Good afternoon, this is the Chorus Call conference operator. Welcome, and thank you for joining the Recordati first 9 months 2023 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 Lucia Abbatantuoni, IR Specialist of Recordati. Please go ahead, ma'am.
Thank you, Judith. 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 present first 9 months 2023 results. They will run you through the presentation. As usual, the set of slides is available on our website in the investor section. I will now give the floor to Rob. Please go ahead.
Thank you. Thank you, Lucia, and good afternoon, ladies and gentlemen, and thank you for having joined our 9 months conference for 2023. I'm happy to say that we've been able to continue to deliver double-digit organic growth throughout our business. In both our businesses, specialty and primary care, and in the rare disease business, we see this really good momentum of the double-digit growth. This has been achieved notwithstanding fairly strong FX headwinds that we are facing in the recent months, and not just we, anyone exposed to the same geographies. So achieving these results with these strong headwinds is something that gives us great satisfaction. Also, the fact that we've been able to maintain sector-leading margins with EBITDA margin at 38.3% gives us great confidence in the future.
Equally important is the ability to transfer and convert the strong revenues to strong free cash flow. With the free cash flow up EUR 45.5 million versus 2022, and now reaching EUR 391.8 million, we really are very proud of this result. This is a pro forma leverage of 1.9 times EBITDA. Also, in terms of our key R&D projects, we see very good progress. We are progressing to plan with Signifor, with Qarziba, with REC-559, and with the planned launch of Carbaglu in China. That actually will probably still happen this year, ahead of plan, and the filing for Isturisa, the NDA in China, has also been filed in September.
Consistent with our ambition to strengthen, in a moderate way, our ability to drive, affordable innovation, specifically life cycle, opportunities in our own portfolio, we've been able to appoint Milan Zdravkovic as our head of R&D, Executive Vice President, Research and Development, and has joined a couple of weeks ago. And I'm confident that his expertise and track records will help us, on our journey of, maximizing the opportunity for our own portfolio at, limited expense going forward. And then, thanks to all of this, the excellent business performance to date, the strong momentum of the business, I'm very pleased to say that we're expecting to deliver, our results for the full year of 2023, at the high end of our guidance.
Based on solely our organic portfolio already, we expect to exceed the targets that we set earlier this year in February for 2025 as well. I will now leave the floor to Luigi to give a little bit more color to our first 3 quarter results. Luigi.
Thank you, Rob, and good morning, good afternoon, everyone. I will, as usual, provide a bit more color on the year-to-date results, and the time obviously to then for Rob to take you through the more detail on the guidance. You know, switching to slide 3, as Rob has said, the business has performed really well over the last 9 months and in Q3. With both business units really delivering and driving solid growth, double digit in both instances at constant exchange rates.
I'll start with Specialty and Primary Care on slide 3, which again continues to grow double-digit 8% headline reported. It obviously absorbs significant FX headwinds over the last 2 quarters with all of the therapeutic areas really growing in line with or ahead of the relevant markets. The standout performance obviously continues to be the Cough and Cold portfolio with a growth of 23.8% versus last year and almost similar increase relative to pre-pandemic levels.
And this is really back on a very strong first half of the year, with revenue for Cough and Cold in Q3 starting to normalize, and was in fact very close to the levels achieved as expected in 2022, also due to the weakness of the ruble. Urology growth was equally strong, in fact, in absolute terms, an even larger contribution to our growth for these 9 months. This is really driven by the continued strong in-market performance of Eligard, which continues to gain share, and which we're very happy to report, we've now started the transition of the new device across those markets, and namely Ireland, Portugal and Denmark.
And we expect now the transition to follow across the region in Q4 of last year and beginning of 2024. And clearly also the first 9 months and Q3 results reflect the first contribution of Avodart and Combodart of EUR 3.8 million, which I'll come back to in a minute. Very pleased also with the resilience and actually growth of our cardiovascular portfolio led by Lercanidipine, particularly with sales to our international partners growing. And also continued solid growth of our gastrointestinal portfolio both on the Rx and OTC side.
