Recordati Industria Chimica e Farmaceutica SpA

MIL:REC

Earnings Call Transcript 2021-Q1

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Recordati Investors 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.

[Federica De Medici, executive]

Thank you, Sabrina, and good afternoon or good morning, everyone, and thank you for attending the Recordati conference call today. I'm pleased to be here with our CEO, Andrea Recordati; and Luigi La Corte, our CFO, that will be presenting the first quarter 2021 results and the strategy and also the update for the next 3 years. [indiscernible] virtual representation. As usual, the set of slides is available on our website under the Investors section. After that, we will open up for Q&A.

I will now leave the floor to Andrea. Please go ahead.

[Andrea Recordati, executive]

Good afternoon, ladies and gentlemen, and thank you for having joined us for the Recordati First Quarter 2021 Results and the 3-Year Plan Update Investor Presentation.

If you please move to the second slide, the agenda. The agenda today will take us through our company overview and strategy, our 2021 first quarter results, the key assumptions around the drivers for organic growth, our focus on further growth opportunities internal and external, and finally our financial projection for the next 3 years.

So if you can please turn to the first slide of our presentation, Slide #3. So let me start with Recordati in a snapshot in one page, for those of you who don't know our company, to give you a quick profile of Recordati and where Recordati is today. An International Specialty Pharma Group with its roots and legacy in Italy but that has successfully grown international markets, mostly through acquisitions and business development over many years, to the point that Italy now accounts less than 20% of revenue.

We manage the business through 2 business units: SPC, which stands for specialty and primary care, that accounts for 78% of revenues and includes Rx, OTC and Fine Chemicals; and our rare disease business unit, which is mainly focused on the treatment for metabolic deficiencies and rare endocrine conditions. That accounts for 22% of revenues but accounts for more than 25% of consolidated EBITDA.

Our SPC legacy is in cardiovascular, but we're also present in a number of other therapeutic areas, such as urology, gastrointestinal, anti-infectives, to mention the key ones. We have a well-diversified footprint and strong vertical integration with 8 manufacturing facilities, of which 2 are API production sites and one is a specialized packaging and distribution facility dedicated to rare diseases. This diversification has served us well in 2020 during the COVID-19 pandemic. Although we were not immune from the impact that COVID had on several categories and markets, our organization was quick to react, ensuring continued availability of our products and the safety of our employees.

Despite the disruption, we were able to deliver revenues which were broadly flat versus the prior year, and EBITDA and adjusted income that were very closely aligned with the targets that we had set at the beginning of 2020.

Moving on to the next slide. Those of you who are -- that are more familiar with the business would know that we have a relatively straightforward and successful and proven business model, which is summarized on this slide. We are a unique company with a very broad portfolio and geographical footprint that minimizes exposure to single products and markets, and therefore a limited exposure to single reimbursement systems.

Organic growth is primarily fueled by volume-driven growth rather than price, and good exposure to markets with positive long-term growth outlook such as in North America, LatAm, Turkey, Russia and North Africa, to mention a few. A proven successful strategy of stabilizing key products post loss of exclusivity through active promotion and no major corporate products facing LOEs over the next 5 years. We are a fully vertically-integrated platform from API to commercialization for key products, driving margin and protecting the supply chain with approximately 60% of volumes manufactured by Recordati plants.

We minimize R&D risk with selective investments, with the majority of our net revenue coming from mature products and products sourced externally via licensing and business development activities. And finally, we have a strong and proven M&A track record to complement and strengthen our portfolio and geographical footprint with a very disciplined approach and a long-term focus on value creation, always pursuing a mix of growth and accretive deals.

Moving on to Slide 5. Our business model has delivered a consistent history of growth and margin improvement. As shown in this chart, revenue CAGR for the past 10 years was plus 7%, and this was achieved through a well-balanced mix of organic and inorganic development. We consistently improved our profitability, with strong margin expansion from 25% EBITDA to over 38% target that we had set in our prior full year plan, reaching 39% in 2020, a margin result, which, however, let me remind you, we know was enhanced by the impact that the COVID pandemic has on revenues, but also on the cost base of the company.

