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

This is the chorus call conference operator. Welcome, and thank you for joining the Recordati 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 afternoon or good morning to everyone, and thank you for attending the Recordati's conference call today. I'm pleased to be here with our CEO, Robert Koremans; and Luigi La Corte, our CFO that will be presenting the 2021 preliminary full year results and 2022 targets. Then we will be turning you to the presentation. As usual, the set of slides is available on our website under the Investor section. After that, we will open up for Q&A. I will now leave the floor to Robert. Please go ahead.

Thank you. Federica, and welcome, good morning, good afternoon. I'm really proud to have the opportunity to announce another year of very solid results for the Group. And I'm of course aware that I do this in the midst of an evolving human tragedy in Ukraine, where I'm sure you have questions on how this potentially impacts our business going forward. So we will address that during the presentation as well. Revenue increased in 2021 by 9.1% versus 2020 or 11.4% at a constant exchange rate with a progressive recovery in the main reference markets and operating conditions starting to return to near normal, especially in the latter part of the year. On the rare disease segment, we have seen strong growth of both the metabolic and the Endo portfolio across all regions, resulting in a double-digit growth. SPC has also shown resilient growth even in tough market conditions where there were still excess restrictions to physicians and medical personnel, in particular in quarter 4 of '21, Cough and Cold business came back to almost pre-pandemic levels. And also on Eligard, we delivered ahead of expectations with sales of EUR 85.3 million, thanks to an early transition to direct sales and a positive response to our focused promotion. Excluding Eligard, the Group organic growth at constant exchange rate was 5.6%, absorbing the loss of exclusivity of silodosin and pitavastatin and the impact of the pandemic. Overall, financial results are in line with expectations set at the start of the year with strong continued cash flow generation. EBITDA at EUR 602.3 million, up by 5.8% versus 2020 and with the margin at 38.1%. And adjusted net income at EUR 424.6 million, up 3.5% versus 2020. Especially also free cash flow of EUR 469.9 million increased quite remarkably with EUR 87.6 million compared to full year 2020. Operating results reflect the impact of EUR 14.4 million non-recurring costs. This mainly relates to a targeted rightsizing and optimization of our field force in Germany and Turkey. This reflects an evolution of our portfolio as well as a constant emphasis on commercial access and excellence, and it capitalizes on the learning that we have during this pandemic in the ability to leverage multi-channel instead of just face-to-face visits with sales force. Our net income of EUR 386 million is 8.7% up versus 2020, reflects EUR 5.8 million of FX losses and non-recurring fixed benefits of around EUR 27 million recognized in '21. Then another highlight of the last year 2021 was the EUSA acquisition. We expect to really expand on our rare disease business and accelerate growth. The completion of this acquisition is expected in Q2 of this year. During the year, we have a continued ESG commitment, resulting in an MSCI rating improvement to A and an inclusion in the Euronext MIB ESG Index from Borsa Italiana. Let me provide you with some more updates on Eligard and Endo portfolio and as well as EUSA acquisition process. On the next slide, you see the strong performance of Eligard. Both Eligard and the Endo franchise made a strong progress during '21, confirming our expertise as a group in integrating effectively new businesses and launching new assets. Eligard, the transition finalized in the record time with deal completed in January and the transition of marketing authorizations pretty much finalized by June in over 20 countries. We were also able to quickly start promoting the products across many markets with sales stabilizing and in several cases actually showing a reverse and going into growth. Very positive sales trends that we could see particularly in Spain and France. We have completed a regulatory filing of the new device and at the end of January of this year in 2022 and we now hope to see approval during the second half of this year for these new designs, which will give a further positive force behind Eligard. On the Endo franchise, we closed the year with revenues of EUR 126.6 million confirming the guidance range of EUR 120 million to EUR 140 million with Signifor revenue of EUR 80.5 million and Isturisa at EUR 46.1 million. Both for Signifor and Isturisa, the commercialization is on track with Signifor in-market sales growing in the year of over 10% on a like-for-like basis versus 2020. And Isturisa continuing to capture patients across USA and Europe with strong uptick in US, in France and in Germany, and also good progress in Italy with early access and Japan where we launched in June of '21. The key next catalyst for Isturisa is the agreement of reimbursement across key European countries. Reimbursement price in Germany and Switzerland have been agreed in line with expectations and we are confident to be able to secure additional loans in the course of 2022. We plan to continue to invest behind this important franchise in 2022 to further drive adoption in EU post-reimbursement approvals. Finally, I would like to give you an update on the EUSA Pharma acquisition announced in December '21 and on the later stages of the process. First of all, this acquisition is clearly in line with our strategy of complementing organic growth with value accretive M&A and represents an excellent opportunity to further expand and reinforce our rare-disease franchise, complementing our existing global footprint and expertise with new capabilities in the platform that will be very important for the future and expanding rare disease in niche oncology therapeutic area. Well, the deal hasn't closed. Regulatory review process has been progressing according to plan and completion, as I already indicated, is expected in quarter 2 of this year. Good news is that EUSA has been performing and a little bit ahead of expectation in the latter part of '21 with sales finishing at full '21, just over EUR 150 million. The step-up of this was laterally driven by Sylvant, likely from usage in other settings and benefiting from a market shortage of other anti-IL monoclonal antibodies -- IL6, sorry, monoclonal antibodies. This is really great news and signals potential additional opportunities for this franchise. At this point, we confirm peak sales of approximately EUR 250 million and a growing EBITDA margin in line with the average of the rare disease segment, which includes potential expansion of Qarziba into the US. We will clearly provide a broader update on EUSA post the acquisition close and once we've had the chance to fully engage with EUSA management, and we really look forward to welcoming EUSA into Recordati. You will recall that we announced that we have secured a EUR 650 million bridge financing to support the acquisition and I'm happy to say that we have reduced that to EUR 450 million, thanks to new-term loan of EUR 200 million already finalized and will finalize the balance of takeout over the course of 2022, depending on market conditions. So overall, a very strong year with a very solid foundation for further growth in the years ahead. And as you know, it's really early days for me in Recordati. But I would like to give a little bit of my first impression and my first perspective on the business and share with you the next slide. The first impression I had as CEO after the initial months in Recordati are extremely positive. We have a strong heritage with a very solid company with very strong foundation and incredible commitment to -- and an ability to deliver. There is people, they have a strong focus on performance and excellent track record in delivering on objectives and beyond expectations, with strong discipline in investment and strong discipline in execution and in spending. Our team has a very global footprint and also in my management team here in Milan are really global citizens often with a different nationality than only Italian. The business is beautifully diversified, there is a good diversification. We have a balanced combination with stable and cash generating SPC business combined with higher margin, higher growth Rare Disease segment. Obviously, there's growth opportunities and the business is growing and it's very much my aim to accelerate growth with targeted investments, particularly in the Rare Disease post EUSA as the fantastic opportunities to continue to grow and keep the balance with our explicit footprint. With that I would for now like to hand to our CFO, Luigi.

