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Edited Transcript of REC.MI earnings conference call or presentation 31-Oct-19 4:00pm GMT

Q3 2019 Recordati Industria Chimica e Farmaceutica SpA Earnings Call

Milan Nov 8, 2019 (Thomson StreetEvents) -- Edited Transcript of Recordati Industria Chimica e Farmaceutica SpA earnings conference call or presentation Thursday, October 31, 2019 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Andrea Recordati

Recordati Industria Chimica e Farmaceutica S.p.A. - CEO & Director

* Fritz Squindo

Recordati Industria Chimica e Farmaceutica S.p.A. - CFO, MD & Executive Director

* Marianne Tatschke

Recordati Industria Chimica e Farmaceutica S.p.A. - Director of IR & Corporate Communications

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Conference Call Participants

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* Bruno Permutti

Banca IMI SpA, Research Division - Research Analyst

* Christopher Anthony Ryan

BofA Merrill Lynch, Research Division - Analyst

* Giorgio Tavolini

Intermonte SIM S.p.A., Research Division - Research Analyst

* Isacco Brambilla

Mediobanca - Banca di credito finanziario S.p.A., Research Division - Equity Analyst

* Jo Walton

Crédit Suisse AG, Research Division - MD

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Presentation

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Operator [1]

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Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Recordati 2019 First 9 Months Results Conference Call. (Operator Instructions)

At this time, I would like to turn the conference over to Ms. Marianne Tatschke, Director of Investor Relations and Corporate Communications of Recordati. Please go ahead, madam.

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Marianne Tatschke, Recordati Industria Chimica e Farmaceutica S.p.A. - Director of IR & Corporate Communications [2]

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Good afternoon or good morning to everyone, and thank you for attending the Recordati conference call. Here with me today are Andrea Recordati and Fritz Squindo, who will be presenting and commenting upon our first 9 months 2019 results. For a better understanding of this presentation, please access the set of slides available on our website www.recordati.com under the Investors section & Presentations tab. At the end of the presentation, we will answer any questions you may have. Please go ahead, Andrea.

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Andrea Recordati, Recordati Industria Chimica e Farmaceutica S.p.A. - CEO & Director [3]

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Thank you very much, Marianne. Good afternoon or good morning to everyone. I can start by saying that we are very pleased with our first 9 months results, which show continued growth. Consolidated revenue is up to EUR 1.1 billion and -- which is about 8.6% above last year and includes sales generated by Natural Point, which was consolidated from July -- 1st July 2018, of EUR 9.7 million, which are the sales generated by -- sorry, this is the Natural Point sales; also by the sales generated by Tonipharm, which was acquired at the end of 2018 and consolidated from 1st of January 2019, of EUR 18.8 million; and sales of Juxtapid, which we acquired the license for in February 2019 in Japan, of EUR 6.9 million of sales; in addition to an estimated negative currency exchange rate of -- effect of EUR 3.1 million. Excluding these items, growth would have been of 5.4% on the previous year.

EBITDA at 37.2% of sales is at EUR 409.6 million, up 7.8% from last year. Operating income is at 32.1% of sales at EUR 353.5 million, an increase of 4.9% over last year. Net income is at 23.1% of sales and is at EUR 253.7 million, an increase of 6.6% over the same period of last year. Net debt is at EUR 498.7 million compared to net debt of EUR 588.4 million at 31st December 2018. During this period -- the period, dividends were distributed for an amount of EUR 96.1 million. An amount of $30 million was paid for the license agreement from Aegerion Pharmaceuticals for Juxtapid in Japan, and EUR 40 million was paid as milestones to Helsinn for the license agreement for Ledaga. Furthermore, the application of IFRS 16 gave rise to medium, long-term debt of EUR 25.9 million.

Regarding our corporate development activities during the period, a license agreement was signed with Helsinn for the exclusive commercialization of Ledaga and with Aegerion for Juxtapid in Japan. This is a very important -- especially, both drugs are very important for us, but Juxtapid fitted very well with our entry into the Japanese market since it gave us critical mass. And it is very, therefore, very important for the development of this recently established subsidiary for our rare disease business. Companies operating under the name of the Orphan Europe have been renamed to Recordati Rare Diseases in order to kind of create a global brand for this franchise.

