Fagron NV (FAGR) Earnings Call Transcript & Summary

Hello, and welcome to the Fagron trading update Q1 2022. Please note, this conference is being recorded. [Operator Instructions] I will now hand over to your host, Karen Berg, to begin today's conference. Thank you.

Thank you, and Good morning, everyone. Welcome to the presentation of our first quarter 2022 trading update. I'm here together with our CEO, Rafael Padilla; and our CFO, Karin de Jong. Rafael will start with a discussion of the business development, and then Karin will discuss the financial development, and then we will open the line for questions. Well, thank you for that. And I would like to hand over to Rafael.

Thank you very much, Karen, and thank you all for joining us into this Q1 conference call. We start always with our purpose as we are a culture-driven company. Together, we create the future of personalizing medicine. Personalizing medicine is the future. And pharmaceutical compounding mix is possible today. Pharmaceutical compounding is a highly fragmented niche market. And if we move the slide, Fagron is the global player in this interesting market. We're present in 35 countries with a clear customer-centric focus. And during the Capital Markets Day, we elaborated in our 4 strategic priorities, being the first one, global leadership in Brand & Essentials across the markets where we are in. Good examples are Belgium, Brazil, Czech Republic's and markets where we need to get there are, for example, Germany, U.S. or France. Our second strategic priority is to become the leading, global, platform for sterile outsourcing services. Those are the activities that take place in hospital pharmacies. And we are the only company present in [ more than one ] country, currently in 5, the U.S., Belgium, the Netherlands, Israel and South Africa. Our third pillar that we also discussed during our CMD, is to optimize our non-sterile compounding and registration business in Europe, particularly in the Netherlands. And we see registrations as an evolution of these non-sterile compounding, and that's the reason that we brought them together as one product. Last but not least, very important, 3,000 colleagues, we want to build the organization of the future with a clear sustainability focus and also digital capabilities. However, we want to execute in our One Global Fagron program with 4 Enablers: Global Operational Excellence from product development to the customer. Second, the Fagron Academy, our platform to generate more scripts and to promote our branded products, an active and Disciplined M&A and a clear ESG Focus. When we move to the next slide and we start with some developments in this first quarter of global operational excellence. On the product development side, we launched, as an example, in our [ formula ] division, those are the machines -- the devices to make personalized medicine. We launched the Easy Compress Pro with a machine that allows pharmacies to create, to produce personalized tablets. We also launched in the global brands, the FemPhyllo. This is a vaginal film that increases patients' adherence in this kind of therapies. We launched in the frame of the integration of Pharma Tamar, the company that we acquired as a [ '19 eval], our genomics line, Tricho to be more precise that, that's proof of concept. In the FSS and that [indiscernible] April, we're going to launch the first Epidural products and also the first 10 KitChecks or syringes. And now what we have in the pipeline for this year are 300 new items that we're going to launch across the regions that we are in [ present ]. If we move now to the next slide, more on the operational side. We start with the procurement and supply. That is, of course, very important for us. We all see that currently, there are challenges in the supply chain. As you know, we invested in inventory at the end of the last year. That was a good decision as we feel less the impact of these challenges, and so we did at the beginning of Q1 in order to navigate through these turbulent times. Regarding the price increases that we need to, of course, pass through to our customers. We have different abilities depending on the markets, and we see the same picture as we saw during COVID times. Moving now into our all operations. Our new GMP repackaging facility in Poland is now on track. And at the end of [ H1 ], will be totally operational. And of course, we also announced that in Colombia, we are bringing the 3 facilities that we have into one. And we did get the certification during the first quarter, so that project is also finalized. Here on the right side, we see a picture of [indiscernible] in the mix. When we move to the next slide and in the Global Operational Excellence part, still our FSS U.S. activities, that is, of course, a very important driver for us, not only in 2022, but also in the years forward. There are 2 very important elements in order to be successful in this era of outsourcing services market. [ If I were to remarket ] in the U.S., the first one is quality. And that's the reason that we relocated our activities on the west side of the city Wichita, that was the original JCB facility at that time, into the East side. And during the first week of March, we received the FDA. We had an audit, and that resulted in only 6 minor observations. So on the quality side, we are aligned with what we always said we want to have high quality standards, very important for this business in the U.S. On the service side, we also explained many times that service levels above 95% are extremely important in order to capture that market. We are now expanding our warehouse across the street. During Q2, we'll have that one ready. And we'll be able to move the products into the other side of the street, into the new storage room. And this will allow us to organize our [ post ] production. As you know, we also explained during CMD, it is our current challenge there, into the operations into the FSS, U.S,, east side. And we're going to have, during the second semester, a new automated labeling. Now we have it manually. We do them manually. And also, the business inspection that will go from one bag per minute to 20 bags per minute. And of course, as we also said during the second semester, we're going to have third shifts. So all these elements will bring us to the USD 125 million run rate at the end of this year. Now we move in to the second enabler, Fagron Academy, that is really important for us. We received almost 11,000 participants, pharmacies, prescribers across the globe. And now as restrictions were phased out, we can receive our customers into our facilities or, of course, in other places. And we can explain them personalizing medicine, how to prescribe and also how to compound in our branded products. Moving to the next enabler, our active and disciplined M&A. We announced at the beginning of 2022, during our full year's '21 results, acquisitions in North America, Letco, that brings us into the #2 position. In the U.S., the divestment of our CMO activities to have laser focus on pharmaceutical compounding. And in Europe, we acquired also -- or we announced 20% stake in HeW Pharma. That was at the end of 2021. And the acquisition of Pharma-Pack in order to reinforce our leading position in the Brands & Essentials in Belgium. In February '22, we acquired Curaphar here in the Netherlands. It's in our Compounding Services divisions. Curaphar distributes exclusively, Pedippi and Pedippi is the [ Restor ] omeprazole suspension compound. So what we explained many times during the last quarters is that when a compound -- in stock compound gets somehow big in terms of volumes, you see registrations from different pharmaceutical companies. And now, we're actively taking action in order to protect the main compounds that we have in our portfolio. And omeprazole suspension compound that is used in heartburn, now it's been also protected with this step. And in the beginning of April this year, of course, we have acquired HiperScan in Germany. And that helps us in order to have this leading position in the Brands & Essential market in Germany. HiperScan is a company that develops and produces equipment for the quality control check of the raw materials that enter into the compounding units in the community pharmacies in Germany. And that's compulsory by law. So all the pharmacies that do compounds in Germany need to make this quality control check in order to compound. So we're going to add and integrate our new colleagues from HiperScan into our Fagron plant division. Of course, we have, as we said then, with the acquisitions of Pharma-Pack and Letco, the integration is going according to plan. Now moving to ESG, and that's the last enabler of our 4 strategic pillars strategy. ESG is at the core of the company. Pharmaceutical compounding makes medication accessible to a vulnerable group of patients. And what have we done during the first quarter? We installed 1,000 solar panels in our facilities. We launched a very interesting Fagron Female Mentorship Program. We are going to appoint 3 new Board members at the AGM, 2 of them females, resulting in 5:4 male/female ratio. We're going to start our annual Compliance & Ethics training focused on recognizing unwanted behavior in the workplace, also very important for us. And we published our annual report 2021 with, of course, more extensive reporting on ESG compared to other years. And now we'll go to Karin.