Thank you, Rob, and good morning, good afternoon, everyone. As usual, I will take you through our 2021 results in a bit more detail, starting with the sales performance of our main products, which as you hopefully will see from on Slide 6 really reflects the trend, which is consistent with one that we saw at Q3, reflecting a recovery of cough and cold, gastrointestinal and OTC franchise, continued strong growth of Rare Diseases and a really good contribution from Eligard. Lercanidipine sales, as you see, marginally up versus the 2020 at EUR 136.7 million. This reflects volume growth across most of our markets and initial shipments to our new distributor in China, which more than offset a bit of erosion in Italy and also in Turkey. With Turkey, as we commented in Q3, also accounting for more than half of the decline on Zanipress, which is declining also due to competition of other combinations across various markets. Our metoprolol franchise at EUR 98.1 million, declined by 7.2% versus 2020. Now you will recall, metoprolol very mature product grew by 7.5% in 2020 on the back also of short just on competitive products in the year during the peak of the pandemic and we are effectively seeing the unwind of that and some erosion in Germany and Poland. We do expect metoprolol to stabilize as we go into 2022. Eligard, as Rob has already mentioned, delivered well. In fact if you recall, delivered ahead of expectations that we set at the beginning of the year on the back of very fast transitions to direct sales. Essentially, all of the sales in the second part of the year have been through our own organization and we started to see the benefit of promotion in a number of markets. Silodosin and pitavastatin, both as expected, reflected the full year impact of the loss of exclusivity in 2020 and both, as also you would have seen have started to show signs of stabilizing in the second part of the year. Erosion on silodosin was slightly higher than we had set out at the start of the year. You will recall, we set around EUR 10 million, been closer to EUR 13 million, mainly driven by Italy, but also the effect of currency in Turkey, in particular with the erosion on Livazo being exactly in line with expectations. Other corporate products of EUR 206.1 million finished on a high. You'll recall this is one of the parts of our portfolio which was most impacted by COVID in 2020 and that had started the year with some challenges, particularly in Central, Eastern Europe and Russia and very pleased to see the recovery there in the second part of the year with cough and cold ending the year still below 2020, but at around at 75% of pre-pandemic level for the full year, and again, starting to show signs of returning to normal across many of our markets, not all, but many of our markets in the later part of the year. We also saw very, very strong recovery of the gastrointestinal franchise, continued growth of Reagila and also strong growth of our corporate OTC products, in particular Procto-Glyvenol, TransAct and Casenlax. Drugs for rare diseases, EUR 383.9 million grew by 20.2%. Clearly, that's on the back of significant growth of Endo franchise, both Signifor and Isturisa, but also thanks to the growth of our legacy metabolic portfolio with many products in the franchise actually delivering growth. I'll call out Carbaglu, Cystadrops, Ledaga and also Panhematin which has managed to rebound after a competitor entry in 2020 and deliver growth for the full year. As you will see on Slide 7, rare disease, drugs for rare diseases now account for just over 24% of revenue, and of course, we expect this to increase the growth around 30% of revenue post the EUSA acquisition completion. I'll also sort of call-out OTC products just under 18% of total revenue, growing by 6% versus 2020 with corporate OTC products actually growing at a higher rate of close to 10% in the year. On Slide 8, in terms of revenue by geography, obviously pleasing to see all of the lines effectively on this page show a progressive -- have shown a progressive improvement over the year, thanks again to the key drivers of returning to growth of Specialty Primary Care, the contribution of Eligard, and the growth of Rare Disease. The sales in Italy of EUR 258.2 million are down by just over 3%, reflecting the impact in the first part of the year on the Cough and Cold portfolio, and as I've mentioned, some decline of silodosin and also a couple of discontinuation of local products, which more than offset the good growth of the OTC portfolio, in particular Magnesio Supremo and Reuflor. France, great to see returning to growth after a soft 2020. Sales of EUR 151.7 million, up by 5.3% with growth of both at the end of franchise, the contribution of Eligard, and also good performance of our methadone business and of our Ginkor OTC products, which more than offset slightly lower sales in Cough and Cold, particularly the Hexaspray line. Germany, double-digit growth at EUR 152.9 million with good growth of both Specialty Primary care and Rare Diseases, led by Ortoton, lercanidipine, GI portfolio and obviously Eligard. And Spain at EUR 120 million showing a very, very strong growth of over 40%. Obviously, Spain being the biggest market for Eligard, but also the growth reflecting, as mentioned earlier, the strong performance of the gastrointestinal business which you'll recall was heavily impacted by restriction to elective hospital procedures over the course of last year. Portugal, EUR 45.4 million of sales, up by 6.4%. Once again, driven by both Rx, OTC portfolio and Eligard. Portugal is one of the -- it was one of our core market for both Livazo and silodosin, which offset in part, the growth of the other franchises. Turkey, strong performance in market and in local currency, with revenue growth of in local currency terms of close to 15% and in fact, double-digit growth in both Specialty Care and Rare Diseases behind the growth of Livazo, Procto-Glyvenol and Eligard, which more than offset effect of competition from generic products and generic competitors on some of our local products, Cabral and Kreval in particular, and also competition on the lercanidipine. Obviously, Turkey facing a very significant effects in 2020, close to EUR 20 million which depressed the sales on a reported Euro basis. Obviously, moving to Russia, CIS and Ukraine, sales of EUR 100 million, EUR 99.6 million are essentially flat during -- versus 2020, recovering significantly in the second part of the year from what was a very slow start, thanks to the recovery of the Cough and Cold business, particularly in Russia and also the growth on the back of the growth of Procto-Glyvenol, Livazo and the contribution of Eligard. With the sales in local currency in Russia, slightly down versus last year by 1.9% and our sales in Ukraine and CIS markets are slightly increasing. As Rob has mentioned, clearly difficult to predict exactly as events unfold, the impact of the escalation of conflict in the region or the business. I would say pharmaceuticals, from what we've seen historically is more resilient business than many others. It is typically a sector that is protected from sanctions, obviously from the interest of patients. We don't have manufacturing facilities, we're not reliant on those markets for supply into other regions. Of course, the first thought at times like this is towards the people there, our people and in general, the people in the country. As we said, obviously, we're monitoring the situation closely. We believe that we have