasing results, and once again, a very strong job done by their teams to convert those results into cash, which you will see on slide 9. Free cash flow EUR 261.7 million.
It's EUR 43 million up versus last year, absorbing obviously the increase in working capital coming from the increase in business and higher financial expenses, and clearly more than funding the increase in the dividend payment in the first 6 months and the residual milestone payments made to Novartis for Eylea, which account for the majority of the EUR 26.3 million increase in intangible assets. Thanks to this operating performance and the cash generation, I'm happy to say our net financial position remains very solid. Again, despite the final dividend payment in the first half of the year, net debt to EBITDA is at 1.8 times trailing 12 months.
As you will see, we have, as you, as you will see from the slightly higher cash balance, obviously anticipating the closing of the agreement with GSK, we funded that by taking down a new EUR 300 million new club loan facility in June, which will be our first with the ESG KPIs linked to it. They were finalizing those details, and we'll announce those shortly. I hope you appreciate that we will be putting, you know, some money at stake behind our commitment to sustainability.
We expect leverage, following the transaction with GSK, to be at around two times EBITDA and pro forma below two times for the remainder of the year. Finally, as Rob has already anticipated, and as you'll see from slide 11, we're very happy to say that on the back of the very strong performance, despite the very strong FX headwinds that we had already in Q2, and that anticipate now for the remainder of the year, to the tune of -5% in the second half, versus 3.3% in the first half of the year. We do confirm the upgraded guidance that we provided in May.
The growth, underlying growth of our portfolio is absolutely on track. Our underlying margins are also absolutely on track. Yes, we will have a small contribution in 2023 already from the agreement with GSK, more so at the level of revenue. Clearly, effects, impact is significant. Prior guidance was around -2%. It is now around -4%, for the full year, at the level of revenue. Very happy that, the, the momentum of the business, allows us to confirm that upgraded guidance, that we already, provided. That and with that, I will pause and turn the call back, to, you operator for Q&A.
Thank you. This is the musical 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 telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone with a question may press star and one at this time. The first question is from James Gordon of J.P. Morgan. Please go ahead. Mr. Gordon, your line is open. Is your telephone on mute? The next question is from Niccolò Storer of Kepler. Please go ahead.
Good afternoon. Can you hear me? Hello?
Yes, perfect. Yes, perfect.
Okay. Okay, perfect. Thank you. Thank you. A couple of questions. The first one on the Avodart Combodart acquisition. You talk about you targeting, stabilizing revenues, while in the press release, I think, you talked about the acquisition being margin accretive since 2024. Which kind of profitability should we think being attached to the over EUR 100 million revenues you bought? Is it right assuming something in the 35% area, flat over time, or should we expect a sort of ramp up? How should we think about it? The second one is on your guidance.
Your guidance basically is implying flattish, if not declining margins, in the second part of the year against the growth that we've seen in the first part of the year and against further revenues growth. Which are the elements that would bring marginality, profitability, sorry, so so depressed, keep profitability so depressed at around 35% ±? Very last and quick question is a clarification on the revenues associated to early shipments in Q1, if I understood well, basically, the unwinding has not started yet, and so you haven't recovered anything in Q2, right? Thank you.
Well, I'll ask Luigi to answer in, in essence, all three questions because I think it's the, the financial questions here. Maybe, maybe, Alberto can skip in on the GSK agreement.
Yeah. Hi, Niccolò. Maybe I may take them in reverse order, if that, that's okay. Sorry if I wasn't clear on the unwinding. No, I would say most of what we would have expected to unwind has done so, with one exception, really, which is the EUR 6-7 million benefit that we'd had in Q1 on Lercanidipine. You know, that I think will sort of probably be reabsorbed in the second half of the year. I think most of that is actually done. What was going to unwind?
Because some of the benefits also translates into the higher guidance that, that we provided for the full, for the full year. On the implied lower margin for the second half. First of all, I, I know many of my peers would die to have a 35% EBITDA margin. So I, I wouldn't call it low, but it is lower. I agree. If you recall, I mean, it's historic. One, it's historically been the case, right? We've always had, you know, a somewhat softer second part of the year, first of all. I think FX is gonna play a little bit overall as well.
