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

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Recordati 2021 First 9 months Results Conference call. [Operator Instructions] At this time, I would like to turn the conference over to Ms. Federica De Medici, Investor Relations and Corporate Communications of Recordati. Please go ahead, madam.

Thank you, Sabrina, and good morning, and good afternoon to everyone. And thank you for attending the Recordati conference call today. I'm pleased to be here with our CEO, Andrea Recordati; and our CFO, Luigi La Corte that will be presenting the 2021 first 9 months results. Let me be running you through the presentation. As usual, the set of slides is available on our website under the Investors section. After that, we will open up for Q&A. I will now give the floor to Andrea. Please go ahead.

Good afternoon or good morning, ladies and gentlemen. And thank you for having joined us for the Recordati 2021 first 9 months results investor presentation. If you please move to the first slide of the presentation with the key highlights. So I am pleased to have the opportunity to announce another quarter of very solid results for the group. Q3 confirmed the trends recorded during the second quarter with a progressive recovery in the main reference markets and operating conditions starting to return to near normal, given more limited access to medical personnel in many countries and social distancing measures continue to impact certain product categories. The recovery of several therapeutic areas in SEC, combined with contribution for the new product Eligard and the continued growth in the rare disease segment resulted in a net revenue increase in the quarter of 15.5% or 17% at constant exchange rates in Q3 compared to the same period cleared in 2020, which has, let me remind you, been most significantly impacted by the COVID-19 restriction measures. If we look at EBITDA on quarter-on-quarter, we grew 15.4% year-on-year. Net revenue in the first 9 months of 2021 closed at EUR 1.156 billion with a growth of 5.7% versus previous year, reflecting an adverse currency exchange rate FX of around EUR 31.6 million and the contribution from Eligard for EUR 59.4 million. Net of these FX, growth was at 3.2%. The good momentum in recent months, more than offsetting the full-year impact of the 2020 LOEs of silodosin and pitavastatin, which show a decrease of EUR 23.8 million. And the impact of the pandemic, especially on seasonal through medications in the first part of 2021. The growth of the rare disease portfolio was significant in the first 9 months of 2021 at 20.2%. Thanks especially to the increase in Signifor and Isturisa, which basically closed at EUR 90.5 million versus EUR 53.8 million in the same period last year, but also to the solid performance of our metabolic portfolio products. Financial results are in line with expectations with EBITDA at EUR 447.9 million, up 2.1% compared to the first 9 months of 2020, and with margin of 38.7% of revenue. Growth was driven by a very solid revenue performance, partially offset by plant increases investments to support the Endo portfolio growth. The costs related to integrating and promoting Eligard as well as the gradual recovery in operations in the territory with face-to-face promotion across markets now tracking at 75% to 80% of a normal coal plant. Should be reiterated that margins for the first 9 months of 2020 benefited from the sharp profit commercial operations in the territories, following the introduction of lockdowns and of social distancing measures over most of this period. Net income at EUR 296.4 million increased by 8.1% compared to the first 9 months of 2020, reflecting the greater impact of net financial expenses. These exchange rate losses of EUR 6.8 million and the nonrecurring tax benefit of EUR 6.2 million recognized in Q2. As you will see later in more detail, the first 9 months of 2021, we delivered roughly EUR 352.9 million of free cash flow. An increase of around EUR 17 million versus the same period last year. Thanks to the increase in operating results and careful management of working capital. Just a few words on sustainability raising. I am pleased to say that our continued focus on the ESG agenda results in an MSCI rating improvement and inclusion in the Euronext mid-ESG index. Consistent with our dividend policy, the Board has approved an interim 2021 dividend of EUR 0.53 per share to be distributed in November. Lastly, the Board today approved a share buyback program service in stock auction plans. Before handing over to Luigi Corte who will provide you more details on our financial performance in this first 9 months, let me provide some more updates on the Eligard and in the chronology portfolio. If we move to the next slide, please. So Eligard, the integration of Eligard is progressing well with close to EUR 69.4 million of revenue in the first 9 months of the year, which is slightly ahead of the plan, and we're just under half of this indirect sales of our organization. As of 30th of September 2021, the trend of the marketing authorization of sales licenses for Recordati record the most countries, subject to the license agreement with Tolmar, exact for Russia and Ukraine. We have 30 marketing authorizations transfers already completed and 24 countries directly plus 6 countries directly selling, where Eligard has not been promoted with encouraging feedback from our -- from HSCS. It is very early days, but we're pleased to see what promotion has started since a few months, encouraging signs of changes in the sales trend. But we've always seen market sales returning to growth in Spain and Germany and improvements in other markets, including France and Italy. The development of a new device by Tolmar is progressing. The new device variation filing is now expected in the first quarter of 2022. Thanks to the early transition to direct selling, we focused full-year revenue just over EUR 80 million, importing to a fast transition to direct sales. If you can move to the next slide, please. With regards to the Endo franchise, the commercialization of Signifor and Signifor LAR is on track, recording net revenue in the first 9 months of around EUR 58.5 million. We have strong new patient acquisitions in all regions and across all approved indications. And Signifor grew around 10% in in-market terms compared to 2020. We are also still very much on track with Isturisa launch. And new patient acquisitions are progressing in line with our expectations, contributing to net revenue of around EUR 32 million as of 30 of September 2021, mainly in the U.S., France, and other EU markets. We continue to have strong support from top KOLs and patient organizations. Reimbursement was agreed -- a reimbursement price was agreed in Germany in line with expectations and discussions are ongoing in other European markets. Also importantly, we have launched now in Japan, where we're performing according to plan. Furthermore, as economic conditions continue to improve, we are trying to see improvements also in the gross-to-net in the U.S. We remain on track to deliver on the targets that we set for the franchise this year, which is between EUR 120 million and EUR 140 million. So at this point, I will leave the floor to Luigi to take you through in more detail on the first 9-month results. Thank you.