Most recently, on October 23 of this month, we finally closed the acquisition with Novartis for the worldwide rights to Signifor, Signifor LAR for the treatment of Cushing's disease and acromegaly; and also for, obviously, the rights to osilodrostat. And so we're very excited about this. And obviously, we're moving on with the execution of the integration and this ramp-up to get ready handle distributing products worldwide and launch osilodrostat when this will be approved. This is obviously a very strategic -- significant strategic transaction for Recordati and we're, as I said, very excited about it.

So let's move to the next slide, to Slide 3, where we re-present the same slides that were actually utilized in the analyst call at the end of July 2019 just to kind of recap on the key highlights of the Novartis endocrinology franchise acquisition. So the key highlights are obviously it's a complementary to our portfolio. We entered into the high-growth endocrinology market. These are orphan-designated drugs. They have good IP protection. They require limited additional R&D spend and have global and perpetual intellectual property rights.

More specifically regarding Signifor, it has IP protection until 2026, estimated around $75 million of revenue in 2019 with above-average EBITDA margins and with peak potential sales of $100 million and it's an orphan drug designation in the U.S. and Europe. Regarding LCI699, osilodrostat, it has IP protection until 2031. Marketing authorization applications have been filed in the European Union and in the U.S.A. with potential approval expected in 2020 in Europe and 2022 in the U.S. at the latest. Orphan drug designation in the U.S. and Europe, and we expect potential peak sales of above $100 million.

Moving on to the next slide, just to recap the transaction snapshot. The deal purchase price required an upfront cash consideration of $390 million and will also imply regulatory milestones in addition to royalties on net sales contingent upon approval and market access of osilodrostat. The funding was funded by existing liquidity and new debt facilities obtained in July. We believe this has an acceptable pro forma net debt-to-EBITDA level, leaving room for additional future M&A. And the timing, as I mentioned previously, the closing took place on October 23, 2019.

So I will leave the floor to Fritz, who will actually take you through the first 9 months results of the company.

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Fritz Squindo, Recordati Industria Chimica e Farmaceutica S.p.A. - CFO, MD & Executive Director [4]

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Thank you, Andrea. Good afternoon or good morning to everyone. More in detail in our sales performance, starting with the comments on our main product sales. And let me say that we are -- the performance of our corporate products is in line with our expectations.

As usual, we'll start with the performance of lercanidipine. Zanidip sales are up by 6.9% thanks to the repatriation of license rights in some countries, but also thanks to the increase of sales in China, in Australia, in the Central and Eastern European market. We continue to have a good performance from our proprietary product lercanidipine.

So regarding the combination of -- the sales of Zanipress, which is the combination between lercanidipine and enalapril, the sales are down due to competition of the generic version. As expected in the first 9 months, decreased by 3.8%. But this is a very positive performance and we expect, in particular thanks to the performance in the last quarter, the sales to be essentially stabilized.

Urorec, silodosin. Sales are growing and are up about 8.6%, and this is due to the good performance of the product in all the main markets. Sales of Livazo, the branded pitavastatin, grow by 16.3%. And here again, this is due to the good performance of the product in all the main markets and in particular in Turkey, Russia and in Spain. Then we have our -- Seloken is essentially stable, a bit better than the performance in the first 6 months.

Going then to the other corporate products. Other corporate products are up by 13.8% and include the initial launch sales of Reagila, a new treatment for the schizophrenia. This line -- this group of products include 23 products which are sold in multiple territories, 8 of which are OTC products. Among these OTC products, worth mentioning the continued very good performance of Procto-Glyvenol in all the Central and Eastern European market.

Then our specialties which are indicated for the treatment of rare diseases generated sales of EUR 177.1 million during the period, which -- an increase of 8.7% despite the competition from a generic version of Cosmegen in the United States. And also for rare diseases, we continue our trend of growing our sales.

And we can now move on Slide 6, in which we present the breakdown of our revenue by type of product. Just, again, to underline that our corporate products, including also rare diseases, account for 67.6% of our revenue. We are progressively building a portfolio which is a multi-territorial portfolio in our company.

Let's go to Slide #7. This slide shows sales performance by geography. And let me underline that we had a positive performance in all the countries except North Africa in which we are impacted of some limitation of importation in Algeria. But overall, a very good performance in all our territories.

Sales in Italy are up by 7.1%. And here, it's worth mentioning the good performance of Urorec, Cardicor as well as the sales of Natural Point, in particular, Magnesio Supremo, which is the most important brand of this company, the company we have acquired in June of 2018. And in particular, Magnesio Supremo sales are growing thanks to the good management of Magnesio Supremo by our commercial organization.