the right level of stocks in the markets, both at our level and with distributors. At the moment, we don't see significant disruptions. Of course, the events there are triggering inflation across the globe, which we have and we will come to the guidance for 2022. We have built in some assumptions on that into our financials. But at this point in time, it was too difficult to predict with precision, we're not seeing a major disruption to the business in the region. Sales in the U.S. of -- which as you know is fully Rare Diseases, EUR 176.9 million, strong growth of 44% and close to 50% actually in local currency, as we've commented already, on the back of the very strong performance of both Endo and the metabolic portfolio. Sales in other Central, Eastern European and Western European countries, which combined, account to roughly 14% of our revenue are growing double-digit on the back of the addition of Eligard, obviously and the growth of the Endo franchise and progressive recovery of market conditions and Specialty Primary Care. North Africa sales of EUR 35.9 million, down by 13%. This really reflects challenges that we faced during the year in Algeria with import in the country being restricted and impacting the sales of Hexaspray and vitamin D. With sales of our local business in Tunisia, actually, continuing to grow double digit, 10% to 12% constant exchange rates. And finally, other international sales of EUR 204.2 million, up by 1.6% on the back of the growth of lercanidipine across many markets, which more than offset the loss that excludes the impact of silodosin and pitavastatin which we also sell through partners in countries outside of our main ones and the effect of the discontinuation of Kantara. Turning to Slide 9, which once again shows the diversified footprint of the Group, which makes the Group resilient, has made us resilient over the course of 2020 in the midst of the pandemic, and we expect we'll continue to take up resilience in the context of other challenges that we see emerging. Sales in Italy now represent just under 17% of Group revenue. And nice to see U.S. now becoming a second market with close to [ 12% ] of sales coming from that region. So Slide 10, looking then at the P&L, which, as Rob has commented, hopefully you will see -- show a very solid financial performance once again for 2021, where we have delivered on the targets we've set at the start of the year despite an environment which it was not exactly as COVID free as we would have hoped. Revenue as we said, up 9.1% and gross profit up 10.6% with the benefit of the improved mix towards Rare Diseases, more than offsetting very small inflationary pressures that we started to see towards the end of the year. SG&A expenses of EUR 480.9 million, up by 14% with selling expenses at 25.1% of sales with 2-thirds of the growth really driven by the addition of Eligard in particular. Both the transition costs towards Astellas and the royalty payments to Tolmar, but also the highly targeted incremental investments we made behind the business alongside the additional investments that we continue to make behind the Endo franchise. G&A costs at 5.3% of sales, growing also on the back of additional resourcing put in place to support those new additions to the portfolio. R&D expenses of EUR 166.1 million or 10.5% of revenue. The increase versus the 2020 reflects additional EUR 4 million of amortization arising from the new product acquisitions and with the balance of the increase once again driven by some of the additional investments made in market access medical to support both the Endo business in Eligard and some of the ongoing trials that we inherited from Novartis behind the Endo portfolio. As Rob commented at the start, other income and expense is EUR 15.1 million, mostly reflect provisions made for the targeted rightsizing of some of our primary care lines, particularly in Turkey and Germany as we adjust our focus to fit with the more specialist nature of the portfolio and leveraging the learnings from the pandemic. So it was around the EUR 12 million charge, which was relating to that, and the residual EUR 3 million of exceptional costs incurred as a result of the pandemic, particularly in the first part of the year. That leads to an operating income of EUR 490.2 million, margin of 31%, EBITDA of EUR 602.3 million, margin of 38.1% which is exactly in line with the target that we had set at the start of the year, once again, despite some of the pressures that we faced and growing by 5.8% versus 2020. As we've commented throughout the year the non-operating lines of the P&L reflect on the financial expenses level with cost of EUR 26.8 million that you will see are almost double what we incurred in 2020, actually reflect foreign exchange losses in the year of EUR 5.8 million, which compared to in 2020 exchange gains of EUR 4.3 million and we also had in 2020, EUR 2.6 million gains on cross currency swaps that we have closed and were no longer considered as hedges and that mainly explains the increase versus last year. This is obviously offset by the one-off tax benefits that we had on the tax line, relating to the reverse merger transaction, which we completed in Q2 and also the revaluation of Magnesio Supremo, leading to net income of EUR 386 million, up 8.7% versus 2020 and adjusted net income of EUR 424.6 million, up by 3.5%. I would say the lower growth rate there due to the fact that we do adjust -- we strip out the tax benefit from adjusted net income, but we don't adjust for the FX gains and losses. So in Slide 11, you will see the, as usual, margins for our 2 businesses. I will say, from my side both remaining strong. In fact Rare Disease slightly up versus 2020 level and Specialty Primary Care still robust and obviously reflecting costs related to the Eligard transition. And as we always said, the progressive return to in-market activity as conditions improved in the second part of the year with Rare Disease now representing close to 30% or just above 30% of our operating results. On Slide 12 and to finish-off, free cash flow in the year were very strong, consistent with a very strong track record of the company, reflecting both the increase in EBITDA, but also with a strong contribution from working capital, which was a bit of a drag in 2020, as we grew stocks during the pandemic, and as we integrated the Novartis business and we saw both stock levels and payables normalize during this year, which more than offset increase in debtors linked to the increase in revenue. So strong benefit from working capital, slightly higher taxes paid on a cash basis as 2020 benefited from the one-off patent box benefits announced in Italy at the end of 2019. Free cash flow of close to EUR 470 million is a EUR 87.6 million improvement versus 2020. In the year, we invested roughly EUR 65.5 million in intangibles, being mainly the upfront payments to Tolmar of EUR 35 million for the Eligard rights and EUR 15 million to Almirall for Flatoril. Paid dividends of EUR 217 million and repurchased shares net of proceeds for exercise of options of EUR 59.3 million. And finally, from my side, that leads on Slide 13 to very solid net financial position. As you can see the strong cash flow helped to manage to absorb the dividend buyback and payments related to BD and led to a decline of EUR 129.3 million in our net debt at the end of the year versus end of 2020 with net debt now at around 1.22x EBITDA. And with that, I'll turn back to Rob to talk about projections for 2022.