Yes. Thank you, Rafa. Good morning, everybody. The next slides, we'll talk about the financial results, trading update of the first quarter. So the next slide, we see the geographical breakdown of our sales. We had a robust first quarter with 16% reported revenue growth and 7.6% organically against constant exchange rates. The growth is driven by all regions with all markets having their own dynamics. The revenue growth was further supported by our M&A activities in the U.S. and EMEA and have each positively impacted our results with the Brazilian real and the U.S. dollar strengthening in the first quarter of 2022. EMEA showing 6.7% revenue growth. North America reported 31.8% growth. And Latin America reported 14.7% growth. We move to the next slide, EMEA. EMEA region, returning to growth again. So EMEA reported 6.7% revenue growth and 3.6% organic revenue growth against constant exchange rates. The combined Compounding Services and Registration business showed a slight increase of 2.8% or 0% organically against constant exchange rate. We see stabilization in underlying businesses and growth driven by a small acquisition, Curaphar, and FX tailwind. Brands & Essentials showed an increase, where Brands showed a slight decrease because of the phasing out of COVID-19 products, compensated by organic growth and sales of COVID testing in the Essential business. We move to LatAm. The LatAm region influenced by FX and the economic situation in the first quarter. So in Latin America, sales increased by 14.7% to EUR 36.6 million, a 3.2% organic growth against constant exchange rates. Sales was driven by growth in all countries and was positively impacted by the strengthening of the currencies, mainly the Brazilian real. In January and February, the business was impacted by a number of people being infected by the Omicron variant. The Compounding business is very labor intensive, so this impacted our sales. We also experienced impact because of the strengthening of currencies and the economic situation, resulting in a stabilization of demand in the first quarter in Brazil. However, as we always mentioned, Latin America is a very competitive and dynamic market, which can have quarter-to-quarter impacts. However, we confirm our midterm guidance, we have given during the Capital Markets Day. If we move to North America. So the North America had a strong performance, driven by growth in Compounding Services, a tailwind of currency and M&A activities. So U.S. growing by 31.8% or 18.4% organic against constant exchange rate. The growth is driven by a continued high demand in Compounding Services and further supported by M&A growth due to the acquisition of Letco. So in the first quarter, we still experienced impact in the Brands & Essentials due to COVID-related products phasing out as well as the divestment of the CMO business. We believe the acquisition of Letco and the divestment of the [ CMO ] business, we are well positioned to capture market share and become the market leader in the midterm in the Brands & Essentials. Compounding Services increased by 54%. And we experienced a slight cooling off period as we consolidated the Wichita's 2 503B sites into one high-quality, automated facility. We have a run rate of $76 million in March 2022. And we are on track for a run rate of USD 125 million at the end of 2022 with the actions described earlier in this presentation by Rafa. Anazao sales increased by 33.8%, also benefiting from strong market dynamics in the 503A and B markets. So the 503A market is consolidating due to changing dynamics on quality regulations and we benefit from that. Small players fall out due to the increased regulations. Moving to the next one.

