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

Yes. Most is new, Niccolò. We always like to keep a balance of cash on hand. Of course, it's a cash-generating business. As you know, we were at back below 1.8x leverage at the end of Q2. Q3 is usually a quarter where we generate cash and we sort of reduce that further ahead of the interim dividend. So you assume most of it will be new facilities. You may recall, we said when we did the GSK deal, we took down one facility, which also had a sort of further piece that we could draw down as needed. So it will be a mixture of those, but you should assume mostly new debt and mostly at rates which are consistent with our current financing arrangements. And it's nice to see interest rates coming down around the world.

The next question is from Giorgio Tavolini with Intermonte.

My 3 questions, please. I may have missed this detail. I don't know if you are in the position to disclose it. What is the duration of the Enjaymo licensing agreement with Sanofi? And if it is then beyond the expiration of the patent. The second one is regarding the synergies with the Sylvant in oncology, as you mentioned in the press release. So what is expect -- the expected magnitude or, I mean, if you can provide more color on the commercial synergies, I guess, for the network, I don't know? And the third one is on the nonrecurring cost of approximately EUR 10 million. I was wondering if they are related to the R&D activity?

Maybe I can take the last one first, if that's okay. So the nonrecurring costs are as customary, there's a number of -- in the case of an acquisition, as is this deal, there's a number of transaction-related costs, which IFRS 3 does not allow to add to the intangible. So those will go through the P&L. The cash component of this, as you said, as we said is, we estimate below EUR 10 million, it's mostly the sort of customary insurances that will take out. There will be some transition costs, obviously, small advisers costs that we've incurred, that some of these EUR 10 million have been incurred already in Q2 so in Q3 and to the tune of EUR 3 million or just -- or thereabouts and the balance most likely by the end of the year. We obviously have to go through a purchase price allocation and we'll have similar to when we did the EUSA deal, some noncash adjustments that will have to do to the reported financials, particularly around the initial inventory that we purchased. But we'll provide more details on those when the deal closes. Hopefully, that addresses that one question.

Maybe the other part to address is we have acquired the global rights, the ownership of Enjaymo. So there's no license and there is no end to it. This is our product. It needs to be approved by the authorities. And after the authorities have approved, this is going to be in our hands. The IP position is quite strong, it's until 2036 in the U.S. and Japan and in '37 at the end of '37 actually in Europe. And this is a monoclonal antibody, so expensive and difficult to produce. And with our peak sales expectations, this typically is not an attractive target for any generic to try and copy, but we're well beyond that at the moment. So with the IP exclusivity, we have a really good and fantastic protection. And I'll pass to Scott for the synergies with Sylvant.

Thanks, Rob. Thanks, Giorgio, for the question. I think with regards to the synergies with Sylvant, maybe I'd take a step back and I look at really what the synergies are with our existing organization. As you know, we've had Sylvant available in both the U.S. and in Europe for quite some time now. So we have a very strong relationship with hematologists in those markets. And we're excited to bring Enjaymo on board to further those relationships with this new opportunity. It's a little early right now to talk about structure, but one of our key priorities for the early days of the deal is to retain and integrate as many of the Sanofi colleagues as possible and to really anticipate harnessing their background know-how to continue to optimally serve the patients with CAD in those markets.

The next question is from Charles Pitman-King with Barclays.

Congrats on the deal. Maybe just speaking a little bit more about your kind of IP protection. Obviously, this has got a great run rate on it, and I understand you are going to give us more details on the milestones till the deal is closed. But maybe if you could just speak a little bit more about your commentary around the kind of you don't see competition for the midterm? Just kind of what assets -- I know that some assets have been terminated from development and it looks like you're going to be alone for a while. Just how are you thinking about that competition over the longer term? And what are your kind of plans to mitigate that? And then just in terms of that this is taking you up to kind of 2.5x leverage for next year, but are you looking to delever what sort of potential further M&A could we expect to see next year given you seem to be kind of pushing with the standard one deal a year strategy, which looks great. So just about the detail, that would be great.

Thanks, Charles. A number of questions. First, thanks for the congratulations on the deal. We're also super happy with it. And more details on the IP, there really isn't, right? So the patterns look strong, very, very healthy and both in the U.S. and Japan last till 2036. In Europe to 2037 and this being a monoclonal antibody gives additional protection, right? And then as you know, rare disease products and patients and the entire market generics work a bit different anyway. But you're looking fairly far into the future. So we feel very secure with the patent protection and the IP on this as we speak. To answer your question on further deals, we've always stressed that and traditionally, Recordati has been not only good at doing deals, but doing deals that bring fantastic return on capital employed. We are good at integrating and I'm very optimistic that once this is approved by the authorities, we'll do a good business on this as well and serving patients in need. We continue to be active in both rare disease and on our traditional SPC business to look at the right deal for us to continue our growth path, right? And of course, immediately after this, we're not going to do something immediately sizable. I really want to focus on making sure that we land and integrate and continue to serve patients with CAD as good as and to our best ability and as good as we can. But we'll continue to be active in this field. So Gabriele and his team have a weekend of rest and then the journey continue. The competitive landscape, I'll pass it to Scott to give a little bit more of a background to that, if that's okay.