Thank you, Luigi. So turning to 2022 expectations. On Slide 14, you see the key planning assumptions for this year. Revenue excluding EUSA are expected to grow mid-single digits, reflecting adverse FX effects of minus 1%. On our SPC business, we expect low to mid-single digit growth, reflecting a progressive return to pre-pandemic conditions with volumes expected to get back to growth and Eligard to contribute with over EUR 100 million revenues, offsetting limited lercanidipine sales in China. The Rare Disease to grow double-digit, driven by Endo's strong performance, expected revenue range of EUR 160 million to EUR 180 million and further growth of Cystadrops, Ledaga and Juxtapid. Slight erosion of Carbaglu in the US due to generic introduction. Assuming a closing in quarter 2 of this year, EUSA will contribute in 2022, with a revenue of over EUR 110 million and an EBITDA of around EUR 25 million. And then we also expect non-recurring cost of about EUR 35 million in 2022 with around EUR 5 million of the further commercial excellence exercise of rightsizing in SPC business in Europe and around EUR 28 million from the EUSA integration where mainly the ongoing tech transfer related to Sylvant from Janssen is contributing to this. Financing cost will account for EUR 31 million to EUR 33 million, excluding FX gain or losses and we expect our leverage at closing around 2.4x pro forma and to return to below 2.2x by the end of 2022. The tax rate is expected to be around 22% to 23% and we expect an incremental amortization after EUSA transaction completion plus other non-cash adjustments. And these charges will be determined post acquisition, closing since subject to the purchase price allocations. And on Slide 15, we set our 2022 guidance, which we will fine tune after the formal EUSA acquisition completion. With the revenue target range between EUR 1,720 million and EUR 1,780 million resulting in a midpoint growth of 10.8%, with EBITDA expected between EUR 630 million and EUR 660 million, with a margin of 37% and a midpoint growth of 7.1%. I think we've always made it clear that short-term margin should and could be affected by deals that relate to the phase of the products and the launch phase. In short-term, EUSA has a slightly dilutive effect as these are very much products in launch phase. We will update mid-term plan post closing, as already alluded to, and of course, our ambition is to maintain a strong margin with a strong commitment to profit generation. And the adjusted net income is forecasted in the range of EUR 450 million to EUR 470 million with a margin of 26% and a midpoint growth of 8.3%. And with that, I would like to give the opportunity for questions and answers.