Thank you very much, Karin. This is the final slide, and this is same slide that we used during our webcast for the full year's 2021 results. By the bullets here, so in 2022, we're going to see growth in both revenues and profitability. Very important that we see growth in revenues and a slight improvement opportunity in our M&A activities. We're going to see growth, strong performance in LatAm and especially in North America, in both segments. Our FSS activities in Wichita, as Karin explained now, we're going to see a run rate of $125 million. With all the actions that we're taking, we have good visibility in the market. It's up to us to have good operational skills in order to fulfill this demand. And with the steps we're taking together with the team there, Jason and Andy, we'll be on track for this run rate target. And of course, as we have shown at the beginning of this year, we are executing on our active and disciplined acquisition strategy, both in Europe and North America led by Johan and [indiscernible]. Thank you very much.

Thank you, Rafael and Karin. It's now time for questions. The first question is already there. It's Matthias Maenhaut from Kepler.

Can you hear me?

Yes, we can.

Yes, Matthias. Good morning.

Congratulations for this Q1 trading update. Couple of questions from myself. I will limit myself to 2 to 3. Maybe firstly, on the full year guidance and then more specifically on EMEA, you mentioned growth in turnover and a slight improvement of profitability. Now regarding the growth in turnover, you recorded organic growth of 3.6% in the first quarter. So will you give this the confidence that you will also grow organically in EMEA, this region, this year and why? And then secondly, the comment on profitability, I just wanted to have a clarification. Do we need to read this only on an absolute profit level or also on a margin level? Will there be an improvement in the EBITDA margin? That's my first question. I have some more, but I will ask them one by one, if I may.

Thank you very much, Matthias. For your question on EMEA and growth that we are pursuing or slight growth that we are pursuing this year organically and inorganically, the midterm guidance that we gave is low single-digit growth for the region. What we -- in our plans for 2022, we want to see first, a stabilization of the segments that we saw in the last quarter that were declining. So that's our first priority. And of course, there are some interesting markets, and you can think of Italy, Greece, Spain, activities in Germany now that we want to see good developments there. So when you plan everything, we would go in 2022 for stabilization and slight growth, low single-digit growth for this region on the sales side.

