On August 1, 2023 Recordati reported the interim financial statements as of June 30th, 2023, pursuant to Art. 154-ter of Italian Legislative Decree 58/1998 and subsequent amendments, prepared in accordance with said Decree and the CONSOB Issuers Regulation (Press release, Recordati, AUG 1, 2023, View Source [SID1234633836]). The statements were prepared in accordance with International Accounting Standard (IAS) 34 requirements for interim reporting, based on the assessment, measurement and recognition criteria set by the IFRSs. The interim financial statements on June 30th , 2023 – as well as the Independent Auditors’ report on such statements – will be available within the legal deadline at the company’s offices and on the company’s website (www.recordati.com) and can also be viewed on the authorized storage system 1Info (www.1Info.it).
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Financial highlights
Consolidated net revenue in the first half of the year was € 1,044.3 million, +17.0% vs H1 2022 or +15.4% on a like-for-like(3) basis at CER, driven by strong momentum across all businesses and the successful integration of EUSA Pharma. These results have been achieved despite strong FX headwinds over recent months, with an adverse FX impact in H1 of € 29.7 million (-3.3%) mainly affecting Specialty & Primary Care, and the unwinding, in Q2, of part of the sales phasing benefits posted in the first quarter. Our Specialty & Primary Care portfolio contributed revenues of € 668.9 million in the first six months of 2023, growing 15.0% at CER (+8.8% Türkiye excluded), ahead of the reference markets, driven by all the main therapeutic areas, with particularly strong cough and cold sales in Q1. Revenue of the rare diseases segment in the first half of 2023 totaled € 344.4 million, up 32.2% (or 15.5% on a like-for-like(3) basis at CER) versus same period of prior year, reflecting the integration of the rare oncology products acquired with EUSA Pharma, which contributed revenues of € 95.6 million (growing by 13.1% on a pro-forma basis(3)), a continued growth in sales of Signifor and Isturisa (totalling € 110.6 million, up 38.2%), with resilient sales of our metabolic franchise, thanks to strong growth of Panhematin and limited erosion of generic products in US.
Adjusted operating income(4) of €338.2 increased by 22.8% compared to the first half in 2022, with a ratio to sales of 32.4%, reflecting the robust revenue performance , with continued strong cost discipline and efficiency initiatives offsetting the impact of inflation, investment behind new franchises and increased amortisation charges of € 9.8 million (mainly from the consolidation of EUSA Pharma in the second quarter of 2022). Operating income was € 313.4 million, up 34.9% over the same period of the previous year; this reflects gross margin-related charges arising from the fair value step up of acquired EUSA Pharma inventory of € 20.9 million (vs € 16.9 million in 2022), and non-recurring costs of € 3.9 million, significantly reduced vs 2022 levels, mainly arising from streamlining activities within the sales area of Specialty and Primary Care.
EBITDA(1) was € 406.2 million, up 21.3% compared to the first half of 2022, and with a margin on revenue of 38.9% (vs 37.5% in the first half of 2022), reflecting the operational leverage benefit and previously announced efficiency initiatives, together with a significant resilience of adjusted gross margin, which remained broadly in line with previous year.
Adjusted net income(2) was € 287.4 million, +27.9% over the same period in 2022, at 27.5% of revenue. In addition to the higher operating income this benefits from lower net financial charges of € 24.6 million in the first half, down € 13.6 million compared to the same period of the previous year, with positive effect of FX gains and losses (€ 4.7 million gains in 2023 vs € 18.7 million losses in 2022, mainly driven by the volatility of the Russian rouble), more than off-setting increased interest expenses. Net income was € 227.6 million, up 50.3% over the same period in 2022, at 21.8% of revenue, reflecting also significantly lower non-recurring expenses.
Free cash flow(5) was € 261.7 million for the period, significantly above the same period of last year (up by € 43.0 million), absorbing increase in working capital, driven by higher revenue, and higher cash interest expense.
The net financial position(6) as of June 30th 2023 recorded net debt of € 1,326.2 million, or 1.8x EBITDA, compared to net debt of € 1,419.9 million on December 31st 2022. During the period, USD 20 million of residual Isturisa milestones to Novartis and dividends for € 127.0 million were paid.
Shareholders’ equity was € 1,609.2 million.
Management Comments
"We delivered a strong financial performance in the first half of the year, with continued growth across the business and ongoing delivery of sector-leading margins. The Company is going into the second half of 2023 with very strong underlying momentum and continued ability to convert revenue growth into profits and cashflow. We are also particularly pleased with the agreement signed with GSK in July, which adds two well established brands to our core urology portfolio in Specialty & Primary Care, leveraging our competitive commercial platform to address different patient needs. This deal reflects the successful execution of our strategy to date and strengthens the position of our group for future growth," commented Chief Executive Officer Rob Koremans.
Corporate development news and other key events
On June 27th, the Chinese Medicines Agency (NMPA) approved the marketing of the drug Carbaglu. The launch is expected in early 2024.
As part of the development path aimed to obtain FDA approval of a Biologics License Application (BLA) for the registration of Qarziba in the United States, preparatory activities are ongoing for a Type C Meeting with the FDA, expected in second half of 2023. Planned phase II study for pasireotide in the treatment of Post-Bariatric Hypoglycemia is on track to start in the third quarter of 2023. Patient enrolment in the global phase II study in neurotrophic keratitis for REC 0559 is proceeding according to plan, with data read out expected in the second quarter of 2024. Finally, our focus and efforts in driving our ESG strategy have been further recognized in June 2023, with confirmation of our inclusion in the FTSE4GOOD Index series and of our "Platinum" rating by EcoVadis.
Subsequent events
On July 20th, Recordati announced an agreement with GSK to commercialize Avodart (dutasteride) and Combodart/Duodart (dutasteride/tamsulosin) across 21 countries, mainly in Europe, excluding only those where GSK already has a distribution agreement in place. Avodart and Combodart/Duodart are marketed products, presented as oral form (capsules), indicated for the treatment of moderate to severe symptoms of benign prostatic hyperplasia (BPH) and for the reduction in the risk of acute urinary retention (AUR) and surgery in patients with moderate to severe symptoms of BPH. Avodart and Combodart/Duodart are leading and well-established brands, post loss of exclusivity, that enlarge and complete Recordati’s proven presence in the urology space, significantly reinforcing the competitiveness of its offer. Both brands are synergistic with Recordati’s urology portfolio, complementing Urorec and Eligard. The two products have been commercialized by GSK in the territories licensed to Recordati, with annual sales in 2022 in the region of approximately € 115 million. Recordati made an upfront payment of € 245 million and will start recognizing revenue and margins on a country-by-country basis progressively upon completion of the relevant transition activities, with first transitions expected in Q3 2023 and most to be finalized by end of Q4 2023. As announced, the deal is expected to be fully accretive by 2024 and will deliver €10-20 million of revenue in 2023 with positive EBITDA.
Business outlook
Given the continued strong performance of the Group, despite the significant increase in FX headwinds (FY estimate now -4% vs prior -2%), we confirm the improved guidance for FY 2023 as provided on May 11, with overall revenue of between € 2,050 million and € 2,090 million, EBITDA(1) of between € 750 and € 770 million and adjusted net income(2) of between € 490 and € 500 million.