Thank you, Andrea, and good morning, good afternoon, everyone. Pleased to, as always, take you through in more detail the financial results for the quarter. On the back of another quarter of solid growth, much in line with the trends that we saw in the second quarter of this year with the continued recovery of specialty and primary care portfolio, a good contribution of Eligard, and strong growth of our rare disease Endo franchise. Starting with main product sales on Slide 5, and with what is still are a key franchise of lercanidipine. You will see that lercanidipine sales at roughly EUR 107 million are slightly up versus prior year, plus 1% with good volume growth across markets and initial sales to our distributor in China, offsetting a slight decline in Italy and the FX impact on the Turkish business. Turkey accounting for roughly half of the decline on the combination product as Zanipress, which is also -- continues to see some level of volume erosion due to generic competition and competition from other combination products. In the capital slide share, EUR 73 million is down by 6%. Now, this is on the back of, you'll recall, strong growth in 2020, where metoprolol grew 7%, also in part due to a temporary lack of availability of competitive products in some markets. And we are seeing, as a result, a slight decline in some geographies, in particular, in Germany and Poland this year. As Andrea said, Eligard is continuing to progress very well. The integration is on track, and in fact, has been running ahead of plan. Revenue in the first 9 months of EUR 59.4 million include EUR26 million roughly of revenue that was recognized by Astellas and EUR 33 million of direct sales by our own organization with all of our key markets now selling directly. As Andrea said, the earlier transition to direct sale has allowed us to slightly increase the guidance for Eligard for the full year to now just over EUR 80 million. Silodosin and pitavastatin clearly continue to reflect the full-year impact of the loss of exclusivity in 2020. We do expect both products now to start stabilizing. You'll see the erosion on silodosin, just slightly higher than the one we had forecast at the beginning of the year, due mainly to a somewhat higher decline in Turkey, once again, in part due to the headwinds from a foreign exchange perspective in that market. I would add, it's great to see pitavastatin still growing in markets where generics have not entered, namely Turkey and Switzerland. Other corporate products at EUR198 million, broadly flat versus previous year, and starting to recover. You'll recall, these are products for the brands of the COVID pandemic and the decline, both last year and in the first quarter of this year. It's great to see the first signs of recovery of the cough and cold portfolio, particularly in Russia, which remains however still below the levels of last year and significantly below the levels of 2019. But in this portfolio, we also continue to see very strong growth of the GI portfolio. You recall, significant impact in 2020 on products like CitraFleet and other GI products and ones related to elective hospital procedures, all of those have started to rebound and grow high double digits and equally starting to see -- continue to see double-digit growth of key products in our OTC portfolio, I call out Fortgreen in Central Eastern Europe, and Turkey. Good growth also of Reagila. All of these are growing double-digit year-to-date. And finally, drug for rare disease is growing by 20% at EUR 279.4 million with very broad-based growth. Yes, a significant contribution from the growth of the Endo franchise, both Signifor but particularly Isturisa, but also their legacy metabolic portfolio, which is also growing. And I'll call out here actually panhematin, which following decline in 2020 at the start of the pandemic has actually returned to growth in the 9 months of this year. And on Slide 6, you will see that with those results, rare disease now represent just over 24% of our total revenue, well on track to achieve over 25% target that we set out in the 3-year plan. On Slide 7, moving to looking at revenue by geography and I'll try and go through this and call out the highlights for each market. But overall and consistent with the picture that we described at the end of Q2. Thanks to Eligard, and thanks to the growth of rare disease. It's great to see most of our geographies this year are starting to show growth with the markets which have greater exposure to cough and cold and facing greater FX headwinds being the ones which are still showing a decline. So starting with Italy, it's still our major market. A EUR 195.8 million of revenue in the 9 months, a decline of 3.5%. And again, here, cough and cold and continued erosion on Urorec being the main drivers, which more than offset the contribution of Eligard, the growth of rare disease and good growth also of Reagila and the OTC portfolio, somewhat similar dynamics in France with a decline in the excess pray OTC line being more than offset in this case by the growth of rare disease. You'll recall, France being the market where our launch of Isturisa is more advanced and good performance of Metadol. And again, here, good and first contribution from Eligard. Both specialty primary care and rare disease are growing in Germany, which at EUR 111.7 million of revenue is up 11% versus last year. Lercanidipine and Eligard, they're driving the growth on the FBC side, combined with good growth of the rare disease portfolio, offsetting a slight decline of the total loss, as I said earlier. Spain, significant contributor to growth year-to-date at 36%, just under EUR 86 million of revenue. And here, as I said earlier, Spain saw a significant impact in 2020 on the GI portfolio, which is rebounding very strongly and offsetting the full-year impact of the generic erosion on silodosin and pitavastatin with additional contribution in both of Eligard and initial sales of flat rail to the tune of EUR 2 million. Portugal, sales of EUR 33.5 million. Once again, we did growth of Reagila and contribution from Eligard, which offset the LOE impact from 2020. Turkey declined up 14.3% in euro terms, but you will see it's growing by 6.3% in local currency. Turkey facing significant FX headwinds this year which are likely to get even slightly worse in Q4, given recent trends. But nonetheless, in local currency terms, growth driven by the rare disease portfolio, good growth of pitavastatin and Procto-Glyvenol offset by generic pressure and local competition on some of our local product portfolio and under lercanidipine franchise, together with a decline also in the flu portfolio as in other markets. Going to Russia and C.I.S and Ukraine. You recall we commented Russia decline of 50% in Q1. It's great to see the business starting to recover and now down only by 5.5% in the 9 months in local currency terms, reflecting the combination of impact on the