The, the R&D activities, as, as you probably know, you know, when you start a study you do take a number of costs up front, and we are looking at to start the PDH study in the second part of the year, and as we always said, we would expect the sort of R&D cost to ramp up gradually, and some of them are lumpy just in nature. Again, you know, the GSK, the deal with GSK provides a benefit on the top line, and as usual, though, in the transition period, less so at the, at the bottom line level.
In terms of, so hopefully that addresses your question in terms of the phasing of the EBITA margins, second half versus first half. On the, and I will, maybe on the revenue, also ask Alberto to comment. On the, on your point around accretive, what we mean by that, is the deal will be accretive to the SBC margin, and particularly thanks to the fact that it's absolutely synergistic, it's plug and play, with minimum incremental investment required. I mean, I won't go into the details of the margin structure of the product. We never do it for any of our products, certainly not on the partnered one, but, you know, that's effectively what we, we mean. As of 2024, we'll deliver positive, obviously, contribution all the way down to the level of net income. Maybe on the revenue expectation, I'll turn to Alberto.
Very happy to chip in. This is Alberto Martinez speaking. With Ativan and CombiDot, what we expect is to, first of all, stabilize the sales. These two products lost exclusivity in recent years. We have seen the sales declining. We have full confidence that the sales will be already stabilized this year, and the expectation is to be able to maintain them over the coming years, potentially with some limited, modest, low single-digit growth, as Rob described, in the key markets.
We do have very strong confidence in our ability to do that because we have a perfect analog with in our own portfolio, with silodosin, where we have experienced a similar loss of exclusivity. We've seen the sales declining in also the key markets like Italy and Spain, and now the sales have also been stabilized. Our confidence is very, very strong in our ability to deliver on what we have commented. Thank you.
Okay.
Thank you. Maybe just a clarification on this one. When you, when you mean, stabilizing revenues, you mean at EUR 115 million, so in 2022, or should we expect a further drop in 2023 and then stabilizing from this lower level?
We should be able to stay at the level of EUR 150 million also in 2023 and beyond.
Brilliant. Thank you. Thank you.
Of course, we will only record sales, you know, progressively as transition. What you will see in our P&L is somewhere between EUR 10 million and EUR 20 million for this year. Okay, next question.
The next question is from Harry Sephton of Credit Suisse. Please go ahead.
Brilliant, thank you very much for taking my questions. I have an additional one on the inaudible deal. On the margin contribution, typically through some of these transfer service agreements, we can see a pure gross margin being recognized. It sounds like from your commentary, that it will have a modest EBITDA contribution this year, that that's probably not the structure of this particular deal. Can you maybe confirm that? I also had a question on Eligard regarding the phasing of the rollout of the new device.
Can you maybe confirm how rapidly you expect the new device to be rolled out across markets and your expected uplift to sales from that? Maybe just another one on the cough and cold portfolio. To what extent has the benefit in cough and cold been more driven by competitor stock outs versus what we've seen as a more of a recovery in underlying demand and what you might view as sustainable market share? Thank you.
All right, thank you. Maybe I'll take the structure and the cough and cold one quickly, and again, hand over to Alberto for the new device. You're absolutely right in terms of the structure of the deal. It is different from previous ones. Previous ones, whenever we had in the initial period, the straight drop through to gross margin, was when we would have economic benefit from the point of closing, and, you know, we would book the margin before the sales in order to cash transition. In this case, the agreement works slightly different, which is, you know, we start getting the benefit once the full transition has been finalized. That is absolutely why you don't see that effect.