Pharmaceutical sales in France are up by 19.3%, and this includes the addition of the product, as Andrea said, of Ginkor and -- portfolio of Tonipharm, in particular, with 2 most important brands which are Ginkor and Alodont. We have acquired this company at the end of last year.

In Germany, sales are substantially unchanged compared with those of the same period of the preceding year. But here, I would like to underline sales of Reagila, the new drug for the treatment of schizophrenia which has been launched in 2018, which is doing a good performance in Germany.

Revenue generated in Russia, Ukraine and the other C.I.S. countries is EUR 83.6 million, which are up by 11.3% compared to the same period of the preceding year and includes an estimated currency exchange gain. Then in the past, it was more common to prevent losses in term of exchange rate. But in this year, we are benefiting from a positive exchange rate, which could be estimated EUR 1.1 million. But even if we exclude this exchange rate, sales in Russia in local currency are up by 9.3% (sic) [9.7%]. And here, I think it's worth mentioning the significant growth of all our product -- corporate product we are talking about: Urorec, Livazo, Procto-Glyvenol, as I said before, Zanidip and Lomexin.

The group -- the business in the U.S.A. is only dedicated to the treatment of rare diseases. Sales in the first 9 months in the U.S. are, in euros, EUR 78.3 million and are up by 4.4%; in local currency, are up by 0.5%. The growth of the main product, in particular, Carbaglu and Cystadane, offset the reduction of sales of Cosmegen due, as I said, to the competition from a generic version.

Sales in Spain are EUR 69.2 million (sic) [EUR 69.4 million], are up by 7.4%, and this is an organic growth mainly due to the performance of all our most important product in the portfolio. Sales in Turkey are up by 13.4% in euro and include a negative currency effect which could be estimated here in EUR 9.3 million. But it's worth mentioning the performance in local currency. And in local currency, sales of our Turkish subsidiary grow by 32.3% and here again, thanks to the good performance of all our corporate products but -- as well as also some important local brands.

Regarding the other geography, I think it's worth mentioning the significant increase in sales in the other European countries, which is mainly due to the growth of sales in Poland, Bulgaria, Czech Republic and Baltic, which is linked to the good performance of metoprolol, in particular, in these markets. Then we have other international sales, which are up by 1.3%, which is mainly due to the good performance of the treatment of rare diseases in the rest of the world and particularly to the sales in Japan thanks to the newly acquired product rights of Juxtapid. Then as I said at the beginning, a good performance in all the markets except North Africa.

Slide #8. This graph shows the geographical breakdown of our pharmaceutical revenue, and let me say that there is no changes compared to what was the breakdown in the previous presentation.

Now we can move on Slide 9, in which we can present more in detail our first 9 months results in term of P&L. Sales, we have already analyzed our revenue for the period. Let's move on to gross profit. Gross profit is EUR 771.3 million with a margin of 70.1% of sales, which is slightly lower compared to that of the same period of the preceding year which is due to the price and currency effects and product mix.

Selling expenses increased by 9.3%, which is a slight increase as a percent of revenue compared to the same period of preceding year. This is due -- this increase of our sales, which is higher than our -- selling expenses, which is higher than our sales, this is mainly driven by the marketing expenses for the launch of Reagila. We are in the next phase of Reagila, and we are investing in the new product; the new market -- new commercial organizations in the Nordic countries, Benelux and Baltics. We have decided to have our own commercial organization also in this part of Europe, and also to the initial reinforcement of the organization dedicated to the rare disease segment follow the addition of the new important product and also in particular, the initial phase of the reinforcement that we have to do for the launch of the 2 assets acquired from Novartis.

Then we have our R&D expenses, which are EUR 91.6 million and are up by EUR 15.3 million (sic) [15.3%] due to advancement of the new development programs, but also to the amortization of the amounts allocated to intangible assets following the acquisition of Natural Point and Tonipharm and also the amortization of the upfront payments for the recently acquired licenses for the rare disease products Ledaga and Juxtapid. G&A expenses are up by 6.6% but are slightly reduced as a percentage of sales.