cough and cold portfolio, which makes up a significant portion of the business in Russia and also destocking, which we saw in the first part of the year. C.I.S and Ukraine slightly growing on the back of the rare disease portfolio. U.S., which as you know is focused on rare disease, continuing to grow significantly 42.6%, achieving revenue of EUR 127.5 million, a growth of 51.6% in local currency. And as I said earlier, growth here really broad-based with the Endo portfolio clearly contributing significantly, a very strong growth of Cystadrops, Panhematin, and Cystadane as well. Other Central Eastern Europe and other Western European countries, which combined make up for roughly 15% of our revenue, you will see a both growing by strong double digits. And this is on the back of the ongoing rebound in specialty and primary care. And I'll call out the good performance of Procto-Glyvenol in Central Eastern Europe, together with the initial sales from Eligard and the continued growth of the rare disease portfolio here as well. North Africa, minus 18.1% as revenue of EUR 27 million. And here, really, it's a combination of factors, or in fact, it masks the ongoing growth of our local business in Tunisia, which is growing by close to 6% or 8% in local currency terms. But that is more than offset by restrictions in Algeria, which have held back our export sales due to the lack of renewal of import licenses, which do not allow us to sell vitamin D3 [ and Exa line ] to that market this year. And finally, other international sales, so sales that we achieved through our distributors of EUR 153.7 million down slightly by 3.5% versus last year, mostly reflecting the year-on-year impact of silodosin and pitavastatin, plus a minor product discontinuation of Casenlax again to the tune of around EUR 2 million. And you'll see from Slide 8, the business is becoming growingly diversified or say growingly international with our legacy market. Italy now accounting for less than 18% of revenue. France, Germany, and U.S., both roughly 10% of total pharmaceutical sales. Moving to the P&L on Slide 9. You will see that -- Sorry. Growth of both revenue at 5.7% or 8.6% at customer exchange rate and in gross profit, as planned, is partially offset by the growth of operating expenses. SG&A expenses are EUR 347.1 million, growing by 11.8% versus 2020, with selling costs at 24.8% of sales, reflecting both transition costs on Eligard and the royalties that are paid to Tolmar on the product, which account for roughly EUR 18 million of increase. And also with the growth in Spain driven by the additional support behind the Endo franchise and gradually return to activities in the field, which however on a year-to-date basis still remain below pre-COVID-19 levels. R&D expenses around 10.4% of sales or up 12.6%. This reflects the continuation of studies, which we've inherited from Novartis on the Endo franchise and also additional resources in Spain, the market access, and regulatory costs behind both Endo and Eligard. And increase also reflects roughly EUR 2 million incremental amortization costs related to the [ new products ]. Other income and expenses of EUR 3.5 million mostly reflects EUR 2 million -- just under EUR 2 million of nonrecurring costs related to COVID, significantly down versus last year and hopefully, due to wind down in the near future. This leads to an operating income of EUR 372.9 million, margin of 32.3%, and EBITDA of just under EUR 448 million, a margin of 38.7%, both growing by just over 2 percentage points versus last year with margins remaining very healthy. But of course, not at the levels of 2020. And we've always said and recognized that margins in 2020 were enhanced by the impact of COVID had growth in revenue but also on operating expenses. And we do expect that as activities in the field continue to resume, EBITDA margin will trend towards the target that we set in the guidance at the beginning of the year of just over 38% for 2021. Looking again finally briefly at the nonoperating lines, you will see a significant increase in financial expenses to EUR 22.2 million. As Andrea mentioned, this reflects FX losses of EUR 6.8 million in part due to consolidation adjustments, due to the volatility in exchange rates, and a couple of million due to FX losses on hedging of intercompany transactions. This compares to a period in the first 9 months of 2020, where we actually recorded EUR2.6 million of exceptional gains if you like on 2 currency swaps, which we closed and which were no longer treated as hedges. These additional FX losses are more than offset, obviously, by the nonrecurring tax benefits of EUR 26 million, which we incurred -- which we reported in Q2 and which reflects in a net income of EUR 296.4 million, which is growing by 8%, just over 8% versus 2020. Adjusted net income, which reflects the impact of the FX losses, but strips out the nonrecurring tax benefit is down by 1.3% versus last year. And moving over to Slide 10. You will see once again margins on both our businesses remains very strong with rare disease now representing close to 30% of group of EBITDA. And finally, on Slide 11. As we've done in the previous 2 quarters, we'll include a summary and breakout of our cash flow performance, which hopefully you will see was very strong in the first 9 months of 2021 with free cash flow of just under EUR 353 million, up by close to EUR 370 million versus the first 9 months of 2020 and over 100% of net income in the period. This -- the improvement versus last year being really driven by working capital, where 2020 was impacted by a combination of increases in inventory, both due to the start of sales of the Endo franchise, but also as we work to sort of build safety -- additional safety stocks at the beginning of the COVID prices. It also reflected the timing of supplier payments with both of those contributing to the positive performance in the first 9 months of this year. I will point out, you will see that actually on a cash basis, interest paid is broadly in line with last year. And income tax paid slightly higher due to the benefits in 2020 of both the 2019 significant nonrecurring patent box that we recorded in Italy and also lower payments on accounts, which many governments allowed companies to make in the midst of the COVID pandemic. That free cash flow was -- went into dividends of EUR 109.4 million in the first 9 months. We paid EUR 35 million in Tolmar, EUR 15 million to Almirall. And net -- we had net purchases of shares to the tune of EUR 29 million, net of receipts from proceeds from exercises of stock options. And finally, from my side on Slide 12, that strong cash flow contributes to a very solid net financial position at the end of September with net debt of just under EUR 715 million, being roughly 1.24x trailing 12 months EBITDA. And with that, I'll hand back over to Andrea to talk about the outlook for the remainder of the year. Thank you.