Moving on to the next slide. So we are planning to keep on doing this in the years to come, maintaining a strategy de facto unchanged from the last reiteration of a 3-year plan we presented in 2019. For those in fact that are familiar with our company, you may recognize that this strategy slide is fundamentally the same as the one that we shared in May '19, a strategy that we believe remains valid today going forward. We've actually confirmed the continuation of our successful strategy with a steady organic growth generated by a well-diversified portfolio and a balanced exposure to emerging markets, enhanced by accretive and strategic deals in both SPC and rare diseases and leveraged on our capabilities across both businesses.

As you can see from the bottom of the slide, we also feel that as a group we are well-positioned and exposed to positive macro trends driving our relevant markets.

Moving on to the next slide. In Recordati, we believe that integrating corporate responsibility into our business approach and strategy by uniting economic, social and environmental aspects will create long-term value for all -- creation for all relevant stakeholders. Our commitment to this is summarized in this slide.

Given the growing importance of sustainability issues within the company dynamics, we have created a dedicated environmental, social and governance -- ESG -- function, with the task of integrating and managing sustainability as an integral part of all the activities and initiatives of the Recordati Group. Our sustainability strategy is based on 5 priority areas. For all of them, we have defined specific commitments.

Regarding Patient Care, our attention is focused on access to medical products, quality, product safety and R&D. As for employees, we are committed to creating even more a safe, responsible and inclusive workplace. We consider also very important supporting local communities. We want to take conscious actions to reduce our environmental impact, fighting against climate change, increasing the circular economy and promoting waste reduction initiatives.

Concerning responsible sourcing, we are committed to constantly promoting respect for ESG aspects along the entire value chain. And finally, integrity is our founding value, and we are committed to maintain the highest standards of ethical [ products ].

Our remuneration policy is closely involved on our sustainability plan. In order to have a strong commitment, we have included also the sustainability target in our group's management by objectives system. The plan will present how we want to create sustainable and shared long-term value.

If we move to the next slide, please. So now before we actually move to the 3-year plan presentation, I will leave the floor to Luigi to present the 2021 first quarter results. Thank you, Luigi.

[Luigi Felice Corte, executive]

Thank you, Andrea, and good morning, good afternoon, everyone. I will take you through the Quarter 1 financials. And we'll try to do so clearly, but also with pace, given that I'm sure everyone is keen to hear more about the 3-year plan. And also given that, as you already know from our press release a few weeks ago, Q1 financials are somewhat distorted by stock movements both this year and last.

So starting from Slide 9. And in terms of key highlights, revenue, as we've already disclosed, was down 10.3% for the quarter at just under EUR 385 million. This reflects adverse foreign exchange of 3.5% and obviously the continuation of COVID pandemic pressure on some key categories, as we saw in the second part of last year, but also reflects the year-on-year impact of loss of exclusivity that we faced in 2020 on pitavastatin and silodosin. But once again, it also reflects an estimated EUR 20 million of stocking in Q1 of 2020, where we benefited from advanced purchases of wholesalers and pharmacies at the start of the pandemic. And we also said a few -- a couple of weeks ago, we saw on the other hand, in 2021, a level of destocking in some of our markets, but particularly impacting cough and cold and ear, nose and throat medicines, which were particularly acute in Russia, where this portfolio makes up a significant part of the business.

To note, we made good progress in the quarter, both on our endocrinology franchise, with revenue of EUR 26 million versus EUR 14.7 million in the same period last year, and also with Eligard, where the integration of the business is on track, and in fact, in terms of transition from Astellas, moving slightly faster than planned with revenue in Q1 of $16.8 million. And Andrea will come back to cover these in more detail later on.

The reduction in revenue is obviously reflected into the P&L, with both EBITDA and net income showing a double-digit decline in the quarter, but with margins remaining at robust levels, with EBITDA in particular at 39% of revenue and adjusted net income around 27%, reflecting the impact that COVID also has on our activity spend in the market.