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

It's Brian from Barclays. On '22 guidance, hoping you could help us understand the expense which that factors in potential disruption from the Russia-Ukraine conflict. Just given that those markets contributed some [indiscernible] in 2021. And then, how should we think about your ability to achieve '23 targets, given your exposure there?

Yes, thanks, Brian. Good to hear you. I will pass to Luigi to complete, but I mean, the events in Russia and Ukraine are very, very, very recent. So other than that we have factored in for some inflation to happen in 2022. We do not really expect and anticipate a major disruption of our business, the ability to continue our business. Of course, when all of those things started to happen, in the last 24 hours, first and foremost, concern was with the safety of our people, specifically in the Ukraine but also after that immediately, the continuation of our business. We believe that we should be able to continue our business relatively short-term saw the implications in terms of inflation. We have really good hedging on things like energy, for instance, that should carry us a long-term into 2022. But the full impact of the invasion of Russia in Ukraine was really not foreseen when we gave our guidance. But I'll pass to Luigi to complete the answer.

Yes, Brian, thanks. And I'm sure this is a question on many people's mind. I don't know if I can give a lot more color than what I've said in the sense that one, pharmaceutical -- and we think if it wasn't quite similar kind of shock. But let's not forget that what this business has gone through in 2020 in terms of the impact from the whole of Europe being at times in lockdown, and we've seen through that time that the pharmaceutical sector is resilient fairly on a bottom line level that if and where you have an impact on sales that can tend to be offset to a large extent to lower activities and therefore costs. From what we can gather at the moment and we've been in close touch, as you can imagine with our people in those markets. We're not seeing to-date a disruption. These comments are valid as of 4.44 PM Milan time today, and I really don't know what will happen tomorrow, we'll see. I think we are confident that once again about the resilience of the sector, the resilience of our business has demonstrated also last year through a pandemic. We don't have -- I think the thing that also is important to emphasize that we do not have a local manufacturing. We're not reliant in other parts of the business for supplies out of Russia. And beyond that, I just think we'll have to watch and see what happens. I know that's only a partial answer Brian, but I don't know that we can really give a better one at this point in time.

The next question is from Martino De Ambroggi of Equita.

The first question is on the guidance, once again. When you talk about EUSA, whose acquisition is finalized in the second quarter, are you assuming 6 or 9 months in your embedded guidance for the EUR 110 million? Because I'm sure you will not provide a guidance for the full year because it's not in your hands yet, but just to have an idea of what is your assumption. The second is still on the guidance, the R&D cost. If you said something, I probably missed it, but just to double check. And still on Russia. You're presenting a weight of on sales, which is a 6.5% including CSI and so on. Can we say is 6%, Russia, which will become 5% following EUSA? How much of the sales in Russia are dedicated to Rare Diseases? And can we say it is less or more profitable than the average of the Group?