Okay. Thank you, Luigi. Please turn to Slide 13 of the presentation. So with respect to our full-year outlook, we confirmed that we said in the press release, our guidance range expecting the full-year results are the lower end of the range. I remember the guidance range was giving net revenues between EUR 1.57 billion and EUR 1.62 billion. EBITDA was between EUR 600 million and EUR 620 million, and adjusted net income between EUR 420 million and EUR440 million. The underpinning assumptions behind this lower end of the range guidance or basic at the recent trends, so SEC returning to growth with good momentum and progressive recovery and market conditions post Q1. However, rebound in the cough and cold market is unlike to portfolio. It's unlikely to fully offset the virus impact in the first part of the year, coupled that with obviously the market headwinds that we've seen in the Central Eastern Europe and Turkey. Also, we assume no significant new ways of COVID restrictions in the latter part of the year. FX headwinds are a bit more than what we actually planned at the beginning of the year, and we expect that's something between minus 2%, an impact between 2% and 3% negative impact. But on a positive note, as already mentioned, Eligard continues to be on track ahead of plan. And also, we continue to see robust growth of our rare disease franchise across all regions. Clearly, driven primarily by the Endoflux not only. Also, our metabolic portfolio is actually performing very well. For example, also Panhematin like mentioned by Luigi before. EBITDA margin is on track to be above 38% of revenues. The second half reflects seasonality as well as a return to a higher level of activity in the field. Financing costs of around EUR 28 million are expected with reflecting clearly what we mentioned already about between EUR 6 million to EUR 7 million of FX losses. And finally, we expect the tax rate to be around 17%, reflecting the planned actual benefit from the reverse merger and additional Q2 nonrecurring benefit of EUR 13 million from a Magnesio Supremo setup. So that brings us to the end of our presentation, and I think we can move to the Q&A. Thank you.