And if we look at the profitability side, so we see not only in EMEA, but in all regions that it's a very dynamic environment. We see lingering impact on the supply chain, inflation, energy prices rising as well as transportation. So we guide on an increase in profitability on absolute value and not on the margin value because of the uncertainty we experienced in -- throughout the markets.

Okay. Good. Clear. Then a question on U.S. FSS or 2 questions maybe, 2 smaller questions actually. I noted that you mentioned that the automated visual inspection will improve the throughput by a factor 20, so that is quite impressive. Would you be able to state if you also have demand for 20x of what you're delivering now? That would be my first question on this. Then secondly, I see that you are going to lower the man hours per batch on the back of the automated labeling by 20 in the second half. Could you maybe just give us a bit of a feeling on how much this represents in terms of the selling price? So the percentage of the selling price that the 20 man hour would do on a batch and so on. That would be my second question. And then I have another question on other topics.

Yes. Very good question, Matthias. Because now our current, let's say, bottleneck with FSS is in the postproduction. Moving the warehouse across the street [ will give us the ] room in order to have the final steps, and that's the first visual inspection and then the labeling automated now is 100% manual and well it is increasing by 20% -- over 20x, sorry. But 30x, that would be awesome indeed. We will have the capabilities during the second semester when those machines are installed to deliver all the demand that we're planning to have in order to be at $125 million run rate. On the costing side, on the labeling machine, here, you can imagine the machine having, like 2 lives. The first one is labeling the bag or the [ syringe ] if you will. And then the package that is in it and labeling it as well. Of course, we will gain efficiency there. It's the same automated process. If it's factor 20, that will be the max. But we will not be in the factor 20 side in that specific line because, of course, you always need a colleague that is bringing the product from one place to the other in order to finalize that process.

Yes. I mean is it possible the savings of the 20 man-hours to express it as a percentage of sales? Or you do not want to provide that color for the moment?

Well, that's, of course, too much detail right, Matthias? So of course, we need to receive, to validate, to install and then we -- it's also a new process for us. It's not like the machine comes and then you plug it and then everything works. You have to the setup times and all this stuff. And then, of course, next year, we will have a clear output of these 2 machines that were ordered and will be installed during second semester.

Okay. Maybe if I have a final follow-up on Wichita. You're going to add a third shift? Wondering you -- and at the second shift, we have seen quite a margin drop for the U.S. Do you think this margin drop will be similar for the third shift or will it be significantly less?

Now, it will have an impact, but we still confirm the guidance we've given for North America being at 20% by the end of '22. So we do expect some impact, of course, of that on our OpEx levels. But we confirm the guidance we have given on the 20% for North America.

Okay. Clear. Maybe then one just a small follow-up on the Ukrainian impact. This also -- the statement also accounts for the transportation costs. So there, you're not seeing a significant impact for the moment, for the time being?

Yes. For the time being, Matthias. And again, that's a very interesting remark that you make. We decided last year to invest in inventory levels. At the beginning of the first quarter, we also took this step. And of course, the inventory that has already arrived in our facilities. Now we have to say that it's challenging. The procurement and supply market is very challenging. We -- during COVID, we invested in our procurement supply capabilities in order to have centralized approach. But what we now see is -- and something that maybe we did not mention during the presentation at the beginning, also with the lockdowns in China for the COVID, is that prices are going up, also transportation prices, especially the airfreight is going up. So we have now a good inventory position. But of course, we -- in some months, we'll have to replenish this again. So we're already working proactively in order to have lesser impact. But it's something that -- it's on a day-to-day basis. So we can talk about the past and the actions that we took. But it's an uncertain situation at this moment in time, but we are monitoring that very closely.

Okay. And just the inventory levels, that's how much above normal levels that you have presently?

Yes. We invested a little over [ 10 million ] in the first quarter additionally to make sure we have our products available for our customers and also to balance product availability and price increases overall, but also optimizing our transportation costs. So that's something we did in the first quarter.