Yes. So Martino, in terms of on the 2022 guidance contribution of EUSA, look, we don't own the business yet, so we're not sort of detailed sort of phasing for that business. We assume it will be -- based on -- and it's also difficult for us to predict at this stage when exactly the closing will be. We have assumed it will be at some point during Q2. You can sort of take that as meeting sort of mid-way through Q2, but it's difficult to be so precise on something that we don't own yet, which is also why to be fair, I have not given and we don't intend to give sort of guidance by full detail of a P&L line because we'll have to see once we integrate EUSA what that looks like, I mean certainly, EUSA has a slightly higher R&D as percent of revenue at the moment, but you should expect the consolidated numbers to be slightly that is what we are reporting at the moment, but again we would say that sort of more fine-tuning more details on that once we have completed. And sort of further break out of revenue offset in Russia, CIS and Ukraine, I think it's appropriate that we give you a little bit more sort of direction, within that around EUR 75 million would be Russia, EUR 15 million Ukraine with the balance in the other markets in the area. I think in terms of profitability, we're not going to go into sort of profitability by market. You have to assume in line with Group average at this point in time.

And the Rare Disease is a smaller part in the business with -- again, the average profitability for Rare Disease products. From the history we know that during these challenging times pharmaceuticals tend to really be quite resilient. There is a very short disruption. You can imagine that it's going to be difficult for any trucks to pass into that region and deliver goods, but we really have good stock levels on the ground and we expect to be able to continue this business fairly soon without really big impact on those 2 countries.

Yes. And again, we'll monitor and we'll review that as events unfold.

And on R&D?

R&D, as I said, there is not the reason for which we are not giving break-out of the P&L for '22, where I think in fairness, we give quite a bit more color on guidance on many companies is that, we have to see -- once we take get our hands on EUSA, how exactly the various P&L lines will come together. I would expect our R&D and our percentage of sales to be slightly higher after the completion of EUSA then it has been, if you like in 2021. And that's simply as a result that they do have -- they are including a higher level of cash R&D costs than we are at this stage, but we're not going to go into that much more detail in terms of further break-out of the '22 guidance, Martino.

Okay. And very last on the end of franchisee EUR 160 million, EUR 180 million sales target for the current year. Can we assume roughly EUR 90 million Signifor and the balance could be higher or lower, but is Isturisa?

Yes, I would say, we don't tend to sort of -- we don't give guidance on a per product basis. Of course, most of the growth will come from Isturisa, right? In Signifor, we expect will continue to grow. Most of the growth -- as we said already, the 3-year plan clearly will come from Isturisa. And as we said, and just to set expectations, next important catalyst of that is the progressive reimbursement in Europe. And so we do expect that to start kicking in as we go into the year progressively. But again, most of the growth will be contributed by Isturisa.

And very last. Is there any reason why Isturisa was flattish sequentially in Q4, if I'm doing it right enough?

Not of any sort of relevance, from our perspective. Patient acquisition has continued to be strong single quarter of sales on Rare Diseases is always a little bit lumpy. I think there was that small true-up of accruals on discounts in Europe in the last quarter, but we're talking roundings here which on a single quarter sales of a single product and then can distort a little bit the underlying trend, Martino.

And Martino, we've also seen and that helps and that in some of the sales numbers before is that patients didn't really have the access to surgery that you would normally have due to COVID restrictions. And specifically also some restrictions in getting into surgery. That has returned to more normal now. But in terms of getting patients on the therapy and the ability to grow the numbers there, we are fully on track.

Next question is from Jo Walton of Credit Suisse. Please go ahead.

A couple please. AbbVie the other day were talking extremely positively about the opportunity for [indiscernible] Reagila. In the US, is there any access that you have to any of that data? And is there any chance of effectively reinvigorating that product, which now seems to be too small to talk about? Could you also tell us a little bit more about your right-sizing in Turkey and Germany? What's changed in your market environment there? If you're able to do more digital, is that something that you can do in other markets as well? Just give us a little bit more of a flavor for that, please. And then, you talked for the EUSA business of Sylvant as I understood it, doing particularly well because there was a shortage of other IL-6s out there. Is this a temporary demand that you're getting or do you think this is enabling the company to establish the product and that you will therefore grow more strongly from this enhanced base?

Thanks, Jo. A lot of good questions here. Let me start with Reagila in the US has a slightly different label, a different indication that unfortunately the bipolar one, we will not be able to claim in Europe. So yes, we have a very good collaboration with all the partners behind the products, but there is very little that we can actually really do in Europe, if at all. There might be a small, small, small opportunity in Switzerland, for instance, but that's going to be extremely limited.

But it would be -- the data they were talking about was major depressive disorder, adding to their bipolar, so adding more depression to it. So I thought that was really more of where you had stated and that was more of the positioning in Europe. So I wondered if there was any of that incremental non-Bipolar data you could access?