[Operator Instructions] The first question is from Brian Balchin of Barclays Bank.

I just got two. First, I was hoping to gauge your confidence levels in achieving your 2023 endocrinology targets, just given an expected increase in penetration of lanreotide and octreotide in EU in 2022? And the second one is just if you could give us an update on timing, the approval of as one? And then if we should still be expecting data for your neurotrophic keratitis asset second half of '22?

Yeah. Thank you, Brian. Starting with the first 1, level of confidence on the 2023 guidance. On Endo, we see no reason to change that, frankly. And we think we're on track. We're growing well. We're continuing to see growth of Signifor whilst increasing penetration of Isturisa. We've -- we said we will start achieving reimbursement in the key European markets, just about now. We're doing that. So from our perspective, on Endo, we are on track. In terms of ARS-1, I mean, probably as you know, it's currently under regulatory review by the European authorities. And we are working with RS to kind of answer some of the questions that we lost from the SEC authorities. So the process is ongoing with some delay compared to the original plan. But based on the current planning, we expect the regulatory decision to be in late 2022. Regarding MCA experience for new traffic advertisers, as you know, it is in Phase II. It has obviously suffered some delay in recruitment due to the COVID restrictions that impacted a lot of the centers where we actually recruiting patients of the study. But the study is ongoing. We are recruiting patients, and we're seeing an increase in the patients. So we expect the last patient in -- around November of 2022 and the clinical study report out by the second quarter of 2023.

The next question is from James Gordon of JPMorgan.

James Gordon, JPMorgan. 2, please. The first one was just about the outlook for deal-making. And to what extent was COVID-19 flow things down a bit. And as we hopefully think get back to the -- to what extent do we see an acceleration in licensing? And what are you seeing in terms of ability to do in personal diligence? Does that make a difference? And could that change? And then the second question, which is heading into '22, I'm not looking for specific guidance at this time. But the key puts and takes for us to think about how much rebound in field activity could we see? And how much of a headwind could that be? And is something like a flat EBITDA margin still the most likely outcome?

So look, I mean, they're making -- the connection was not very good. I apologize. But if I understood correctly, you're asking if there were any kind of impact on deal-making Q2 in recent times. I mean, as you know, the ambition remains so. We keep on working on PICO different doses both for enlightening opportunities in SEC, but also in rare diseases and clearly also the whole M&A. Part of our strategy is still valid and is obviously being -- it remains very ambitious. So we are -- like I said in June, we have a lot of potential deals under review and evaluation. We feel that the pipeline is ration opportunities at the moment. But giving, as always, it's treated to be definitive on timeline. And at this moment in time, honestly, I cannot give you any more information or cannot say anything else at this stage. But believe me, we are very busy reviewing and assessing many, many opportunities.

And James, on your second question in terms of -- as Andrea, I think mentioned, we're now already sort of running at 75%, 80% in terms of field activity. Clearly, we're still seeing -- the kind of things we're still not seeing is sort of large-scale events and sort of group gatherings. We will look to -- I think, as many organizations, we have learned to leverage even more digital over the pandemic. We're not going to give out today the margin guidance for 2022. You'll have to stay tuned for that. We did that we're very clear in terms of where we set the guidance for the 3-year plan and being around 38% of EBITDA, and we'll stick with that. And again, we'll provide a sort of a more crisp view for 2022, presumably in February when we set out the targets for the year.

The next question is from Martino De Ambroggi of Equita SIM.

Sorry to bother you on the same question on M&A, but you were particularly vocal in the last call and you are today. So I just wondering if you can provide us just a qualitative perception of some step ahead, if any, I don't know, on the very busy pipeline that you mentioned? This is my first question.

Martino, obviously, I cannot give you a lot of color on something that has not been kind of finalized yet. I mean, the early performance. So I recite what I said, yes, I was vocal in July when we had the last call and I still vocal now. But it depends. Deals are very different in shape. There's a lot of variables to be taken into account. So I can tell you, we are working on various fronts. And when the time will come to communicate something, we will do so. But at this moment in time, I cannot give you more color around this for obvious reasons.

Obvious reason, yes. The second question is on the Endo franchise. If I look at -- I know very well, profitability on a quarterly basis doesn't make a lot of sense. But if I look at the last 4 quarters, since you start sales of Isturisa, profitability of rare diseases is a little bit lower than what it used to be in the last couple of years. Is it due to the launch costs or just, I don't know, temporary effect of some variables or probably just -- there is no particular reason justifying it?

No. I mean, it's a combination, obviously. I mean, we are in launch phase on the Endo portfolio. So as you'd expect, we have additional -- we did put additional resources on the ground to support that. And we do have sort of a cost that we are taking on additional both market access and regulatory resources to support that, particularly where we're going into sort of our new markets. I would say -- and I think we may have touched this on the previous call that if you're comparing the evolution to last year, and the rare disease margin would have been slightly flatter, particularly in the first part of 2020 by the accounting of the Signifor revenue during the transition from Novartis, where we accounted for it on a sort of gross margin level at the level of net revenue. So there is a little bit of that, which is similar to what we have this year on Eligard for the SBC side. If you look at it on aggregate, the 2 kind of balance each other out. But if you're looking at rare disease particularly, there is a little bit of an effect of that. But it's a combination of these factors rather than there being any sort of particular other type of reason.

Okay. Just to check if there is nothing structural due to the Endo franchise development?