I think from cough and cold, we're, we're not gonna be able to sort of, you know, split. I think it's been a combination of, certainly a pickup in demand, and we've seen that across, across markets, really. I think we, we elaborated on the call last time as what's maybe some of the drivers of that in terms of, lower immunity levels, post, post-pandemic. But also we were more responsive to that increased demand, than, than others. We've always said that, that we were expecting, you know, the revenue rates, to come back in line with levels closer to the second half of 2022, in the second part of this year. In terms of the new device, rollout on Eligard, Alberto?
The new device, rollout of Eligard is fully on track. Actually, it's being launched as we speak in Denmark. The first country will be followed by Ireland and other countries within this year. Larger countries are expected to happen at the beginning, in the first quarter of next year. Everything is on track for that to happen. The regulatory pathway is fully clear, and all plans are in place in order to maximize the launch opportunity upon a very solid trajectory that we are seeing in each and every market, where we have seen a real turnaround of the sales. We've seen how we have been able, over the last two years, to increase the monthly sales of Eligard by more than 20%, which is quite significant.
This has not only happened, in one or two countries, but effectively across the region, so a very successful relaunch. We expect the new device to be able to help and to support, this continued momentum of Eligard in the market.
That's very helpful. Could I just ask a follow-up on the Avodart deal? GSK did report some quite strong growth in this product in the first half of the year, which obviously, given it's more of a legacy product, we just wanted to gauge your confidence on the levels of inventory that you have available to yourselves for the product. And yeah, if you're confident in the supply of that product through, I guess, on the near term. Thank you.
The short answer is yes, we are. We are following that closely in partnership with GSK. We're seeing in-market demand in alignment with, with the stock. There were some stock issues at the end of last year that were addressed, and that's partly why some of the factory sales were higher. The sales ex-factory and in-market are correlated, and we are fully confident that the level of stock in the channel will be the appropriate one at the time of transition in each and every market.
That's great. Thank you very much.
The next question is from Brian Balchin of Jefferies. Please go ahead.
Hi, thanks. Brian Balchin, Jefferies. Sorry, I think I missed your, your answer to, with regards to the step down in EBITDA margin in second half, which I think is implied at 34.5%. Did, did you say that was mainly driven by-
Cannot hear you really well.
What?
It's very. It's very.
Is it better? That's often the case.
This sounds better. Thank you.
It's got better. Yeah, sorry about that. I think I, I missed your, your answer with regards to the step down in EBITDA margin in the second half. I think it's implied at 34.5%. Did, did you say that was mainly driven by an uptick in R&D, or was there something else there that I'm missing? The second one is, does the guide, I'm not sure you mentioned before, but does the guide include the contribution from the GSK deal? Cheers.
Hi, Brian. I'll go through that again. Yeah, R&D step up is part of it, but, you know, as I said earlier, first of all, again, putting in perspective, you know, 35% is a strong margin even in sort of an absolute term. If you look at our history, the second half of the year in Q4 in particular, has always been somewhat a lower, lower quarter. We, you know, R&D costs are lumpy in nature. We've always said these will gradually step up, and often they're most lumpy when you start a study, 'cause there's a number of payments which are made up front.
We will be starting, we do plan to start the BPH phase two study in the second part of the year. In fact, in Q3. We expect there's gonna be a little bit of. On the operating side, there's gonna be a little bit of headwind from FX. Again, I think yes, there will be a small contribution from the agreement with GSK, but more so at the level of revenue, as typical, at the bottom line level, it's a little bit less so in the first month. Again, because of the structure of this deal, which is different from the Eligard deal, the Celicant deal.
In those structures, we have economic benefits from from signing, from closing, effectively, which meant that for the initial period before us taking over direct selling, we would get a straight through gross margin benefit. In this case, the agreement is structured slightly differently. We will only take benefit as and when we start taking over the sales activity, and that always take, takes a little bit of time. That will be slightly dilutive in the last, next few months. Really, it's a combination of those factors, including the fact that, you know, it's always been a little bit lower in the second part of the year, while still being fairly strong, you know, fairly strong results.
Hopefully that addresses, both of your questions, Brian.
Yes. Thank you very much. Cheers.
The next question is from Martino De Ambroggi of Equita. Please go ahead.