No, I think the way we've seen it so far is that this really only works on the base of bipolar that you can actually start. It's a very different positioning that they have in the US. Clearly, we look at this opportunity but that's not something that we believe is going to be really realistic for us in Europe, unfortunately. I'd love to, but it's not reality. In terms of commercial excellence, what we've really been doing and it's very much as you hinted to. I mean, it's an ongoing -- this is always a dynamic process, right? We look at opportunities and with the launches of the new 2 products, we see that there are opportunities, for instance in the Nordic countries where we've strengthened our sales force a bit. And this has also been a learning phase, not just for doctors, but also for us. What are the best way of getting your message across and interacting with your customers. And using multichannel is something we've been doing, we will definitely take the best practices to other markets. In Germany and Turkey, specifically, it's also reflecting the focus on specialist rather than on general practitioners, which is really a slightly smaller target audience, so that we can actually work with fewer people as well. And to the extent that, that is true in other markets will continue to drive it. We do not foresee real and significant impact, as we've seen in '21 also in 2022, where in '21, this is -- in terms of actual reduction, you're talking about 175 positions that we were able to reduce without in any way bringing down our commercial impacts. In fact, probably we were better now than we were ever before. And then the last question was…

Other uses of Sylvant.

Yes. So, Sylvant, what we've seen is, that on the back of some shortage of the anti-IL-6, Sylvant has been able to probably increase. We don't own that business yet. It's very difficult to really comment on it. That's one of the very first things we'll definitely do once this is approved by the authorities. Sit down with EUSA management and look at opportunities. Theoretical, there are some, but I don't really want to speculate. And I want to really save that for the update we'll give after we've had to time to look into that and have been able to close the acquisition.

I'll just add Jo, we are looking at potentially other countries because of rightsizing. I think we mentioned that we do have, that we have foreseen part of the non-recurring cost that we have foreseen for 2022 reflect that mostly voluntary and sort of programs that, again were very targeted way we're looking at across some of our other established markets.

And I'll ask just a final question, if I can. I assume that you are fully occupied with your EUSA acquisition. But what is your pipeline for more product, given that you've had a history of growing 50% organically, 50% by acquisition? How is the pipeline for new opportunities coming along?

I'm happy to -- well, I'm not going to, of course mention anything concrete, but the pipeline is as good as ever, if not better. There are plenty of interesting things to look at. And yes, we are very busy with interacting with our EUSA colleagues of the future and cannot wait to get them on board. Fantastic people but there are some other interesting opportunities as well. So I don't think you expected that we would give anything concrete, but it looks promising. And it's very much part of our strategy.

The next question is from Rajan Sharma of Deutsche Bank.

A couple on Isturisa, actually. But if you could just give us an update on the regulatory path for the asset inscription that's been going in the US. Have you begun discussions with the FDA yet on that one? And then secondly, how are you tracking on your target of 500 patients on Isturisa therapy by 2023 in the US?

We're on track is the short answer, for the target that we set of achieving over 500 patients on Isturisa in the US and we think the sales guidance that we provided for next year, well, for 2022 should confirm that. Nothing has changed in terms of the expectation in terms of engagement with the FDA. In the early part of this year to discuss the pathway that we see for the potential expansion of the Cushing's label for Isturisa in the US. So nothing has changed there. We expect we're going to pull together a dossier which sort of draws from previous studies and real world evidence that we're going to be collecting and plan to engage with the FDA in the early part of this year.

And then take it from there, right? Because it is difficult to comment on how the FDA role there. We think we have a good exchange there.

The next question is from of Niccolò Storer of Kepler.

I was wondering if you could provide us with some more detail on your margin guidance for '22 and maybe how all the moving part contribute into it. You talked about inflation, so maybe if you can detail a bit on which kind of inflation, on which items are you talking about. Then you talked about launch phase of EUSA. And then also, I guess that on your right-sizing carried out in 2021 could bring about some benefits. So if you can make a bridge between 2021 and 2022 and also give us an indication on whether this scenario you have projected for 2022 could some way be carried also in 2023 putting at risk your [indiscernible].

So Niccolò, as I said, we're not going to sort of try and unpick too much the guidance, because as you said, there is a lot of moving parts. To just give sort of some really high level direction and try and sort of keep it simple, you're asking a bridge between '21 and '22. We are guiding to a 1% point lower in terms of margin target which as we said comes from a combination of integrating it with our business, which is running at a sort of lower margin level and inflation pressures. If I was to put sort of tentative numbers to it, I would say half a point of margin from gross profit, the impact that we'd expect inflation to have which more than offsetting the benefit of mix and half a percentage point on R&D on the back of the higher investment that was occurring, but also the investment that we plan to do because there is, as I said, there is some work that we want to do on Isturisa as we prepare for getting that full benefit of reimbursement in Europe. And I mean that in terms of particularly investment in medical and sort of small observational studies in Europe. So I think that's to give you just a general direction. In terms of, does that put pressure on 2023, we're not updating today any 2023 numbers. Inflation kind of depends on how quickly that subsides. So we'll see. And again, I think we'll be in a better position to provide guidance, both on top line potential and bottom line once we get our hands on EUSA and can more full year articulate the plan for that.