No. No. And the Endo franchise, of course, is [indiscernible] loyalties. But on the other hand, the U.S. is a significant growth market. And as it's often the case, margins in the U.S. tend to be higher than the rest of world. And so no, there's nothing structural to that. I think it's really a timing again, which is I think I've often commented and asked around the margin guidance, we have to bear in mind that when we take a launch asset, the first years of launch, you will see a bit of additional investment going into the business.

Okay. And last on the Endo franchisee, you guided for EUR 120 million, EUR 140 million sales this year. Looking at the trend, you are perfectly in line with your guidance, but I see quite hard to achieve the high end of this range. I totally ignore what could be the contribution of Japan?

I will give specifics in terms of where we expect to land on the range. Again, particularly in the case of the Endo portfolio, where there's a significant contribution from the U.S. as you may recall, U.S. faced quite some headwinds in terms of FX at the beginning of this year. And still, if you look on a sort of year-to-date basis, I think it's around sort of 8% negative from an FX rate perspective if you isolate the U.S. So again, obviously, there's a little bit of that in there. But as we said, we're very happy with the progress so far with other launches tracking and confident we will hit the range that we set out at the start of the year.

And very, very last on the free cash flow, it is mainly driven by working capital change. As I understand, it's just a one-off. So there is nothing structural on the working capital that could last for a longer period?

No. I think I would ask the question. I think I had a question on the call at Q2 where someone was asking whether we'd start seeing working capital sort of train that to a more historical level. Again, we did increase the level of stocks a bit last year. Just to be on the safe side during COVID and you're starting to see a little bit the absorption of that as the supply chain improves. And again -- and there is a little bit of a one-time event where many of our suppliers in 2020 did ask to work with a slightly shorter payment terms on our side to provide some support during COVID. If you were happy to do that, given the flexibility that the group has.

The next question is from Jo Walton of Credit Suisse.

A few questions. A simple one to start with is to why the new device for Eligard? Is it a filing until next year? I think we originally thought that would be happening by September, October time. More broadly, I wonder if you could tell us just a little bit about your view of the background to the market. An awful lot of the European markets that you're in are effectively government-funded. Governments are increasingly strapped for cash. Are you seeing any signs of any constraints, any issues in pricing new products? Some of the companies have said that it's getting tougher to get new product pricing through? And I know you've been looking for reimbursement of Isturisa. And perhaps you could talk particularly about Turkey as an example because that seems to have had some problems. I know some of that was foreign exchange-related. Do you think that that foreign exchange problem will ultimately mean that the Turkish government becomes less generous? Could this become a longer-term issue? My next question would just be a quick one on your comment about stabilizing for Livazo and Urorec. We've seen decline rates of sort of 30% or so. When do we think we could go back down to maybe only low to the 5% decline? Is that reasonable for next year? Or do you think that the decline will continue for longer? And my final question on Isturisa. At the Capital Markets Day, you indicated that you thought you might have 145 patient starts on Isturisa in 2021. Are you still on track for that number?

Okay. Jo, thank you for the questions. I may take it just in slightly different order if that's okay. So in terms of challenges from government-funded systems, again, I'll probably repeat what I said in other instances. At the moment, we're certainly not seeing a sort of broad-based landscape change across payer markets in Europe nor in the U.S. for that matter. Pricing is still very much decided a country-by-country level, which provides a natural hedge in the sense that it would take all markets in suddenly all countries that we can coordinate to suddenly lead to a significant impact. I know that Turkey on the backdrop of- usually, the Turkey does allow. And we did see it last year, I mean, in the face of significant devaluation already last year. Turkey did allow a generous -- well, again, it did allow a level of a price increase to the industry, which isn't quite fully recover the FX evaluation, but recovered quite a chunk. We'll find out in the next month that we'll do that again this next -- for next year, but we don't have reason to believe they wouldn't. I think they may have put in place some limitation on prescriptions of certain product classes, but the only impact certain product factors. So again, it's difficult to generalize. Negotiating prices for new products has always been difficult in Europe, frankly, unless you come -- you come forward with very strong innovation and significantly better clinical proposition relative to existing standards of care. We believe on the case in point that that history that does that. And we think that was recognized in Germany. But again, it will be a country-by-country negotiation. On the LOEs, we really -- we actually -- I think if you look at the numbers, you would see that -- I think what you see there is a year-to-date erosion, if you look at quarter-on-quarter, you should start -- you should see that on silodosin and pitavastatin starting to significantly reduce the decline. Silodosin has now fully lapped the year. It did have a little bit of FX headwind in Turkey and slightly high erosion in Italy, but by and large, is stabilizing as we expect pitavastatin will be. So to your question, yes, absolutely. We do expect those to start stabilizing now and certainly for 2022 on the basis of current environment. I don't recognize the 140 [indiscernible]patients, but I'll maybe answer in a different way. We believe that to be on track in terms of patient acquisitions in the U.S. and obviously, we were aware of competitive products in pipelines when the guidance was given out. And so of course, we will prepare for the potential launch of new competition in the U.S., but we're quite confident with the clinical profile of Isturisa. I'm very happy that we will have had at least a 3-year advantage to penetrate the market, which is always good. On the new device, I don't know what I can say. Yes, I think, as we said, I'm very happy with the Eligard transition, the multiple dosages that are undergoing all the new process that we prepare, the file. And it just looks like it's going to take up a little bit longer to be ready for that. But we don't anticipate it being an issue, frankly. It's just going to say a little bit more than anticipated. I hope that I drive all your questions.