Thank you. Good afternoon, everybody. Just to finalize on the GSK deal, probably you are not willing to share with us, but what's more or less the cost of the financing for the funding of the deal? How long is the license? The second question is on the 2025 guidance, because as it typically happens, your guidance, long-term guidance includes acquisition, acquisitions. Now, after this deal, you are already achieving this range in 2025. I don't know if you can elaborate on this, because seems clear that it must be updated sooner or later, I don't know.
Hi, Martino. Maybe start with the last one. Yes, it will be updated sooner or later, and usually, as you know, our schedule is every other year. You know we're not updating the 2025 guidance today. You know, clearly, we're very happy with the really strong performance of the business. Clearly, so far, in terms of, you know, underlying business, we're tracking ahead of plan, and, you know, hence the, the revised guidance for 2023. The agreement with GSK gives visibility to, you know, some of that BD overlay component of the guidance as well.
You know, we're a year and a half away still with a very volatile FX environment, and we simply are not going to we haven't updated 2025, and we're not going to be doing that near term. The agreement with GSK is up to 15 years, subject to customary performance conditions, and the cost of financing, you know, Recordati, thanks to our performance, our cash flow, our balance sheet, is seen as an investment-grade company by our bank partners. Investment grade loans are, you know, anywhere between a EURIBOR plus 170 and 200 basis points depending on the leverage and the tenor, and that's consistent with what we will be paying for this new facility. Hopefully, that gives you some sense.
Thank you, and two very quick follow-ups. The first is on R&D. What is the projected amount for this year, and what is included roughly in 2025 guidance? Just an update on the visibility on your Russian business, if you see any difficulty or any problem?
On Russia business, operations are continuing, and you've seen in terms of the results, obviously, not keeping to that sort of growth rate that we had in the Q1, but still, but still solid and, you know, continue not having an issue both getting our products to patients and getting our invoices for the products that we send and paid into Russia. Of course, we will face significant FX headwind on the, from the ruble in the second part of the year. The average was 62 in the second half of 2022. It's now at around 100. Clearly, that will provide headwind. Sorry, Martino
In terms of R&D, I'll go back to what we said in the plan, which is, you know, we expect the sort of cash R&D, so screening amortization, to go up by 1 percentage point of sales over the plan period. We didn't quite give a phasing of that then, I won't do it now. Of course, it will go up this year. I won't sort of break out now the PNL, that was the magnitude of the increase that we were expecting.
Okay, thank you.
The next question is from Isacco Brambilla, Mediobanca. Please go ahead.
Hi, good afternoon to everybody. A couple of questions from my side. The first one is on US performance. Could you give us a detail of the performance at constant parameters of excluding the parameter factor into the Oncology franchise in the first half of the year? Second question is a follow-up on your medium-term guidance. I appreciate you cannot update your business plan every six months, but considering the strong delivery on M&A and the current robust momentum, is it fair to state that you are clearly adding at least towards the mid to high end of the guidance range provided for 2025?
Hi, Isacco. Thanks for trying again. we were absolutely happy with current momentum and very, very confident on business performance underlying, both in our rare disease business and in the SPC, specialty primary care. We are doing better than we planned, we continue to see the good momentum. A year and a half is a long time, we haven't really, like Luigi said, updated anything, who knows? I don't wanna speculate. Recordati has never speculated, and we will not start that now. In terms of performance in the U.S., I'd let Scott, because that's all rare disease, comment on the extreme strong performance that we did see in the U.S., where our business in the last three years has actually more than tripled. We are very happy with that, and that is all in terms of rare disease. I don't wanna speak for Scott here. Over to you, Scott.
Well, thank you, Rob, and this is Scott Pescatore, and thanks for the question. As Rob and Luigi had mentioned, the business in the U.S. continues to be very, very strong. It's our fastest growing market, and all three franchises are growing very, very, very, very nicely versus last year. The Endocrinology business continues to have significant growth on Thyreosa and very, very strong growth also on Signifor. Our metabolic franchise is resisting the generic impact on Carbaglu and Cystadane. We have very, very nice growth on Panhematin in the metabolic franchise.