Yes. Okay. And that would allow for how many sales or how many million sales? I don't know is it possible to say?

No, the that's -- yes. No, that's a bit too much detail, Matthias.

Next in line is Frank Claassen of Petercam.

Yes. Can you hear me?

Yes, very well.

All right. I've got 2 questions. First of all, on AnazaoHealth, I noticed indeed very strong growth, 25% in constant currencies. You said something about 503A players moving out. But can you elaborate further what is driving this strong growth? What products, maybe regions? So what is going on at AnazaoHealth? That's my first question. And then secondly, on LatAm. Of course, we've seen a very strong strengthening of the Brazilian real. What does that mean for pricing levels in Brazil? Because I can imagine that raw materials get cheaper in Brazilian real. Does that mean that prices have to be lowered? Or can you still keep prices stable. So what is going on, on the pricing level in Brazil?

Sure, Frank. With Anazao, and we said many times when we have this context that we feel comfortable with high single-digit growth developments there. What we see in the market is that telemedicine/telehealth is clear a tailwind, mainly for dermatological applications. And you can think of acne or rosacea or hair treatment, alopecia. And as always, very well positioned there. We have a platform [indiscernible] where prescribers can connect with us and can personalize their treatments. So that is one very important driver for the 503A. And also, as you said very well, the consolidation of the market of the 503A, that is now also taking place. Those 2 would be the main drivers for the 503A. And then on the B side, that Anazao, of course, has -- we also see an increased demand of the IV lines. That's more for prevention and lifestyle, the IV infusion therapies. And that Anazao is also well positioned with high-quality standard in our data facility. So both segments in the Anazao business are having a nice structure.

Yes. Frank, on LatAm, indeed, it's been a pretty dynamic quarter. If you look at the currencies, interest rates, inflation in the LatAm area and especially in Brazil, we see that dynamic also in our business. So indeed, we acquired our volumes against dollars last year, which we are selling now. The competition also acquired last year or more recently, so we see that dynamic in that market. And we track that, of course. So that had impact in our first quarter sales. We see that the pricing levels, they increased slightly, but we see volume stabilizing in the first quarter. So the demand was less, and that was driven by a couple of elements. So we see in January and February that the compounding facilities had less people because of Corona, and therefore, we saw a drop in the months. And then in March, we also saw that there's some hesitation in the entire market because of the increase of interest rates to over 10%, the inflation coming in. So that turbulence had an impact on our Q1 numbers. Of course, we see that counterbalanced by positive impact in translation impact on the pursuing business. So overall, we saw a nice development. As we mentioned, I think during the Capital Markets Day but also previously that it's a very dynamic market, Brazil. It can go up and down each quarter. So we see organic growth still being over 3%. In the first quarter, we expect continued growth for that region. And we are confirming our midterm guidance we have given for that region, knowing that it can go up and down every quarter because of the different dynamics in that market.

Thank you. Next in line is Eric Wilmer of ODDO.

Can you hear me?

Yes, very well.

Also a few questions. First was on the margins of the acquired targets. I was -- I understand that you probably will not want to disclose it. But I was wondering, if it's roughly in line with previous acquisitions that you've done, such as Dr. Kulich, Gako and, let's say, Pharma-Pack?

Yes. Eric, so they are pretty small acquisitions. We do a lot in the first quarter, so a bit careful with the multiples we have given. But there are slight -- the EBITDA and profitability margins are slightly above the ones for Kulich and some [ more ], as we historically did. So they are slightly above that. Of course, Curaphar is a very small acquisition. So we bought that for strategic purposes, and they have very limited turnover. So it's basically HiperScan with [ EUR 6.5 million ] turnover and EBITDA margins that are slightly above the ones that we acquired historically.

Okay. That's very helpful. And then another question, and I may have missed this from the prepared remarks. But I was wondering why the Brands in North America, so such a drop, is this fully COVID-related? Or was there something else at play?

Yes. So there's 2 elements. So organically, it's because of COVID products phasing out. That will be -- in April, we expect some slight impact. But that will then phase out completely. And total growth, it's mainly the CMO business we divested, which was also partly in the Brands business. So we expect organically that, that will start growing in the next couple of quarters again because we will benefit from the B&E combining businesses going forward.