Yes. Just one final one, if I could, just to go back a little bit on marketing. You said that you're 75% to 85% of the way back in terms of field force activity. Do we expect that that will go back to 100%? Or are there things that you've learned in the COVID world that mean that some things that you now do perhaps digitally that you did in-person before you'll continue to do digitally? So just wondering whether there will be a full rebound back or will be there some low permanent cost savings?

No. I think I mentioned, Jo. We don't expect that things will go100% back to normal. And we're also sort of looking at that also as we think about 2022. But the reality is that we've seen that the business and particularly mature products can be supported with a slightly lower level of in-field effort and complement that with digital, and we will be looking at that and certainly we'll continue -- we'll look at the opportunity that provides. So things will not go back to full-year 100%. Just like -- and again, I think I made the example before, I wouldn't expect as much spend on things like international conferences, really national conferences and events as once was the case. I imagine a lot of that will be digital going forward.

The next question is from Giorgio Tavolini of Intermonte.

Hi. Good evening, everyone, and I have 3 questions on my side. During the presentation, you were mentioning the Panhematin in the U.S. I was wondering if you can provide more color on the legacy metabolic products, Panhematin in the U.S., CarbaGlu in Europe. The second is on the patent box for the next years. Are you considering the option to extend the patent box for next year according to the new regimen introduced by the Italian government that allows a revaluation of the brand costs up to 90% for tax purposes? And the third one is on cough and cold impact, you expect EUR 40 million impacts on sales for this year in the business plan presentation. What was the impact to date? And what are your expectations on Q4 in terms of flu market products?

Okay. So on the first 2 questions, as you know, Giorgio, we don't give out sort of specific revenue by-product from rare diseases for commercial reasons. But on Panhematin in U.S., I would say, we're very happy that while the product -- you recover commented in 2020, we had the plan for a very gradual erosion because we believe and we still believe that Panhematin will continue to be an important treatment option for patients, even in the face of competitor launch in the U.S. and unfortunately, we're -- sorry, erosion in the first part of 2020 higher than expected due to the impact that COVID had, which penalized an infusion product like Panhematin relative a bit more significantly than expected. Then we're very happy that we've seen that -- we already saw that stabilize in the back end of 2020. And very happy that we've actually seen that return to a level of sales, which is actually ahead of last year in the 9 months. And actually, on this, a big credit to our team in the U.S that's doing a fantastic job in really revitalizing the metabolic franchise. CarbaGlu in EU, I mean, it's a product that has been, as you know, is a very natural product. It's face competition now since years and has continued to perform well. But again, I think we had said that in our 3-year plan presentation, not expecting significant growth from that...

In a stabilization?

Yes, absolutely. Yes. Yes. Yes. On the patent box in Italy, a short answer, yes, we will be looking at the option, and we have kind of secured our options around that. So we're looking to sort of continue taking benefit. As you know, I think it's a little bit up in the year in terms of right now what exactly that means. But the short answer is, yes, we believe at this stage, we should continue to benefit from that. But we're going to have to see how the recent decree sort of whether or not it gets confirmed in the same format as published a few days ago. On the impact of flu, we're still running, even though we've seen a nice recovery in Q3. Unfortunately, our flu business is overweight in markets, which were wearing of mask is still prevalent. It's still down versus 2020 and still running at around 60% of the 2019 levels. But we're seeing good signs. We're certainly seeing good signs of recovery in Russia. I hope I have addressed your questions, Giorgio.

The next question is from James Vane-Tempest of Jefferies.

Just one actually. Would you remind me the sensitivity of the business to foreign exchange? I mean, you mentioned currency is a little bit worse than sort of the selling sat around 2% to 3%. And from memory, I think it was roughly 1.5% per year planned in your business plan. So if we just say, for example, it's an incremental 1%. If there's, say, a EUR 15 million impact to the top line, is that sort of half of the EBITDA level, so that's for like an EUR 8 million impact to the EBITDA level? Just to help us kind of understand if it's more relevant, how much of that impact is being due to FX versus underlying reasons?