Charles, sorry, did you want to say something before I?

I was just clarifying that I'm talking about the kind of competition from other assets as opposed to the IP of all your asset, but you speak, that's great.

Yes. No problem. So just to reiterate, as we all -- as I said before, Enjaymo is the only approved product for CAD at the moment. There are a number of off-label treatments that are currently available that people are using to treat CAD, but again, this is only on-label treatment for CAD. With regards to future competition, I mean we know that there are a couple that are being developed now that have CAD as part of the development portfolio. There's the ANX1502, the Annexon compound, which is also a C1 inhibitor that's in Phase II, but from our understanding that they're considering to go after other indications with that molecule. And then there's a follow-up compound from Sanofi, the Riliprubart C1 inhibitor. And they made a statement not too long ago that they will cease development for the CAD indication for that molecule. So while there are some things in development, and we have -- we obviously keep an eye on for the time being, we're the only approved treatment and we'll continue in that direction.

And maybe to add to that also in a very effective treatment, right? So there's an incredible good response rate for CAD. And what we've seen is that whereas many have tried to develop in this indication. Everyone basically had to stop this. And this is really the only product, Enjaymo is the only product that made it to market and has been successfully developed with incredible good efficacy and safety profile. So we're very confident on the ability of Enjaymo to continue to help patients address this sincere -- serious situation and disease and confident about the possibility to achieve our targets there.

The next question is from Niall Alexander with Deutsche Bank.

It's Niall from Deutsche Bank. So first one, just on M&A just to push a little bit. I know typically, you'll switch your focus between the segments. So potentially, is it fair to say that the next deal you would go for could be an SPC? Or do you feel you perhaps keep pursuing something in rare diseases. That's the first question. And then the second is on just the rare disease margins. Now, obviously, we've seen a decline in recent quarters in that margin. But I'm just wondering if with this deal, how the rare disease margin will play out now? Do you feel it will somewhat stabilized? It would be helpful just to get your view on the outlook for the rare disease margin there.

I think this deal -- and thanks, Niall, for the question. But this deal has a margin that is above the average of our rare disease. So will improve the margins once it gets approved. I think one of the reasons why you've seen some of pressure, which under still very, very attractive margins for our rare disease is because there were also royalties, which in this deal, we do not have. So very, very optimistic about the opportunity to really also help and pushed the already high margins for rare disease up a bit further when this product is available to us and further progresses. On the nature of the next M&A, it's always very difficult to predict what's happened when. Like I said before, both businesses are equally important to us. The rare disease space offers beautiful opportunities for so does SPC and we'll look at what really -- we'll keep the discipline. And we're now after doing this, but also before this, we were in no pressure to do a deal. This is just what we think a really good opportunity to and strategic fantastic fit. So we're very happy with the agreement with Sanofi. And we'll continue to pursue anything that makes sense for us and helps us to further strengthen our company and serve patients.

The next question is from Alistair Campbell with Royal Bank of Canada.

I hope you can hear me. Not really a lot left to ask, but just a couple of ones, please. In terms of retaining Sanofi employees, I wonder if you can give us an indication of broadly how many people you think that might be or at least which specific geographies you think might be strengthened through that. And then obviously, you're saying the synergy here in terms of adding it into an existing hematology franchise. But with Sanofi employees coming on board and this product coming on board, do you think this will increase your appetite to look for other hematology assets going forward from here?

Thanks, Alistair, for the question. So your first question around the Sanofi employees. Like I mentioned, absolutely, we're looking forward to welcome them on board. They're primarily coming mostly from the U.S., but we also have many colleagues that are joining us in the Japanese market and a couple that are coming in Europe, specifically in Germany. So like I said, it's early days now, but we're looking forward to our first interaction with them and be getting the transition to welcome them to Recordati. And then with regards to your second question, yes, absolutely. I mean in oncology, since we acquired the user portfolio a couple of years ago, it's been a key strategic growth driver for us. You've seen the phenomenal results that we've had with Qarziba with Sylvant over the past couple of years. We anticipate, obviously, similar success with Enjaymo and whatever else we can do in that space, it's up to Rob and Gabriele and the team to continue to drive new products in hematology and oncology in the future.

I understand there are no more further questions. This is all very new. And thank you for joining. Wishing you a wonderful Friday. And if there are questions further, we're very happy to engage with you. You can always reach out to Eugenia and her team. And as always, we'll be happy to try and answer what we can at this point in time. It's going to be easier for us to answer questions, specifically on the future and the outlook on Enjaymo once the authorities have approved and we're hopeful that they -- we'll do this by the end of this year, but that's always their choice. So thank you for joining and looking forward to engage with you in the future.

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