Very good performance there, contributing to our overall growth for the metabolic franchise. With regards to Oncology, as we've mentioned before, we've fully integrated the team in, not only in the U.S. but globally. The team that's working on Sildan in the US is doing a fantastic job growing that product by double digits this year, and we anticipate continued strong growth as we prepare for the, the entry and the launch of Carceba, which we're working on, as part of our development programs, as well.
Okay, thanks.
The next question is from Niall Alexander of Deutsche Bank.
Hi, how's it going? It's, Neil from Deutsche Bank. Just one on, Qarziba. The Type C FDA meeting, it was previously communicated that the outcome would be Q3 2023. That's now moved to the second half of this year. It'd be just good to get your thoughts on any regulatory hurdles and any reason for the change. Thanks.
Thanks for the question, Niall. There, there really isn't any change in that sense. It's a slip of two weeks from the end of September to the beginning of October, and that happens with FDA. There is no, there's no other thing than this, so we're very strongly committed to this and confident that we're on the, the right track. And that's the, the only reason for making this slight adjustment.
Thank you.
The next question is from Jenish Mehta of Permira Credit. Please go ahead.
Hi, guys. Thanks very much for the presentation. Just a couple of quick follow-up. The first one was just on Russia. I know you grouped the exposure among several other countries. Can you just call out, what proportion of your total revenues is coming from Russia? The second question was around, the existing debt maturities. Can you just remind us, when those mature and the new facility that you've just taken out, when does that mature as well? Thank you.
Hi, Russia is EUR 58 million of revenue in the in the first half of the year. Debt maturities, to be honest, are noted in our sort of detailed financial accounts. They're over the next seven years in various chunks. Really not gonna be able to to go into that sort of full, full detail now. The, the last question was around-
Sorry.
Okay. Hopefully that helps. Again, we publish full details of our, you know, funding facilities in our detailed financial statements, which will be coming out Monday, I believe. Yeah, yeah.
Thank you.
Thank you.
The next question is from Alex Simon of Tikehau Capital. Please go ahead.
Thanks for taking my call, and congrats on the results. Could you please bring more color on the lower gross CapEx in H1 this last year? Is it phasing, and do you have guidance for full-year CapEx? Thanks.
Thanks, Alex, for th e compliments. We are also really happy with, with performance. I'll pass to Luigi on the lower CapEx. We do, we do not have a, a policy of saving on, on CapEx. We do the maintenance we need to do and investments that we need to do. Off the top of my head, I'm not
CapEx was actually higher than last year by EUR 2 million. I mean, it relatively, it's never been a big line of our cash flow statement. It's slightly higher than this than last year, so I'm not sure I fully understood your question.
I was reading your financial statements, it's in terms of investments in PPE and intangible assets.
Okay. Sorry, intangible assets. Okay, sorry. CapEx, if you look at the, if you look at slide nine, CapEx is, is, I guess, a fixed asset. That's just, you know, we just happen to have had a lower amount of milestones. We, on, on a number of our licenses, we have sort of milestones payment attached. Most of what you see going through there, in the last couple of years, have been linked to the agreement with Tolmar on Eligard, and some residual milestones due to Novartis on Isturisa. We have, we had some first part of last year, we had some payment to to Tolmar for the progression of the new device, the regulatory milestones around that.
We have another one, which will be paying in Q3, the last one, EUR 70 million milestone for the regulatory recognition of the new device across all the key markets in Europe. The milestones on Isturisa due to the market are pretty much finished, but it's really just a phasing of payment of milestones linked to some of our the licenses that we took out over the years. Hopefully, that addresses your question.
Thank you. That's it for me.
The next question is from Charles Pitman-King of Barclays. Please go ahead.
Hi, thank you for taking the question. You can hear me okay. I've just got a first question on, on cost. I was just wondering if you could kind of run us, run us through, because obviously you've shown very good kind of cost control and cost initiatives. If you could give a bit more insight into kind of what those initiatives are?