So first of all, just to be clear in terms of the FX impact this year. A lot of that has been due to the evolution of FX, particularly over the course of 2020 and then we sat a full FX that has over the course of 2021. The way things are looking at the moment, it's certainly going to be higher than sort of 2 percentage points that we foresaw at the beginning of this year, probably not as high as 3%. With the big driver of delta being the Turkish lira relative to the expectations that we have, which were effectively the rounds of sort of consensus FX rates at the beginning of 2021. In terms of the modeling, the impact of sort of a 1 percentage point on revenue on the bottom line. I think the honest answer on that one is going to have to be -- I'll get back to you. I don't have a sort of precise number in mind. There is a level of hedge, obviously, particularly when it impacts in places like Turkey. Because, as you know, a significant part of our portfolio in Turkey is also locally produced, but it's not all of the portfolio. So whether it's a half or a bit less than a half, I'll have to get back to you. But it's certainly not 100%.

The next question is from Katerina Tchakalski of BlackRock.

So can you give me a guidance as to what extent you're seeing any inflationary pressures from labor, raw materials, or logistics that other industries are seeing? If you could just give us an idea of how much of your cost base is each one of these, the labor, the logistics and the raw materials if they are significant at all. We've heard some CDMOs talking about some packaging materials, significant inflation because of foils and because of wood-based materials that they're planning to pass on to pharma companies. So I was wondering how -- to what extent are you affected by that? And also, can you -- you talk a little bit about negotiating prices for new products. But to the extent you've seen massive inflation, what is the mechanism for you to pass that onto these countries with whom you have a negotiating price or a reference price?

So thank you, Katerina. To be honest, so I can point to -- we can point you to the relevant pages of sort of our earnings release for detailed points around the sort of breakout of our cost base between labor, materials and other. The short answer, though, is for this -- you can't compare us to a CMO. Frankly, our P&L structure is completely different. Do we see inflationary pressure? Yes, we see a little bit. But frankly, it doesn't impact a pharmaceutical company as significantly as the CMO certainly and other sectors and also being ended. I mean, pricing in the industry is certainly not comparable to our industries either. I mean, we have flexibility in ATC. We have flexibilities in some markets, Russia and Turkey, a little bit in the U.S., but we've always taken also a prudent approach with pricing. It being a sensitive topic in the industry. So yes, there is a little bit of pricing power. But at the same time, we don't really see -- I don't think we are subject to inflationary pressures as other sectors -- if they're comparing us to very different ones. So we see a little bit of a pinch on that in cost of goods next year, yes. But if you look at a level of stocks relative to purchases, raw materials is north of 6 months. So that will provide some buffer as well. And we do tend to fix energy contracts for a relative long period of time. And that's where you've seen a lot of inflation. So long answer to say, I'm not sure it's going to be as relevant for us as other sectors you may be following. I hope that gives you at least some flavor. And again, to the extent that we publish data externally, we can point you to the numbers in the financial report.

The next question is from Isacco Brambilla of Mediobanca.

A couple of questions from my side. The first one is on Eligard. It looks like the integration is proceeding very well. Give us a figure of the trend in-market sales for Eligard, such as you have been doing over the last year and also a qualitative comment on how it is comparing if the underlying trend of the reference therapeutic area? And the second question is on the M&A arena. I appreciate you cannot disclose much on your intense M&A pipeline, but how are multiples evolving in the industry? Are you observing any kind of pressure on acquisition multiples due to the presence of new players interesting in consolidating or acquiring assets in the industry?

So in terms of -- on your first question, I'm not sure I caught all of it. But on Eligard relative to reference market and like-for-like. I think as we shared in a 3-year plan presentation, Eligard, due to the lack of support was a product that was gradually declining in the market that was sort of broadly stable. So losing a little bit of share. It is very, very, very early days. So we're not going to get overexcited quite yet. But as Andreas said, we're very pleased with the early signals of what we see in markets where the promotion has already started since the early months of this year in terms of stabilizing or actually seeing some growth of the product. And as we've always said, we expect the new news of the new device next year to act as a further catalyst to that. But as I said, very early days, I mean, the trend overall is still broadly in line with the trend of the last few years with the product slightly underperforming its relevant market. But where we started promoting is that we're starting to see that picture change. But again, it's very, very early days. So to be taken commission for the time being. And sorry, I didn't make -- on the PD, maybe I'll add my voice to Andreas so that you hear it also from me. I don't know what else we can say other than say that we're actively in due diligence on a number of opportunities. But the beauty of the game is that until you find the deal, you don't know if and when you will have a deal. And there's no point trying to speculate on timelines, frankly, or if and when things will happen. When they do, you'll hear it. Before then, you'll continue to hear in this kind of response.

And on the multiple side and so forth, honestly, we've always had competition on assets in the past, and we haven't seen any drastic change on this competitive aspect. So yes, I mean, there's always been competition. Some people are willing to take the higher multiples other than [indiscernible], but nothing has changed from [indiscernible] honestly.

I'm also fresh from meeting with some banks that suggesting that when you look at multiples in the sector, they've come down a little bit in the last few months. So it will always be very specific to react it.

[Operator Instructions] Gentlemen, there are no more questions registered at this time.

Thank you, everybody, for participating in this call, and have a good day, evening for the rest of the day. Thank you. Bye-bye.

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