And even within the other, other products, growth of only 1.2%, but that is a mix of, you know, a number of products growing nicely, Reagila, Methadone, Suprefact and others, offset by some of the pressures we anticipated at the start of the year, Ortoton in Germany, from reference pricing and just decision to let go of some tender business there.
You know, I'd like to think these results confirm the ability for our organization to, you know, sustain the products or sales of our established products, and really drive the growth of our growth drivers, and sustain that sort of midterm growth of mid-single digits, which is what we said we aim to deliver over the years ahead, for SPC. But clearly, since the announcement in July of the latest deal with GSK, you'll see on slide 4, we've been busy. Busy working through the transition of the sales and distribution activities related to Avodart and Combodart.
As hopefully you will appreciate, we have once again confirmed a track record of being able to integrate new business quickly and effectively with 5 markets already going live in the month of September and contributing to the revenue. Further ones have gone live since, which clearly, thanks to the effectiveness and the speed with which the transition is being managed, we're very confident to deliver at the high end of that EUR 10 million-EUR 20 million range we provided. With Spain actually transitioning the last few days, you know, may even do slightly better than that.
But, you know, once again, very pleased with both the market performance and the ability to integrate this latest and exciting new business, which allows us to further strengthen our leadership in urology. But switching to slide 5, in rare disease, clearly we are just as proud and pleased with the performance of our rare disease franchise. Continue to grow high double digits with, you know, really driven by both our endocrinology and oncology franchise, which are absolutely on track to deliver on the expectations that we've set, both midterm and longer term. To highlight, some of you may have noticed EUR 150 million revenue for the first 9 months.
Our rare oncology portfolio has already achieved the initial sales expectations we set for full year 2023. So clearly, as we had anticipated already at the start of this year, moving ahead of plan, thanks to both the strong growth of Qarziba and Sylvant and also some nice positive momentum of Fotivda. A very strong continued patient uptake on Isturisa and double-digit growth of Signifor on the endocrinology side, which will be a key growth driver over the next years for the group.
Again, here, a nice milestone achieved over the first 9 months with, if for those of you who may have read the fine print, Isturisa achieving close to EUR 100 million of revenue in the first 9 months of this year and continuing to grow. Pleasing obviously to see, as already mentioned, we have now filed for regulatory approval for Isturisa in China, following the approval already earlier this year of Carbaglu, which we hope to see, we expect to see first commercial sales in China of Carbaglu already in the coming months this year.
And finally, we'll say, you know, we're very pleased also with the resilience of our metabolic portfolio, with growth of Panhematin in US, Ledaga in Europe, offsetting the erosion of Carbaglu, in US and EMEA. But, you know, Carbaglu itself is growing in international markets, and will continue to do so. And, you know, metabolic will be further sustained by the increased penetration in international markets. I think Rob has already touched on the updates on the lifecycle management programs.
Just to reiterate them briefly, we're ready for the Type C meeting, which is now scheduled for next week, for Qarziba BLA in the U.S., and hope to will be enrolling first patients in the PBH study on pasireotide in the next weeks, and expect to close out the enrollment of patients in the REC-559 phase II study by the end of this year, all as expected. And clearly, this performance year to date and this momentum on our projects gives us confidence to have a really strong foundation in rare disease to continue growing, as we promised, double digit over the coming years, and with these exciting projects that we think can provide further growth beyond that.
On Slide 6, very obviously, again, pleasing to see all regions are really contributing to the growth. Of course, this quarter, we celebrate the continued very strong performance of the US business on the back of the Endo/Onco Panhematin growth. US has now become, for the first time, the first business unit for the group. But it's nice to see that it's not the sole driver, and clearly, you know, Italy are also growing double digits, as are many, you know, many of the other markets growing at a high single or double digit themselves.
The one exception of Germany, we said at the beginning of the year, we would expect erosion from reference pricing on Ortoton and Claversal, and a decision to let go of some tender business with very, very low margins. You know, other than that, very solid performance across multiple geographies. In terms of the outliers, you know, Turkey clearly at 32% growth in Euro terms is fantastic, supported by both double digit volume and price increases awarded and achieved by our teams in excess of the very sharp devaluation in the market. Russia, CIS and other CE countries also growing high double digit, also offsetting the impact of devaluation.
Clearly, that's very much on the back of the very strong cough and cold portfolio beginning of this year, and also the carry on of price increases taken particularly in 2022. Finally, to call out other international sales growth of 21%, and that's really a reflection of the addition of the Onco portfolio, the strong growth of the rare disease business in international markets, and higher sales to distributors, which on the lercanidipine, which this year have bought earlier than previous year in several instances. Very, very robust top line, and equally robust PNL, which you will see on Slide 7.
Thanks to the revenue growth, and the operating leverage that provides, and the continued cost discipline, you know, our margins have remained, and remain strong. You know, gross profit margins are holding up, better than anticipated at the start of the year, at 71.5% on an adjusted basis. It is slightly below the first 9 months of last year. We always said, you know, we would see at some point some impact from inflationary pressures, which is coming through. You know, given the decrease in inflation rates over recent months, we do expect this to be relatively much more mild and temporary than had been expected in February.
We did take, at the level of gross profit, an adjustment through up to the unwind of the non-cash fair value step up on the acquired inventory of EUSA, also primarily due to the higher sales of the oncology products. As SG&A expenses, growth of 6.6%, and a 28.2% of revenue clearly reflects the benefit of the synergies and efficiency initiatives that we already announced and initiated last year.
R&D costs are very much, you know, gradually increasing, part due to the additional amortization of roughly EUR 10 million, but also as we've started to progress some of our life cycle management initiatives, stripping out of amortization, you will see it's still well below the 7%, which we said it would grow to over the planning period. And finally, confirming their non-recurring nature, you would see that other expenses of EUR 5.6 million being mostly residual costs related to SPC rightsizing significantly below last year, which also obviously reflected one-off costs related to the acquisition of EUSA. This said, you know, leads to a very strong financial results.
EBITDA at just under EUR 596 million is 38.3% of revenue, growth of 15.4%, versus last year. And yes, I'm fully aware that this is slightly above the ±37%, the guidance for the full year, reflecting, as always, and in fact, very consistently been the case for the group, somewhat lower margins due to a number of reasons, mix, particularly with regards to the international sales portfolio, gradual step up of R&D saving of activities, which will imply a slightly lower Q4 result, but...
Very, very strong performance, and also at the level of adjusting net income and net income, we see growth of 26% and 14%, respectively, reflecting strong, operating results, which absorb, you know, EUR 49.1 million of financial expenses, slightly above last year, but reflecting higher interest charges, which are offset by lower effects, losses, which would occur in the first 9 months of 2022. Very, very happy to see the strong revenue and profit growth translate into increasing cash flow.
On slide 8, you would have seen free cash flow of EUR 391.8 million, which is over 45 million ahead of last year, reflecting the really, really strong results, which offset obviously the increase in working capital, strictly driven by the increase in business and higher cash interest expense. Obviously, in the first 9 months, we've made the upfront payment to GSK of EUR 245 million. The residual of EUR 70 million payment to Tolmar, which was due upon approval of the new device across the key markets, and earlier in the year, obviously, the residual milestones of $20 million to Novartis for Isturisa.
But, you know, thanks to this great free cash flow, you will see on slide 9, you know, we have managed to absorb both this and the dividend payment made in May, with net debt of EUR 1.5 billion just EUR 84 million above the number at 31st December 2022. With leverage at 2x on a as reported basis, and 1.9x last twelve months EBITDA, accounting for a full year benefit of the Avodart and Combodart contribution. And with that, I will hand back to Rob to close with an update on the guidance.
Thank you, Luigi. Given this very strong business momentum, and despite the sharp increase in the currency headwinds in the recent months, it's clear that we will likely end 2023 at the high end of the upgraded guidance rates provided in May. All businesses are performing well, and this, combined with the fact that we now also have Avodart and Combodart, it's equally clear that we will exceed the targets set for 2025 that we shared with you in February of this year.
With our current portfolio alone, so not factoring any BD or M&A activities that we will continue to do, but with or the current portfolio alone, we're now likely to deliver both revenue in excess of EUR 2.4 billion and also a slightly increased margin compared to what we have been sharing with you in February of 2025. Margins to stay around 37%. Like I said, our strategy does remain unchanged. So in addition to this strong organic growth, we feel well positioned to continue pursuing accretive and growth M&A and BD opportunities, and we'll definitely and we are engaged in this as we speak.
We are committed to growing, maintaining our margins, and very clear capital allocation policy with a very strong balance sheet, and equally committed to treating the planet in the right way and having a sustainable development. Where we're also making very nice progress to date, as recognized by some of the ratios. So with that, I would like to end our presentation and basically open the floor for questions and answers.
Thank you. This is the Chorus Call conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. To remove yourself from the question queue, please press star and 2. Please pick up the receiver when asking questions. Anyone who has a question may press star and 1 at this time. The first question is from Charles Pitman with Barclays. Please go ahead.
Hi, thank you very much for taking my questions. Sorry, I just wanna kind of go back over the comments with respect to the FY 25 guidance, and I was wondering if you could just help us think about the expected contribution of Avodart and also, like, the contribution of the 1 key phasing benefit seen this year. Is that just expected to kind of carry on now, or is that still expected to unwind? And then just maybe, secondly, if you could just speak to the level of synergies of and commercial, to the commercial strategy that you've identified between Avodart and your existing urology portfolio, as Avodart's now kind of been folded into the Recordati portfolio.
Yeah, just any further thoughts you can give us around how you further expect to extract value from this acquisition? Thank you.
So, Charles, maybe I'll start. So thank you for the question, first of all, and, you know, maybe I'll start with, you know, your question on the guidance out to 2025. You know, first, obviously, Q1 phasing benefits have no bearing on the 2025 guidance. That was sort of transitionary and in nature, so by definition, they will not affect. With regards to Avodart and Combodart, you know, as we've set out in the past, you know, our 2025 targets included an assumed contribution from, you know, potential deals that we may make.
So obviously, you know, to an extent, Avodart and Combodart—having done the Avodart and Combodart deal, that goes to, if you like, fulfill that part of the assumptions. But I think it's fair to say, I mean, if you look at our performance this year, it's, the business is clearly performing better than we had set out at the beginning of 2023. I think if you even just take 2023, as I say, as a point, I mean, yes, we'll be adding EUR 20 million or thereabouts from Avodart and Combodart. We said at the start of the year, within the 2023 guidance, that we're expecting 1%-2% effects. We now said it's very much on track to be around 4%. We're already 4.3% in the first 9 months.
I mean, that more than offsets, the contribution from Avodart and Combodart. So, so I think, while it's fair to say Avodart and Combodart fulfill the expectation that we would continue to be able to do deals, and we've done that, and very proud that we did. I think it's fair to say, and this is also why we wanted to, to emphasize this, you know, it is, our current portfolio, which is really, tracking ahead of expectations, both on the specialty primary care side and on the, RRD side. Hopefully, that addresses your, your question. And-
And maybe, Charles, on Avodart, Combodart itself, we in urology, we have a very clear portfolio strategy with Avodart and Combodart addressing very different patient segments and very different patient needs and indications than, for instance, Urorec or Eligard. So and what the revenues from the product where we now took over from GSK, the commercialization and distribution, we have, it's about EUR 115 million. We also communicated that we expect to do a mild growth of this. And what's really pleasing is to see that we're able to convert this distribution to us sooner than expected. We're delivering fast, and the initial feedback from the market also is very positive. So it's... I'm very happy with this deal.
I think it's really a good value generator and fits perfectly and will not go at cost, but in fact, completely builds on the presence we've built for Urorec and Eligard and fits nicely into the portfolio without any cannibalization or any negative competition.
Thank you very much.
The next question is from Alex Simon with Tikehau Capital. Please go ahead.
Hi, thanks for taking my question, and congrats for the results. Would you please provide some more color on how you intend to approach refinancing of your 2025 maturities? Thank you.
I'm sorry, but I think you've dialed into the wrong conference call. This is Recordati. We have nothing to do with the high yield bond maturing in 2025, which I think relates to our majority shareholder. So apologies, but I have no info on that.
Can we go to the next?
Yeah. Next question, please.
The next question is from Martino De Ambroggi with Equita. Please go ahead.
Thank you. Good afternoon, everybody. The first question is on the rare diseases. First, is Isturisa plus Signifor, am I right in assuming that this year will beat the EUR 240 million, which is the high end of your guidance range? And for Isturisa, you, you already stated that it's going better than expected. I suppose also EUR 200 million, which is the high end of the guidance range for Isturisa, is also possible. And apart from referring to the 2025 guidance, apart from the inclusion of GSK acquisition, am I right in assuming that excluding GSK, what is going better than expected is mainly the rare disease business also for 2025 expectations, or am I wrong? These are the first 2 questions. I have another couple later.
Thank you. Thank you, Martino. Maybe just a very brief first part, and then I'll pass to Luigi. But I think what's really going better is our entire business, right? We see the momentum in SPC, in our specialty primary care, where traditionally, I think the growth, we always looked at something around 3%. We're now much more going into a couple of % higher, which is really very nice. So we're very confident, and we see the stabilization of the old portfolio and the strategy really working out on driving growth, platforms within SPC. And you're also right to see that our, our rare disease business is performing better. The oncology, what we set out for the target for, for all of, 2023, at EUR 150 million, we already achieved after 9 months.
So a great momentum, very good momentum in Endo, and we don't see that end anytime soon. So but both businesses really contribute at the moment to a good momentum, and that is also the basis for adjusting the guidance that we. And it's not a firm in that sense, but I'll ask Luigi to give some color on that. But on both our businesses, on the organic and now combining also Avodart and Combodart into it, we are extremely likely to get to EUR 2.4 billion at least.
Yeah, so thank you, Martino, and obviously, I echo what Rob has said. Just to maybe slightly correct, the high end of the guidance that we provided for this year on the Endo franchise was EUR 250, because we said EUR 220-EUR 250. And for Onco, it was EUR 185-EUR 200. I'm not gonna, I mean, obviously, as we said, the business is doing well. I'm not gonna dissect this year's higher end of the revised by business. Obviously, the businesses are doing well.
I think I'd expect these businesses to be at the higher end of those brackets, but I wouldn't speculate now, you know, where exactly, and it is gonna be just south of the top or just north. But you know, we're very pleased. But as Rob has said, it's not just rare disease, there is also the specialty and primary care. We had said that we would grow SPC at a constant exchange rate 4%-5% over the plan years. This year is clearly doing better, and we expect to go back to around that sort of growth rate. But obviously starting from a higher base and having already secured now a nice accretive deal, which fits very nicely in the portfolio.
So, again, once again, for us, it's a really broad-based overperformance versus, you know, expectations at the beginning of the year.
Okay, thank you. 2 follow-ups. 1 on Isturisa in China. What is the timing you expect to start marketing activity? And I don't know if you could remind what is the potential contribution of China in this field. And last question, in one of your slides, you said, "Capture opportunities within our pipeline." Just to understand, what are the most important ones, apart from the products we already know and we discussed during the call, but what is not included in your 25 guidance and maybe could be added in the best case scenario?
Martino. So on China, we have Carbaglu, that is gonna be an important door opener for our own organization in China. We always said we would be expecting first sales beginning of next year. We now see it coming at still this year, which is good. And we also shared for Carbaglu, the peak sales expectations to be something like EUR 15 million-EUR 20 million based on our current know-how. Isturisa has been submitted in September of this year. Typically, you would expect then an approval towards the end of next year, with a launch in a couple of months later. So somewhere in the first half of 2025, for sure, but maybe even a little bit sooner. So...
That's always a bit difficult to predict with China, so I'd like to be cautious there and not overpromise. Isturisa is an interesting product. We believe it has a potential of about EUR 50 million, which we also shared for China. So the opening of China, where we are already present through in the oncology franchise through our partner, BeiGene, but this for the metabolic and endocrinology franchises, where we feel we are very well positioned to do this. And we're on track, in fact, going a little faster than anticipated, so we're very happy with that. That I hope that answers your questions on China.
Yes.
The other question, I think... Sorry, there was a second question on?
Yeah, what is not included among the opportunities within our, your pipeline?
So if you look at the opportunities that we're addressing in our current pipeline, and we do see opportunities mostly in the endo and onco space, but to tackle those, it's really label extension, and typically, this will come beyond 2025. So our approach there is very modest step up of activities, really driving affordable innovation there within a low risk, but also a fairly low investment, increasing by about 1% of sales over the 3-year period from 2023 till the end of 2025, our expenditure. But doing that also generates future growth, which for us is equally important, right? We want to grow today, tomorrow, but also in the mid-term future, mid-term and long-term future. And within this portfolio, we see some opportunities.
We'll share that, but when we have more data, I think I would like to stop there and basically stay with this answer so far. Hope it helps.
Thank you, Rob.
The next question is from Alistair Campbell with RBC. Please go ahead.
Afternoon, and thanks for taking my questions. I've got 3, if that's okay. First of all, Urorec, you know, historically or certainly early in the decade, that was a bit of a headwind, with some loss of exclusivities, but actually delivering really impressive growth this year. I wonder if you can just help me understand what I should be thinking about for the trajectory of Urorec going forward. Is that something that should continue to be a very positive growth driver, or should we be thinking more of a sort of stable franchise from here? Secondly, just really a modeling question on the PPA adjustment. It was a bit bigger in Q3.
I wonder if that's kind of most of it done now for the year, or should we be expecting more in Q4 and indeed, more to come in 2024? And then just finally, just in terms of, yeah, M&A and what you're thinking about, I mean, I suppose-
... I was broadly thinking maybe you'd favor R, RRD over SPC. Obviously, SPC is performing very well. The GSK transaction's off to a great start. So I wonder how you think of the balancing M&A opportunities between SPC and RRD. Thank you.
Thanks, Alistair. So let me start with your last question. We've always said that both businesses are equally important, and overall, our business is really performing, so there's no immediate pressure to do a deal. We will continue to be as disciplined in the capital allocation as you've always seen Recordati be. But having said that, clearly, I mean, I would be very happy if we could really do a rare disease deal with a strong focus on the U.S., where ultimately the biggest opportunities for this business will be. We have the entire organization and the ability to do something fast and leverage it as best as we can there. So that would be very, very high on our wish list.
But it's always difficult to exactly plan what happens when, and we continue to look at opportunities for both businesses, with the discipline that I stress. Maybe on your first question, Urorec is doing really well. Thanks for the compliment, and I think it shows the model of Recordati that that works. If you are able to select molecules, even after loss of exclusivity, there is life in them, and you can really generate profitable growth, and that's what we've seen with Urorec. I would expect, though, that going forward, this is gonna be more of a stabilization, and that that in the entire portfolio, we will see some modest growth, more for the Avodart Combodart now and continued growth also for Eligard.
But Urorec specifically, I don't expect it to, because it will be more stable.
And Alistair, I'll on your second question, and thank you, by the way, for the opportunity to to to further clarify. If you look back to what we sort of published, you know, following the deals, the fair value uplift that was done in the acquired vendor inventory was to the tune of EUR 140 million. There was EUR 50 million, which close to EUR 50 million of that, which unwound, and you will find in the 2022 results. You know, we'll expect the number for this year to be higher than that that we were expecting in line.
And obviously, you know, the business has been growing a little bit faster, and also, we've been going through some of the, if you like, intermediary stock that we picked that we acquired a little bit faster than expected, so hence the true up that you saw in Q3. So, you know, I would expect the full year number, I would expect to still see some in Q4 and the residual in 2024. It does depend a little bit on the specifics of which products get sold of Carbaglu and Sylvant inventory.
I'm not able to give you a very precise estimate of what would be Q4 2024, but the full number was EUR 140, and you should subtract from that what's been taken to date this year and last, and the residual will, you know, in part be done Q4 and part be done Q1, Q2 next year. Does that... hopefully that helps.
Yeah, super helpful. Thank you.
The next question is from Nicolò Storer with Kepler. Please go ahead.
Yeah, thank you. Thank you for taking my 3 questions. One is a follow-up from the very last one on inventory, at least, effect on figures. Did I understand well, you said, Luigi, EUR 140 million over the 3-year period, 2022, 2023, 2024, right?
Yeah, that's what I would expect. And that's still very much it is. The EUR 140 million is obviously a given. That won't change, and it's just the speed with which we go through that inventory that determines how much of it we take in one period or the other. And you know, it being on a positive side, that we'll be going through it faster than expected originally.
Okay, perfect. Thank you. Other questions, first one on gross profit and gross margin. If I focus specifically on Q3, I see that we have nearly 200 basis points less than last year. So if you comment on which items have moved the margin in this direction, and whether we should expect this to clearly continue into following quarters. And the second one may be a comment on the metabolic franchise. Again, Q3 performance, double-digit decline, which have been the drivers. Thank you.
Sorry, on the gross profit margin, look, I think, you know, there is a little bit of noise in the number, certainly at the reported gross profit level from the PPA, from the PPA adjustment. You know, in any single quarter, there'll be a number of factors. The first half of this year, we benefited from you know, very high volumes, particularly in Q1, with therefore, an overabsorption of the fixed cost base on the manufacturing side, and some of that has unwound in Q3, combined with, and always said, you know, we would, at some point, see a little bit of the effect of inflation, which I've always said, does take a little bit of time to come through.
We're not gonna give sort of detailed PNL guidance for Q4. But no, I wouldn't expect, sorry, I wouldn't take Q3 as a sort of proxy for next year, if that's yeah.
Nicola, on your question on metabolic, we're very pleased and happy with the growth of both Panhematin, that has really almost found a second youth again, and it's really growing quite nicely, and we're super happy with that. And also, Ledaga is growing quite nicely versus last year. On Carbaglu, we see generic impact, mostly impacting the prices, frankly. And we have 2 generics in the U.S. market. We had anticipated even a bigger impact to be careful. We maintain our patients, actually are able to capture also new patients, and there's a huge loyalty of both doctors, patients, and families to the product. But clearly, with the generics on the market, we sell at lower prices, and that's what you're seeing.
And that's not US, that's also... It's not just US, sorry. That's also happening in Europe. But then we also said, like Carbaglu, in a couple of weeks, we'll see the first sales in China coming. And with products like this, and I've seen it in the past as well, in the so-called emerging markets, you still have opportunities years later, and that's what we're seeing here. So for these products, we continue to be positive. So metabolic, for us, remains an important pillar of the business. Clearly not the growth driver per se, if you combine everything in metabolic, and the growth drivers are Endo and Onco. But meta is a very nice business. And there's many products.
Another example would, for instance, be that we have Juxtapid in Japan. It's also doing quite nicely. So wherever we focus on these ultra-rare products, oftentimes for ultra-rare diseases, it's we can really make an impact, and we continue to benefit from it also after long after loss of exclusivity. Does it help?
Thank you. Perfect.
The next question is from Isacco Brambilla with Mediobanca. Please go ahead.
Hi, good afternoon, everybody. Just 1 question from the side that have already been answered. Focusing on the specialty and primary care segment, if we look at figures, including Turkey, looks like performance over the third quarter was broadly flattish year-over-year. Just wondering if you can provide us a bit more color on drivers of this performance, if there is anything hinting at a structural slowdown, or is it just normalization of extraordinary stockings in the first quarter and normalization of cough and cold products since in the first part of the year?
I, Isacco, thank you. No, I mean, SPC was really down to the FX impact. I think, if you, if we were to back out the impact of FX on SPC in the quarter, it would still be just above 10% growth. Don't forget... And, you know, from my perspective, that's actually quite impressive, given that Q3 starts comparing against a quarter last year, where we did start to see the cough and cold business already starting to recover post the pandemic, and was slightly ahead of pre-pandemic levels already last year.
So, no, not at all, the business has performed well into Q3, with, you know, if you're adjusting for effects, an underlying growth still of 10% in the quarter.
As a reminder, if you wish to register for a question, please press star and 1 on your telephone. For any further questions, please press star and 1 on your telephone. The next question is a follow-up from Isacco Brambilla with Mediobanca. Please go ahead.
Hi, sorry, just 1 quick follow-up from my side on full year 2025 targets. Any additional color on, say, you are commenting this is based on current parameters. Fair to assume, you're, you are still committed to, to consider M&A opportunities over the coming years, also with other competitor integration proceeding apace. Maybe this is more a question for Rob. Do you see the structure... ready, already now to potentially for sure M&A in the coming months?
Thank you, Isacco. Thank you for the opportunity to clarify. I was very committed to M&A, BD partnering, and we're absolutely ready to take on the next opportunity. We're actively pursuing some, and it's always been an important part for Recordati, and it will continue to be an important part for Recordati. But you're right, even without this, we are very, very well positioned because the business is just doing quarter after quarter very well. We're very well positioned to now exceed the guidance that we gave for 2025 and get to exceed EUR 2.4 billion in revenues.
But absolutely committed to doing the right deals, but also equally committed to making sure that from a deployment of capital point of view, the return of the capital should be really attractive. And it's not just doing deals for the sake of growing, but it's really generating long-term profitable growth in areas where we can make a meaningful contribution to patients and rare disease, very often able to address unmet needs. And in SPC, really making meaningful contributions to the quality of life for big diseases like hypertension or prostatic hypertrophy or... And so we commit to that, and we'll continue to commit.
Okay, thanks.
The next question is from Laura Hamsher with MFS. Please go ahead.
Hi there. Thanks for taking my question, and apologies if you had mentioned this, but just regarding M&A, what is your financial policy in terms of leverage? Like, what's sort of the maximum you would be comfortable, sort of reaching for the right opportunity?
Yeah. So thank you for the for the question. There's no change to what we sort of said when we last did the plan on that. You know, we said that the key pillars of our strategy and value propositions remain unchanged. The plan to 2025 for so leverage between 1.7-2 times. But we did say, and we've said this at least since the last 5, 6 years, that we do feel as a business, thanks to the strong cash flow performance, we could have the flexibility to go up to close to 3 times. If really a right opportunity of scale came up, I requested it. But...
You know, you've seen, you know, biggest deal we did to date. Immediately after the deal, we went to 2.5 times, and then very quickly, we were down to, you know, below 1.5. Now, we've done GSK, where, you know, we're 1.9. And, you know, if ever we did do something, you know, which, you know, takes us up too close to those levels, we clearly do it with an intent to then deleverage pretty quickly. So, our commitment to keeping a solid and healthy balance sheet is as strong as the commitment to continue driving organic growth and enhancing that with BD and M&A.
Thank you.
I hope that answers your question.
Yeah.
I think, operator, we probably have time. Operator, we probably have time for 1 more question.
All right, so the last question is from Paul Coughlan with Amundi Asset Management. Please go ahead.
Hello, thanks for taking the question. Just 1 question, actually. Do you have any intent to get back into the bond market in the mid, short to midterm future, as against, say, working with term loans?
We've not been, that I'm aware, in the bond market, at least not sort of public bond. We've done a couple of private placements in the past. So, again, you know, right now we're very happy with the conditions we get from our relationship banks. So, no near-term need or desire to look at other financing options. But, you know, these are the kind of things we evaluate over time based on market conditions.
Okay. Thank you very much.
Thank you, Paul, for that last question. And thank you, ladies and gentlemen, for having joined us today. I mean, we were pleased to report yet another strong Q1 quarter for Recordati, which now sets us really well for exceeding not only the 2023 initial guidance, and we're now going to end really at the top end of our May guidance, but also improve both the margin and the revenue expectations for 2025. The business is doing extremely well, and we'll keep you updated with any relevant developments as we've always done. And thank you for having joined today. Bye.
Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.