Okay. And then maybe last question. You've obviously been very active on the M&A front, 4 deals and one participation in Q1 after 2 years, which were, let's say, more tough. This is just a little bit more broad and general question. Could you talk a little bit about your current pipeline for this year?

Yes, sure, Eric. So as we all know, right, and we explained that for the first time, we have a dedicated team that is led by Johan with 3% that are focused on M&A. We have an active but also disciplined strategy there, focused on Europe and North America. And we have now the typical funnel with all the targets that we think that are very interesting that are strategically aligned with our 3 main pillars that we discussed today. And then, of course, we have conversations. And you know how it goes, it doesn't depend 100% on us and how this develops. But our pipeline is quite rich in this enabler of our strategy going forward.

I see there are no more questions on the line. [Operator Instructions] There we have Matthias again. Matthias, you can ask your question.

Yes. Can you hear me?

Yes. We can.

I had a question on the Curaphar acquisition actually and also the second acquisition. Maybe just on the growth profile of these businesses, so both Curaphar and HiperScan. And also on Curaphar, can you elaborate a little bit on the strategic rationale? I understood this has 2 registered products. How long have these products been registered? What's the total addressable market? And what kind of growth profile do you expect from this acquisition going forward?

Yes. Thanks for the question, Matthias. With Curaphar, it's mainly the Pedippi, one of the 2 products, Pedippi that's for heartburn, right? The strategic rationale and then you need to go to the -- or we need to go to the third strategic priority that is optimizing on sterile and restriction business in Europe, especially in the Netherlands. What we have seen in the last years, we have always seen it but an accelerated trend with higher impact. On the last quarters is that we're not compound. And it starts always with individualized scripts, then it goes to higher batches. Then in the Netherlands, you can make stock compounding out of it. And then the stock compounding with the stability test and all the data, we take further steps, and it evolves naturally into reserve products by us or by other players in the market, right, also all the pharmaceutical companies. And what we have done is to analyze group, the portfolio and having the main compounds into account. And we, of course, have an important compound for us that was the omeprazole suspension that's mainly for children. And we saw that there was a registration in the market recently and being distributed by this -- that's the company, Curaphar, that's part of the family. So therefore, we have limited revenues as Karin was explaining. And now with this movement that we took, we're going to, of course, take the compounded revenues that we have in our assortment into the registered product. Because, as you know, when this registered product enters, compounding needs to stop. And of course, if other players would have the same compound in their assortment in the upcoming months, they should also -- when the stock is over also move -- or the customers from those compounds should also move to this registered solution that now is being distributed and sell by -- and sold by us. So that's on the Curaphar being precisely. And it's again makes part of this third pillar that we were discussing at the beginning of the presentation.

And then the HiperScan, the growth profile, can you elaborate on that?

For sure. Thank you, Matthias. So HiperScan, in Germany, the compounding that takes place in the community pharmacies there, the regulation is very clear. The regulation says that all the materials that the a pharmacy -- compounding pharmacy is going to use for preparing these scripts that they receive need to be analyzed upon receipt. And therefore, you have companies like HiperScan that develop technology, very easy to use technology, very rapid technology in order to analyze these materials. So in our first strategic priority, the global leadership in Brands & Essential, Germany is, of course, a very important market where we do not have this leading position. And you can think of this equipment as part of the FagronLab range that we'll support, that will enable the path to the leadership position in the German market. So HiperScan is present in a lot of pharmacies in Germany, has its own sales force that, of course, we can combine with other products of the FagronLab, but also the raw materials. And of course, we're going now to look at opportunities outside Germany. But Germany remains our focus. And this will again allow us to have better penetration into the German market.

Thank you, Matthias. Next in line is Maarten Verbeek from The Idea.

It's Maarten of The Idea. One follow-up on the acquisitions you made. You mentioned about a purchase price for both combined below EUR 10 million. Is it on an EV basis or not because I've seen that in the past, HiperScan used to have a quite a nice cash position on its balance sheet?

It's on an EV position.