Now let me comment on our EBITDA. EBITDA at 37.2% of sales is, in the period, EUR 409.6 million with an increase of 7.8%. In term of amortization charges, the amortization charges for the period are EUR 37.8 million, and this is with an increase which is due, as I said, of the intangible of the asset we have acquired in the last period. But we have also our depreciation charges which are increasing and are, for the period, EUR 18.3 million and include the application of the new accounting principle IFRS 16.

Net financial charges are essentially in line. We have -- we are -- our net financial charges are EUR 16 million, and this increase of EUR 2.2 million is mainly due to the recognition in the P&L of the fair value of 2 cross-currency swaps following the early termination of 1 loan in the U.S. market. The effective tax rate during the period is 24.8%, lower than that of the preceding year, and we are slightly reducing our tax rate. And then let me, again, finish presenting our net income. Net income at 23.1% as a percentage of sales is EUR 253.7 million. And we have an increase in our net income, an increase of 6.6%, which is very positive performance.

Then we can move on Slide #10. This slide show the split of revenues, EBITDA and EBIT between our 2 business segments. Then EBITDA margin are 49.6% for the rare disease segment and 34.9% for the specialty and primary care segment. EBIT margin at 45.5% for the rare disease segment and 29.6% for the specialty and primary care. Regarding the EBIT margin, there is a slight reduction which is for both the 2 business, for the rare disease segment and the specialty and primary care segment.

Number 11 is the slide in which we present our net financial position. And the net financial position, as has been presented by Andrea, the beginning show a net debt of EUR 498.7 million compared to net debt at the end of last year of EUR 588.4 million. And then we reduced our net financial position in the period by EUR 89.7 million. But it's worth mentioning that during the period, we have paid dividend by EUR 96.1 million, and we have also paid USD 30 million for the license agreement with Aegerion and we also paid EUR 40 million for the milestone that we have paid to Helsinn for the license of Ledaga. Then as Andrea said, there is also a negative impact in our debt following the application of the new IFRS 16. We have generated a long -- medium, long-term liability of EUR 25.9 million. Excluding all these items, it was, again, mentioned that we continue to generate a very strong cash flow in this period.

Now we can move on the last slide in which we, as usual, we present our targets. And based on the good performance in the first 9 months, we confirm our revenue and margin targets. Then we have revenue target between EUR 1.460 billion and EUR 1.480 billion, which is the same that we have announced; EBITDA between EUR 535 million and EUR 545 million. Then we have an EBIT margin expected as a target to be between EUR 460 million and EUR 470 million and our net income between EUR 330 million and EUR 335 million.

Then here I finish my presentation. Thank you for your attention, and now we are available for any questions you may have. Please go ahead.

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Marianne Tatschke, Recordati Industria Chimica e Farmaceutica S.p.A. - Director of IR & Corporate Communications [5]

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Operator, could you please open the question and answer session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from Chris Ryan of Bank of America.

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Christopher Anthony Ryan, BofA Merrill Lynch, Research Division - Analyst [2]

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My first question is just on the CFO role change. Could you give more detail on that? And in what ways is the business becoming more complex? And then the second question is what right now are the approval expectations for the osilodrostat drug?

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Andrea Recordati, Recordati Industria Chimica e Farmaceutica S.p.A. - CEO & Director [3]

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Okay. So here we go. Thank you for your questions, Chris. So the first question regarding the CFO, this is simply a reinforcement of the organization. The company is growing, is becoming more complex. And we felt that we needed to -- or I felt that I needed to reinforce the top management team of the group to better support this growth and the new complexity that we need to manage, being the company is larger and with, obviously, very ambitious growth expectations.

So we, obviously in agreement with Fritz Squindo, we started to look for -- which I would like to remind everybody, was not only acting as CFO but was also Managing Director of the company, and has always supported myself and the top management team on anything that goes from business development, strategy and evaluating new business opportunities and so forth. So -- and he will keep -- remain in following this role at my side. But we -- as I said, we felt that we needed to reinforce the organization.

So we started looking around through a very structured and formal recruiting process. And we came across a candidate, Mr. Luigi La Corte, which we felt ticked all the boxes due to his international experience and established experience also in the pharmaceutical industry with blue chip companies, such as GSK and AstraZeneca, not only in Italy but also in the international scene. If that -- hopefully, that answers your question, Chris?

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Christopher Anthony Ryan, BofA Merrill Lynch, Research Division - Analyst [4]

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Yes. I mean is there any change in financing strategy, could you say, going forward versus how the company's typically been capitalized?