We can't hear. We can't hear. Sorry, we can't hear a word of what you're saying. Could you
Can you hear us?
A little bit better, but maybe if you go slower.
My first question is cost initiatives you've used, and whether or not, and costs to take out, and whether or not, reducing energy costs has played a role in your tight cost control so far? Then just secondly, about what potential of Carbaglu in China could be? Thank you very much.
I'll try and interpret your first question.
Cost initiatives in o h, sorry, the, it comes in a bit staccato, very bumpy, so it sounds like the line is not very good. Yes, we've had a number of cost initiatives across our, our company, not only in terms of procurement, where we look at energy and securing the right contracts for the right price, but also in terms of right sizing our commercial footprint, which we have done quite successfully, and a number of other things in terms of operations. I think this, Recordati has always been very good at managing the cost. Anything specific, if so, let me know. For launching in China, I'll pass to Scott for
We expect that launch to happen early next year in China. It is an interesting product. What I'm very excited about is not only the opportunity for Carbaglu in China, but the fact that this brings us with an organization in China that is already getting on the ground and active and training and being a good basis for future launches, such as Isturisa, which probably have more potential than the Carbaglu in China, per se. I'll pass to Scott to answer.
Oh, thank you, Rob. Absolutely, you know, I have to first say that we're very excited about the positive news on the approval of Carbaglu, because as Rob mentioned, you know, we've committed to invest in starting a business in China. We, we are going at it alone, and as you know, it's not an easy task to get products on the market from the ground up in China. We're very pleased first with the approval of Carbaglu. As you also know, you know, Carbaglu has lost exclusivity in other markets, so the opportunity to grow that product in China is very good news for us.
As Rob mentioned, there's modest growth in the peak year in China, between EUR 15 million and EUR 20 million with Carbaglu. Really, the full potential, as Rob mentioned, that we see in China, is the opportunity for us to bring the Endocrinology portfolio to fruition there which is what the team is currently working on now. As I said, I think this is the first step in the right direction for us to realize the investment that we're putting in China, and we anticipate more good news when we bring the product formally to market by the end of this year or early next year, and then onwards with our Endocrinology portfolio.
Can I also maybe just add, Charlie, so to your first question on, on cost. First of all, just to remind you and everyone, you know, the focus of what we did on Specialty & Primary Care, was really work on improving the commercial effectiveness of the organization. Also reallocating resources from primary care to specialty care. You know, we've really seen that bear fruit, you know, not just on the cost base, but also in acceleration of the growth rate in SPC, which continues to grow above the relevant markets. Another driver of benefit has been, you know, synergies from the integration of EUSA Pharma.
And I think you heard me also speak of synergies, which we expect now from the agreement with GSK being, you know, two products that we bring on with very limited or close to nil, additional investment required. And, you know, those opportunities will continue to present themselves. If the angle of the question was, are you done? You know, there will always, we always continue to look for opportunities to improve. Hopefully that addressed your question, which we couldn't quite hear so well.
Thank you very much.
As a reminder, if you wish to register for a question, please press star and one on your telephone. For any further questions, please press star and one on your telephone. Gentlemen, there are no more questions registered at this time.
Thank you, operator. I think we can end the session here. I'm very pleased to share with you and discuss the excellent performance and strong momentum across both our businesses, fully in line or even ahead of plan. The fact that we just did a good agreement with GSK strengthens our urology SPC business franchise, and that significantly improves also the position we have in that and makes us very confident for the future. Our current performance makes us very, very happy. The thing that is on all of our minds is, can we really... That's unpredictable for us, is the FX headwinds.
I think we've highlighted to you that we want to really be prudent on that, and that this is part of our continued commitment to the full year guidance. Based on that strong momentum, but with the FX in our face, we still feel very, very confident that we can make close the year as we have increased our guidance, I'm very optimistic about our future. Thank you for joining us today, hope to see you in person soon. Thank you.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephone.