Recordati Industria Chimica e Farmaceutica S.p.A. (REC) Earnings Call Transcript

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Recordati First Half 2026 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Ms. Eugenia Litz, Vice President of Investor Relations of Recordati. Please go ahead, madam.

Thank you, and good afternoon, everyone. I'm pleased to be here today with Rob Koremans, our CEO; and Mike McClellan, our CFO, who will present results for the first half of 2026. Also joining for the Q&A session will be Scott Pescatore, Executive Vice President of Rare Diseases; Alberto Martinez, Executive Vice President of Specialty and Primary Care; and Milan Zdravkovic, Executive Vice President of R&D. As always, the presentation is available in the Investors section of our website. It is now my pleasure to pass the call over to Rob. Please go ahead.

Thank you, Eugenia, and good afternoon, everyone. Thank you for joining us today. We are very pleased with our performance in the first half of the year. We delivered another period of strong financial results, continued to execute well across businesses and maintained the momentum that positions us to achieve our full year objectives. Revenue increased to EUR 1.4 billion, representing a 6.6% reported growth or 9.1% on a like-for-like at constant exchange rate basis. This performance was driven by the continued strength of our rare disease portfolio alongside resilient in-market growth across our Specialty and Primary Care business. EBITDA increased 8.8% to EUR 540 million, delivering a margin of 38.3%, reflecting the quality of our portfolio, favorable product mix and a continued operating discipline. Adjusted net income grew 6.7% to EUR 350 million, while reported net income increased 24.8%, supported by the strength of our underlying business. Cash generation also remained robust. We generated EUR 299 million of free cash flow during the first half and further strengthened our balance sheet, ending the period with a net debt below 1.9x EBITDA. This gives us considerable financial flexibility to continue investing in our business while pursuing value-creating business development opportunities. Operationally, Rare Disease continues to be the key engine of our growth. In the U.S., Isturisa delivered strong performance across all major demand indicators, supported by increasing physician adoption and growing patient demand. During the quarter, we also completed the planned expansion of our customer-facing teams. In addition, we took another important strategic step by expanding our pipeline through our licensing agreement with Ionis for Zilganersen, further reinforcing our long-term Rare Disease growth platform. And with that, I'll hand over to Mike, who will take you through the financial results for the first half of -- in more detail.

Thank you, Rob. Turning to Rare Disease. We delivered another strong performance in the first half with revenues increasing 17.1% to EUR 604 million or 22% at constant exchange rate. Growth continues to be broad-based across the portfolio with particularly strong contributions from endocrinology and hemo-oncology. Within endocrinology, Isturisa once again delivered an outstanding performance, growing 58% year-over-year. This reflects continued momentum in patient acquisition and conversion, underpinned by strong commercial execution. We continue to see significant opportunities for growth as physician adoption expands and more patients gain access to treatment. Signifor also contributed positively, increasing 5.8%, supported by higher volumes in the U.S. In heme-oncology, revenue increased 14.8%, led by Enjaymo, which grew 31.1% on continued expansion across the U.S., Japan and EMEA. We also had solid contributions from Qarziba and Sylvant, demonstrating the breadth of growth across the franchise. As expected, metabolic was lower versus a particularly strong prior year comparison, reflecting the timing of Carbaglu shipments across markets and softer demand for Panhematin in the U.S. It is reinsuring, however, that the franchise returned to growth during the second quarter. Overall, these results reinforce the strength of our Rare Disease portfolio, providing a solid foundation for future growth. If we turn now to Specialty and Primary Care, the business delivered another resilient performance in the first half. Revenue was broadly stable at EUR 774 million, up 0.6% on a like-for-like basis at constant exchange rates, which reflected continued growth of our promoted portfolio despite a number of expected headwinds during the period. In Cardiovascular, revenue declined 1.6%, reflecting the anticipated impact of the loss of Cardicor together with lower sales of certain mature products due to order phasing. These headwinds were partly offset by continued success of Vazkepa, which contributed EUR 14 million of revenue in the first half and ongoing growth from Pitavastatin. Urology increased 1%, driven by continued strong performance of Eligard, supported by solid underlying demand and a temporary competitor stock-out in Turkey. This was largely offset by a more challenging comparison for Tergynan following its relaunch in Russia last year. In Gastrointestinal, revenue increased 3.9%, reflecting primarily good momentum for Procto-Glyvenol across our key markets. Finally, Cough and Cold declined 9.7% as expected due to a weaker season across our major markets compared with the prior year. Overall, we are pleased with the performance of the Specialty and Primary Care business. The continued strength of our promoted brands and resilient underlying demand largely offset the expected impact of product losses, order phasing and seasonal factors, which reinforces the quality and stability of this portfolio. If we now go to geographic performance, the first half was characterized by continued strong momentum in the U.S., which more than offset a number of expected headwinds in selected markets. The U.S. once again delivered a great performance with revenue increasing 29.5%, or 38.2% in local currency, driven primarily by Isturisa and Enjaymo. In Italy, revenue declined 8.5%, reflecting the expected impact of the loss of Cardicor. Spain continued to perform strongly, growing 12.2%, supported by Vazkepa, while France declined 5.3%, primarily reflecting lower sales of mature products and phasing effects. In Germany, revenue was down 6.6%, mainly reflecting our deliberate decision to exit selected low-margin tenders, consistent with our focus on maintaining profitability. Russia, other CIS countries and Ukraine increased 7.7% in EUR terms despite the softer cough and cold season and a tougher comparison following the Tergynan relaunch last year. Turkey continued to deliver excellent growth, increasing 16.2% and 34.3% in local currency, reflecting strong underlying demand across the portfolio with price increases more than offsetting the currency deflation. Elsewhere, Portugal, other Western Europe and other CEE countries all delivered growth, while other international sales were modestly lower, largely reflecting phasing of shipments. Overall, we're pleased with the performance across our geographic footprint. Strong growth in the U.S., together with solid contributions from several key international markets helped offset localized headwinds and demonstrates the resilience of our diversified business model. Now if we turn to the P&L, solid revenue growth and a favorable product mix drove strong profitability and margin expansion in the first half. Revenue increased 6.6% to EUR 1.4 billion, supported by the continued momentum of our diversified portfolio. Gross profit increased 14.3% with gross margin improving to 71.5%, benefiting from strong operational performance, a positive mix effect and the absence of prior year acquisition-related inventory charges. Operating expenses maintained well controlled, while SG&A and R&D increased in absolute terms as we continue to invest behind the growth of the business, both remained broadly stable as a percentage of revenue, demonstrating continued operating discipline, though we expect a slight ramp-up in the second half as the additives Isturisa investments in the U.S. reach a full run rate. Non-recurring costs increased due to the acceleration of the performance share plan in the second quarter, triggered by the potential delisting of Recordati. Net financial expenses increased mainly driven by unrealized FX losses from the U.S. dollar. Reported net income increased 24.8% to EUR 269.7 million, while adjusted net income rose 6.7% to EUR 349.9 million, with a margin remaining strong at 24.8%. Finally, EBITDA reached EUR 540.2 million with a 38.3% margin. We now turn to the cash flow, we generated EUR 299.4 million of free cash flow in the first half, an increase of EUR 42.6 million versus the prior year, reflecting the continued strength of the underlying business. The improvement was primarily driven by higher EBITDA, while working capital usage remained broadly stable year-on-year. Higher income tax payments were more than offset by a favorable contribution from changes in other assets and liabilities. And we continue to maintain a strong financial position, ending the first half with a net debt below 1.9x EBITDA. And finally, we are confirming our full year 2026 financial targets. We expect net revenue in the range of EUR 2.73 billion to EUR 2.8 billion, driven by high-teen organic growth at constant exchange rates for rare diseases. For SPC, we expect low single-digit organic growth at constant exchange rates, reflecting some one-off headwinds while the fundamentals of the business remain strong. For EBITDA, we expect a range of EUR 995 million to EUR 1.030 billion, including the investments behind the Isturisa opportunity in the U.S., leading to a sustained leader [ accepting ] margins of approximately 36.5%. And for adjusted net income, we expect a range of EUR 655 million to EUR 685 million with a margin of approximately 24%. Our targets for 2027 also remain unchanged. With that, I'll turn it back over to Rob to open up the Q&A session.

Thanks, Mike. And before we do so, I would like to remind everyone that the proposed transaction with CVC and GBL is subject to an ongoing offer process. The offer document was published on July 22 and is publicly available, together with Recordati's Board statement and the opinion of the independent directors. As all relevant information is contained in these publicly available documents, we are not able to comment further on the transaction beyond what has already been disclosed. We would therefore appreciate keeping today's discussions and Q&A focused on our business, our performance in the first half year, and are now happy to take your questions.

[Operator Instructions] The first question comes from Charles Pitman-King from Barclays. Charles from Barclays.

A few, if I may. Just thinking about some of the dynamics on your product sales. Within the cardiovascular business, Livazo in particular, kind of showed very strong 1H sales. I'm just wondering if you could describe a little bit more around what the key driver of this was. And you mentioned order phasing. Was this a factor here? And how does it affect your other cardiovascular products? And then secondly, maybe with urology, you mentioned about Eligard strength. Are you able to quantify any of the benefit related to the stock-out? Is this expected to reverse? And just how can we think about that Tergynan offset? This is an unfamiliar product at least from my perspective. And then maybe just a quick final one on SPC margins. They look like they're coming down over time despite I assume most of the margin being the incremental SG&A being allocated to R&D to Rare Disease. So just wondering how you're thinking about SPC margins over time.

Thank you, Charles. It was not all acoustically as clear, I'm sorry to say on the -- but your question on cardiovascular, there's -- I'm happy to give Alberto the floor.

Thank you, Rob. Cardiovascular, there are different dynamics. I think you specifically referred to Livazo, Pitavastin. This is driven by a strong growth primarily in Russia and Turkey, which are markets where we do promote this product. But it's also partly because of the repatriation of a brand of these products in Spain that we undertook from the beginning of the year in January, bringing the product from Esteve into Recordati, while previously, the product was in the hands of international. All of that combined is bringing a higher growth of Livazo than expected. But the market dynamics remain solid and continues to grow, but more in the single digits than in the double digits. Then I think you mentioned as well about the other phasing dynamics and spreads around metoprolol and lercanidipine. There are different dynamics there with competitors out of stock with different situations in Romania with a significant crisis, both political and economic that is influencing the sales of Betaloc. But overall, the product continues to perform well on an in-market basis. The same is applied to lercanidipine, where we see also some phasing dynamics with one of our partners, Menarini, this year that is reducing the level of stock that they have or API in their business, but the in-market demand continues to be very strong in the relevant markets for Menarini, which is Russia and CIS markets primarily. So hopefully, that covers -- I could -- do you want to cover the SPC margins, Rob, or you want me to cover it?

No, happy to do that. I believe what we're doing on margins has been based on three things, right, is one, wherever there's an opportunity to increase the price and where we have the flexibility, we do so if the market circumstances allow. We continue to be very efficient in our operations and continue to focus on that. And we believe that these margins that we are now are sustainable and the rightsizing that has happened on the commercial part to a large extent and that we communicated already a couple of times is behind us. So it's really more in the mix where we have. And I don't know, Alberto, anything you want to add here?