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Andrea Recordati, Recordati Industria Chimica e Farmaceutica S.p.A. - CEO & Director [5]

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No. Nothing changes from the perspective, okay? Okay. So moving on to your next question. So I'll divide it by U.S. and Europe, okay? Because, obviously, they follow different processes. So the European Commission formal approval is expected in Q1 2020, okay? This will be followed by the market access process country by country, like it's normally in Europe. So we can expect a gradual launch, rollout starting in 2020 across different countries in Europe and obviously -- and beyond as we gain reimbursement status in the different markets. So that covers Europe for osilodrostat.

Regarding the U.S.A., in our business plan, we have cautiously assumed the launch in the U.S.A. in 2022, okay? This was due to the lack of clarity and as to whether the FDA will require us to submit the LINC-4 study clinical data, which is still an ongoing study -- that on the product, which is being managed still by Novartis. This is relevant -- the clinical study report for this study, should they require it, is expected in Q3, Q4 2020, which then will imply a launch end Q4 2021, Q1 2022. However, as I'm sure some of you are aware, we have a PDUFA date in March 2020 of next year. And so we feel that we might have more visibility on the actual FDA requirements regarding the necessity of submitting the data of a LINC-4 study at that time, and therefore, the final launch timing.

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Christopher Anthony Ryan, BofA Merrill Lynch, Research Division - Analyst [6]

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Can I squeeze in one more? Just do you -- can you give the split between the expected sales between the U.S. and Europe?

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Andrea Recordati, Recordati Industria Chimica e Farmaceutica S.p.A. - CEO & Director [7]

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We don't tend to disclose that sort of information, especially on a product which has not even been launched yet. So we expect peak potential sales to be above $100 million worldwide. But at this moment in time, we are not disclosing any more details on this.

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Operator [8]

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The next question is from Dominic Lunn of Crédit Suisse.

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Jo Walton, Crédit Suisse AG, Research Division - MD [9]

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It's Jo Walton from Crédit Suisse. I've just got a few questions, please. As you move more into the specialty products, I guess, we're going to focus more on their performance. So I wonder if you could tell us a little bit more about how Reagila, for example, is doing. Juxtapid. Just give us some sense of how you're being able to build up the specialty infrastructure there.

Could you also give us a little bit more as to why you think you'll be able to grow the Signifor and Signifor LAR franchise? It's been around for a while and hasn't been growing that fast and yet, you think you can expand that in an increasingly competitive market. Is it that you have spotted doctors who you think would use the product who haven't been detailed about it? Or why do you think you'll continue to be able to get some growth?

And my final question, at least in this round, would be to try and get a sense of what you think your R&D spend will be in the next year or so? I know that a lot of your R&D expense is actually taken up with the charge for the amortization of intangible assets. So actually, the cash research spend on new products is really still quite limited. Could you share with us some of your ambition as to where you would like that sort of cash R&D spend to be in a couple of years' time?

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Andrea Recordati, Recordati Industria Chimica e Farmaceutica S.p.A. - CEO & Director [10]

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Jo, I thought it was a bit weird that you were not on the call. So let me start with -- if I understood correctly, you kind of went a bit quick there, Juxtapid Japan and how the product is performing?

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Marianne Tatschke, Recordati Industria Chimica e Farmaceutica S.p.A. - Director of IR & Corporate Communications [11]

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And just the infrastructure that we've created.

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Andrea Recordati, Recordati Industria Chimica e Farmaceutica S.p.A. - CEO & Director [12]

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And the structure that we've created. Juxtapid, but you mentioned -- you did mention Juxtapid in Japan as an example. Okay. Well, obviously, Juxtapid Japan, we have already set up the organization and we reinforced it based on the new targets that we had visited because (inaudible) Juxtapid implies an expansion of a target to be visited by our ODS, our orphan drug specialist in the Japanese market. I can tell you that the product is actually performing beyond our expectations or in line just above our expectations. So we're very pleased with this.

Going to [instead] the -- I guess, your question is more around endocrinology and what we're doing to set up ourselves to obviously take on these products and make them a success. Because we were saying that, obviously, we did not have a private presence in endocrinology until now. So we are in the process of reinforcing the organization, both on a worldwide level by creating, obviously, depending on the market, some markets require more dedicated endocrinology. So the business units, see, for example, the U.S. where we are also smaller compared to Europe, with our reach to the market in the first place. So this is what is going on in the U.S. We're setting up a specialized dedicated BU around the endocrinology franchise, and we'll probably be recruiting people with specific expertise and competence around this area. And in Europe, we are obviously recruiting people with endocrinology experience, both on the field to reinforce ourselves where we need to reinforce ourselves but are also at, let's say, at a corporate level in order to bring expertise around this area. This calls for medical, regulatory to strategic marketing and operational marketing.

So we are moving and we were, obviously, very much aware that we did not have this expertise in-house. But we have the opportunity to actually, at this moment in time, to actually gain a lot of expertise from the outside. So we're actually on track on that, and we are very satisfied of how we're progressing on this front.

The other question was...

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Marianne Tatschke, Recordati Industria Chimica e Farmaceutica S.p.A. - Director of IR & Corporate Communications [13]

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Yes, how can we continue to grow it as an asset?

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Andrea Recordati, Recordati Industria Chimica e Farmaceutica S.p.A. - CEO & Director [14]

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Okay. No, but that's a simple answer. Novartis had abandoned the promotion of this product for some time, more recently, in Europe, I'd say more than a year. But in the U.S., now we're probably approaching nearly 3 years of non-promotion of the asset. So we believe, especially, like you mentioned, in a competitive scenario that we -- these products are present, that obviously this lack of promotion, but I'm talking about complete lack of promotion, obviously, has an impact on the performance of the product. Which, however, I extremely feel appreciated by the physician community and are still seen as a key element in the treatment of these diseases. So we believe that by putting this product back into promotion with the necessary investments and promotional spend and share of voice, we believe that we can definitely start putting this product back on a growth trajectory.

The last question -- I hope that answers your question. The last question was regarding R&D, and I will let Fritz give you an answer on that one.

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Fritz Squindo, Recordati Industria Chimica e Farmaceutica S.p.A. - CFO, MD & Executive Director [15]

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Okay. And regarding our R&D, the question was related to a target in term of the cash part of these R&D expenses, which, as you know, include also the amortization charges for the asset that we have bought. Let's say that as usual, R&D expenditure, in particular, this cash part, we -- is mainly driven by our program rather than a specific objective as a percentage of sales. And then I cannot give you a target in term of cost, in term as a percentage of sales. I can comment on this, what we expect. We expect also this part of the R&D going forward to increase. We expect for sure the amortization charges to increase based on the amortization of the Novartis assets, but also the cash part, we expect to increase driven by both the current advancement of the new development programs, which are moving -- progressing in terms of development phase in our pipeline, but also to the costs which are linked to the development and the reinforcement of the new assets that we have acquired from Novartis.

Overall, as a general comment, we expect this cost to increase going forward, also in the cash part.

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Jo Walton, Crédit Suisse AG, Research Division - MD [16]

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And in case you're handing over your Investor Relations responsibilities to the new CFO, may I thank you for all of the calls that you've done for us in the past.

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Fritz Squindo, Recordati Industria Chimica e Farmaceutica S.p.A. - CFO, MD & Executive Director [17]

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Okay. Thank you. Thank you.

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Andrea Recordati, Recordati Industria Chimica e Farmaceutica S.p.A. - CEO & Director [18]

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Jo, you'll still be seeing Fritz. Don't worry.

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Fritz Squindo, Recordati Industria Chimica e Farmaceutica S.p.A. - CFO, MD & Executive Director [19]

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I will continue to be present.

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Operator [20]

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The next question is from Bruno Permutti of Banca IMI.

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Bruno Permutti, Banca IMI SpA, Research Division - Research Analyst [21]

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A few questions. The first one, if you can give us an indication of the organic growth of the first 9 months and if 4% organic growth, you'll see as a sustainable rate for 2020, 2021?

Second one was on Reagila, if you can give us an indication of the amount of sales in the 9 months?

And the last one is on the distribution network organization. I don't know if I have well understood, you had an reorganization in Northern Europe. I want to understand what do you imagine for the future if you have some other changes that you are playing in the distribution network. And if you have some costs related to this, and also, eventual benefits you expect for the next years.

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Marianne Tatschke, Recordati Industria Chimica e Farmaceutica S.p.A. - Director of IR & Corporate Communications [22]

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The organic growth.