Okay. And then going to FSS. You mentioned that revenues would cool off in the Q1. But that, at the same time, makes the growth towards year-end, USD 125 million, a bit more steeper. This growth -- will this be a step by step? Or will it be more like a hockey stick that you will see a peak in the final quarter?

Yes, it will be more towards the second semester, Maarten?

Okay. And then as a follow-up, could you also mention the number of SKUs you had at the end of Q1?

Yes. We always state that a good portfolio would be around 220 SKUs. We are on track there. We're almost there. And as we also explained in the beginning of the presentation, we are now launching, in April, Epidurals. But it's not -- the impact's not like with the IV packs, but gives you a more comprehensive portfolio to go to market.

Thank you. Next in line is Stijn Demeester from ING.

I only have a few follow-ups. You just mentioned, Rafael, 220 SKUs. I always thought that the number was 200 but -- has it moved up on FSS?

Right. So it's between 200 and 220, Stijn, in order to have a comprehensive portfolio to service industry. 200, we're almost there, around there. But 220, also when you add the Epidurals, that would be a very nice portfolio, a very much complete portfolio, if you will.

Okay. And on U.S. Compounding, can you comment on what the acquired book is currently doing? You guided here for, I think, EUR 6.5 million in sales. But the business did much better pre-COVID. So what is the current contribution?

Yes. The current contribution for this first quarter was around [ $700,000 ], Stijn. The total at that time when we acquired the book of business, and here, again, we -- how the deal is structured. We pay when the sales are in and the customer pays the invoice. So that's very interesting for us. The total compounded portfolio of U.S.A. was around $6.5 million (sic) [EUR 6.5 million]. Of course, we are integrating it. And we take quality as the main driver to integrate it. So it means that some SKUs may not come in this one. And the interesting part of it is, of course, that you can leverage some customers that we don't have, with our full portfolio there.

Okay. And what is the SKU contribution of U.S. compounding?

We had 19 SKU contribution that we have in our portfolio, 1-9.

Okay. And that is a number that will not move?

That we -- sorry, Stijn, just to make a small remark. That we have identified with the quality team, that could be -- that could follow our quality standards, right? That's also very important.

Okay. And what is the current implementation of SKUs? It's not 19 probably.

No, we are with the middle field stability as well. So in the 200, between 200, 220, those 19 are included in this number here.

Okay. And currently, how much have you sort of...

Above -- somehow above 50% of it, a substantial part of it. Yes.

Then the last question is also on QFR. Do you acquire any production assets here? And if so, will these activities be folded in Tiofarma? Or how should we look at it?

Yes, it's a distribution company. So it distributes the product that comes from abroad. So it's not a production part. It's more distribution sales and distribution company of China.

Thank you. I also have a question via the webcast. What's the progress on the registration process of the projects that you announced during the Capital Markets Day?

Yes. Thank you, Karen.

It's from one of our investors. So I'm not going to identify.

Okay. So thank you. Thank you very much for the question. So here, we have different activities. We have the registration with partners like with Tiofarma or some -- or that we have launched recently that takes some epidurals' time. [ Hans ] explained that shortly we will have a new introduction. We foresee this one for the third quarter. So we are on track there. We also have some in-licensing and distribution projects that will come throughout this year and of course, the next years to come in order to protect and regain some market share that we lost during the former quarters.

And then, unfortunately, Christophe Beghin from Kempen had some issues with dialing in. So he asked me a question via e-mail about the FDA audit. The minor observations, can you elaborate a bit more on what those were?

Well, thanks, Christophe, for your questions. The reports will be available in the FDA site. There were a really minor remarks that the FDA had, overall was a good audit. And you have in the typical procedures in the clean room, [ inspect clear ] room in the compounding side that were more related into that aspect rather than more in general. So we were very much satisfied on how the team received the audit. And only 6 minor reports, again, which is mentioned in my comments. It's for us, a very good news.

Thank you. Are there any further questions? [Operator Instructions] I don't see any. So thank you very much for your time and your questions and your interest in Fagron. I hope to speak to you in the summer with the discussion with our half year results. Thank you.

Thank you.

Thank you.

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