And the balance sheet?

Sorry, just to add. What doesn't change is our commitment to good margins and affordable and development, right? So that is not new and nothing has changed in that respect.

And maybe following up on that -- on nothing on savings from right-sizing of your sales force because 175 people is quite a lot.

No, of course, but we always also said that we would -- so notice that when I sort of talked about the margin progression, I talked about cost of goods and I talked about R&D and we did always say that we would progressively reinvest in the business as and when market conditions improve and that we've done a little bit of that in 2021, but of course that condition did remain in market somewhat restricted for part of the year and we'll do a bit more of that in 2022, which will be offset by the savings which are generated by the rightsizing that we talked about, where we expect the return to be quite short.

The next question is from Isacco Brambilla, Mediobanca.

I have just a quick one on Eligard. Can you elaborate a little bit more on the missing steps for having the product green lighted and launched on the market and also which is the potential in terms of contribution from the new device to the mid-term cost that you unveiled with this year business plan?

Isacco, I'm not fully sure we fully understood the question, I think it was around expectations from the new device. It's been filed. We hope to see the approval in the second half quarter of this year.

But just to be sure, Eligard is on the market, right? This product was taken over with a negative trend we've been able to reverse and stop the negative strength in some countries grow. And we believe the device will help to improve handling by patients and management of the therapy. And of course, it's going to create positive momentum in terms of -- there was very much part of our initial plan when we acquired the product. And so things are going as planned on track and we are happy with it.

The next question is from Giorgio Tavolini of Intermonte.

I was wondering if you can elaborate more on the Cough and Cold expectations for this year, since we are seeing a faster recovery from COVID pandemic and progressing this thing of the restrictions. So I was wondering if you are projecting a faster recovery on that front. And the second one is on inflation. Do you have the pricing power to cost of the inflationary pressure to the final kind in terms of the retail pricing? And the third one is on the guidance for 2023. You didn't mention targets and I was wondering if there is any adjustment to consider after the EUSA Pharma acquisition or not.

So Giorgio, thanks for your questions. Let me -- I think probably on the inflation, Luigi, you want?

No, well, I'd just reiterate what I said before. Do we have pricing power? Yes, we do and we do regularly take those opportunities. It will not be -- obviously, it's not on the whole of the portfolio and it's not in every country, so it is limited. But that's how we are in part also able to contain the impact to -- I'd like to think relatively sort of low number when I say sort of half a percentage point of margin.

And Cough and Cold like Luigi, already indicated at, during his presentation that we've seen a return over the entire year of '21, we're at almost 75% of pre-pandemic. Towards the end of last year we were getting close to 85% and we expect actually going into this year that we will be not completely on pre-pandemic level but more or less around 90% of the pre-pandemic Cough and Cold market.

And on your third question on 2023 guidance. Do we update it post EUSA? Well, no, we don't because one, we're just not updating guidance for mid-term today. We'll do that later this year once we complete the acquisition and don't forget that our 2023 target already included a contribution from our BD as they've always done. So we're not going to do that. And the one thing I know then instead of talking guidance that maybe we haven't touched on, I just did want to mention, obviously the guidance that we provide and as we have done sort of consistently over the last couple of years is for results on an adjusted basis, both in terms of EBITDA and adjusted net income. Of course, with an acquisition, particularly one of the size of EUSA, there will be non-cash IFRS 3 acquisition accounting adjustments that we'll have to factor in, in terms of additional amortization and other charges, particularly arising from the step-up to the value of inventory that we will acquire from the acquisition. We can't determine those until post close. We'll have to go through the full purchase price allocation exercise. But just thought I'd mention that obviously as a reminder.

Just a follow-up, if I may. Could you clarify being what you are expecting a limited decline of the lercanidipine sales in the year due to the adverse impact of tenders in China? Is that something that was expected or how should we consider this element?

It was not expected, but to sort of consider it -- just to give a sort of a round figure, less than EUR 10 million. So we mention it, because it will show a little gain, particularly in the first part of the year. We had initial in 2021, we had -- and I think we commented during the year, our initial shipments to our new distributor out there. Lercanidipine, to be fair, a little bit surprisingly was included by being a relatively small molecule in the country into the fifth round of value based tenders in the country and I think and that will compress in the short-term revenues and therefore will result in our distributor probably not ordering very much over the course of 2022, but we remain positive about the outlook for China. It's a big market and I think we see this more as a sort of a one-year effect rather than anything.

And very committed to distributors that we worked so long with us really very constructively. So we believe we should be able to overcome this, like Luigi says, beyond the short-term.

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

Thank you. I'd like to thank you all for your participation. Look forward to interact with you soon. As Luigi indicated, we will be interacting as soon as we have the closure of EUSA and the chance to really interact and digest that business. And I think also in the same timeframe, we'll be giving more long-term outlook as well as we've typically done. So thanks for the interaction and the questions and have a very good day.

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.