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Fritz Squindo, Recordati Industria Chimica e Farmaceutica S.p.A. - CFO, MD & Executive Director [23]

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The first question was in the organic, the organic growth in the period, as Recordati said in the presentation, was 5.4%, if we exclude contribution from the acquisition and also the negative FX impact. This is a very solid performance, which is in line a bit better that was included in our business plan. But we have announced a CAGR in term -- in our business plan in terms of organic growth. And what we expect in 2020, probably this growth will be lower because we have to face the generic competition of Urorec and pitavastatin. And then going forward, we expect in '21 to start again to grow probably to the level that we have achieved in 20 -- we are achieving now in the first 9 months and we expect to achieve during the full year 2019.

Reagila sales in the first 9 months are around EUR 5 million, which means that we continue to start growing the business. It's important to say that now we have the addition of 2 new important markets in which we have now launched the drug. These are Spain and Portugal, in which we are we have solid presence. And then we continue to believe that Reagila is a very good product with a delay in term of uptake driven mainly by a more complex market assets than what was expected, not in terms of price reimbursement. But in some markets, it's very important for this type of product, also the inclusion in the different formula. Next?

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Marianne Tatschke, Recordati Industria Chimica e Farmaceutica S.p.A. - Director of IR & Corporate Communications [24]

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Distribution network organizations in Northern Europe, if you're going to do more of that.

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Andrea Recordati, Recordati Industria Chimica e Farmaceutica S.p.A. - CEO & Director [25]

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Yes. Northern Europe?

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Fritz Squindo, Recordati Industria Chimica e Farmaceutica S.p.A. - CFO, MD & Executive Director [26]

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No, we have now established our own presence in this market, thanks to the repatriation of some our corporate product and in particular thanks to the metoprolol sales. And now these will are subsidiary which we expect to develop in line with all the other parts of our business.

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Marianne Tatschke, Recordati Industria Chimica e Farmaceutica S.p.A. - Director of IR & Corporate Communications [27]

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Any changes in the future regarding the organization?

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Andrea Recordati, Recordati Industria Chimica e Farmaceutica S.p.A. - CEO & Director [28]

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No. Regarding our commercial -- was the question regarding commercial organization? Well, as I said, there -- obviously, the changes are in place based around any additional M&A activity, business development activities that might come in the future. So at the moment -- this moment in time, we are not planning to reinforce the commercial organizations in this area.

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Marianne Tatschke, Recordati Industria Chimica e Farmaceutica S.p.A. - Director of IR & Corporate Communications [29]

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Specialty and primary care.

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Andrea Recordati, Recordati Industria Chimica e Farmaceutica S.p.A. - CEO & Director [30]

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For specialty and primary care. Obviously, for endocrinology, I went through it extensively in the previous question.

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Operator [31]

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The next question is from Isacco Brambilla of Mediobanca.

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Isacco Brambilla, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Equity Analyst [32]

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I have 3 actually and the first one is on organic growth. If my calculation is correct, you posted a high single-digit organic growth in the third quarter. So I was wondering whether there was some kind of phasing in, in some countries affecting this performance. And if it is not the case, whether we should assume inorganic growth in full year '19 a touch above the usual (inaudible) by the business plan in the region of 4% or 4.5%.

Second question is on your '20 to '21 target on EBIT margin. Is this -- is the target of 33% still valid? And if it is the case, when we should see -- we should expect to see some kind of inflection point on the trajectory of EBIT margin, which has been eroding in the past 3, 4 quarters?

And the last question is on net debt. Where do you see it by the end of 2019? I acknowledge you have no guidance on this, but I see on Bloomberg a consensus in the region of EUR 900 million, including the cash output used a bit. And I was wondering whether this number leave you confident to deliver expectations.

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Andrea Recordati, Recordati Industria Chimica e Farmaceutica S.p.A. - CEO & Director [33]

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Okay. Then the first question was linked to the organic growth in the third quarter. Is it correct? In this quarter. Okay, then. Okay, in this quarter, we had a very solid organic growth, which is driven by all our portfolio. But as usual, we don't believe 1 quarter is something that could be extrapolated as a long-term trend. And then we confirm that for us, it's more in line with our expectation, what we have achieved for the full 9 months. We are very pleased by this 5.4% organic growth and this is what you could expect for the full year.

Regarding our objective in term of EBIT margin, then we -- for sure, we will release a new business plan next year, probably in May, then we -- but for the time being, for sure, we confirm our EBIT margin. Then you will see now a slight reduction of this EBIT margin, which is mainly driven by the type of acquisition we are now closing. We are closing acquisitions in which there are important asset and important amortization charges. And also, we are in the initial phase of the launch of osilodrostat and relaunching of Signifor and Signifor LAR, which require enforcement and not are immediately accretive in terms of EBIT margin. We expect to be essentially in line in terms of EBITDA margin, but EBIT margin not necessarily accretive. But this we expect to be the impact in the first period. And then today, we confirm our margin which, as you know, include also an acquisition for 2021. No changes for regarding our target in our business plan.

Regarding net debt, yes, we are absolutely confident with the number that is in the consensus of Bloomberg when you expect our net debt to be around EUR 900 million at the end of the year.

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Operator [34]

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The next question is from Giorgio Tavolini of Intermonte.

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Giorgio Tavolini, Intermonte SIM S.p.A., Research Division - Research Analyst [35]

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I would like to ask you what's behind the pharmaceutical chemical sales that in the third quarter, for the first time, had a 10.4% drop year-over-year?

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Andrea Recordati, Recordati Industria Chimica e Farmaceutica S.p.A. - CEO & Director [36]

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Okay. Here, again, then we prefer to comment the overall performer. This is one business which is supplying to other pharmaceutical company and sometimes stop building the stock or destocking of this company that impact in the quarter. And then no concern, then we believe that you have to keep as a base for the evaluation of the performance of this business, the performance in the 9-month results. Then we don't believe that in particular the phasing effect, the phasing effect was nothing, which is significant for the business.

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Operator [37]

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The next question is a follow-up from Dominic Lunn of Crédit Suisse.

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Jo Walton, Crédit Suisse AG, Research Division - MD [38]

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Just 3 quick ones. Given that you have a PDUFA date for osilodrostat for next year, have you had any indication as to whether they're actually actively considering this and perhaps giving you an ad com? Or -- so I would expect you to have an idea before March as to whether the FDA actually requires the additional data or not? Have you managed to bring onboard any of the people with an intimate knowledge of these products from Novartis? Or are you taking just the products with absolutely no people from it?

And could you also give us an update on the Carbaglu generics? You were suffering from the genericization there. Sorry, you're -- and what your -- what level of erosion you got to with the generics? Did you -- has it all gone? Has it reached a stable level? How should we think of that business going forward? Sorry, I mean Cosmegen.

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Andrea Recordati, Recordati Industria Chimica e Farmaceutica S.p.A. - CEO & Director [39]

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Okay. Thank you. Cosmogen, we were surprised what it was.

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Jo Walton, Crédit Suisse AG, Research Division - MD [40]

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Yes. I was going to ask you about the progress for expanding the indication for Carbaglu.

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Andrea Recordati, Recordati Industria Chimica e Farmaceutica S.p.A. - CEO & Director [41]

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Okay. So first question, so regarding endocrinology, recruitment of people, I start with second one. I can tell you that, obviously, we're sort of implicit in the explanation. I guess it wasn't that implicit. But the recruitment is -- we are recruiting a reporting organization with people that obviously have an expertise around this area. And obviously, some of these people are coming from Novartis because, obviously, they divested the business and so there is a bit of movement on that front. So this is obviously an opportunity there we could have made, and we are pursuing it.

But first -- sorry, the first question you said was the PDUFA date, the PDUFA date giving you -- I mean, possibly, it's a bit difficult to say, Jo. I mean we might have some feedback before the March 2020 PDUFA date from the FDA, but we are not counting on it 100%. So -- but sure at the PDUFA date time, we will have a full visibility if this LINC-4 study is required or if not, okay?

Last but not least, Cosmogen is close to steady state. And basically, it is obviously being impacted, like we've already declared by the generic penetration, but not beyond -- extensively beyond what we were expecting.

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Operator [42]

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Mr. Recordati, there are no more questions registered at this time.

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Andrea Recordati, Recordati Industria Chimica e Farmaceutica S.p.A. - CEO & Director [43]

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Okay. Thank you very much for your time and for your questions, and have a good evening or a good day, depending on where you are. Thank you. Bye-bye.

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Fritz Squindo, Recordati Industria Chimica e Farmaceutica S.p.A. - CFO, MD & Executive Director [44]

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Bye-bye.