Free cash flow in the quarter was EUR 110 million, EUR 21 million higher than same period of 2020, thanks primarily to lower absorption of working capital. Most importantly, despite the lower revenue and the somewhat weaker demand on cough and cold medicines, which we expect to persist for the rest of the year, our financials are in line with expectations. And as you will see later on in the presentation, our financial guidance for 2021 is unchanged.

Moving to Slide 10. In terms of key product sales, as you will see from the slide, most of our specialty primary care products, which are the ones which were most impacted by COVID and also which have most of the benefit of stocking last year, showing a decline. Zanidip is fairly resilient, up actually 3.2% versus last year. And that is driven by double-digit growth in international markets with a decline in direct -- where we sell the product directly. The international markets were not very affected by the pandemic last year given the longer order cycles, and they do represent over 50% of Zanidip revenue. This was in part true also for Zanipress, with growth on the international business, which however makes up a lower percentage of the total. And we did have, although we are starting to see the business stabilize, a little bit of pressure in France because of measures introduced at the beginning of 2020.

The [ distorted ] effect of purchasing patterns across the 2 years, is clear, obviously, on the metoprolol. As you will recall, Q1 2020, metoprolol showed revenue growth in Q1 of 30% and is down 18% in the first quarter of this year against that comparable. Silodosin and pitavastatin also, to some extent, reflecting the impact of stock movements, but clearly also reflecting the loss of exclusivity which each went through last year. Our view for these two for 2020 remains unchanged. And as we said at the beginning of the year, we expect on both products a year-on-year erosion for the full year of around EUR 10 million.

To note, pitavastatin is continuing to grow in markets where we don't face generic competition, mainly Turkey, Greece and Switzerland.

Other corporate products continue to be the area where we see the brunt of the COVID impact. And this is where we see really the effect of the restrictions impacting on our cough and cold portfolio and also where we see the impact of destocking, particularly in Russia. The reduction of 31% is driven by products like Polydexa, Isofra and Tergynan, which are significant particularly in Russia and some Central and Eastern European markets, Lomexin, Hexaspray and our probiotics. In addition to Russia, we see some of this effect in Italy and France as well.

Rare diseases is, as already commented, is continuing to grow well with growth in the quarter of close to 10% and revenue of close to EUR 85 million. Clearly, the growth is driven by our endo franchise, which at just over EUR 26 million, grew significantly versus Q1. Now clearly, this is on the back of the addition of Isturisa, which had no sales in Q1 2020, and continued growth of Signifor, which, on a like-for-like basis, continued to grow at around 10%.

The small decline on the base on our legacy businesses really being driven by the weakness of the U.S. dollar in the quarter and the erosion of Panhematin, which, as I commented in the past, has started to stabilize but faced competition starting later in Q1 of last year, which offset the growth of pretty much the bulk of our portfolio, as again Andrea will speak more later on.

Slide 11. And again, I won't go market-by-market in the interest of time. But clearly, our core European markets reflect some of the dynamics which I've just mentioned, and therefore are showing a decline versus prior year, and that really applies to most of the Western European markets. Spain, we're actually starting to see signs of stabilization of the GI franchises, which were impacted over the course of last year. But also, we will see the benefit of the contribution that Eligard is making to the revenue in the market, where Eligard got out a significant business.

Turkey is suffering from the tighter restrictions which have been imposed in the country really from the start of this year. You see Turkey in local currency terms showing a mid-single-digit decline of 5.5%, with revenue in euro terms down 36.7% due to adverse FX of over 20% in the period.

Russia, CIS and Ukraine, as mentioned already, clearly reflect the impact of cough and cold weakness, but also I've mentioned the level of destocking. Historically, Russia, the Russian market, as we see it, has been running with stocks in the channel of between 11 and 13 weeks. And as a result of the pandemic and the economic pressures there, we are seeing the distribution channel moving towards 8 to 9 weeks of stock. And you're seeing the results reflected there with revenue in local currencies down 50% in Russia for the quarter. And we clearly expect some stabilization now in the months to come.

U.S. business growing by 26.7% in local currency, or 15.9% in euro terms, once again due to the weakness of the U.S. dollar at the start of the year, with the growth driven by both the endo portfolio and all of our promoted products with the exception of cariprazine.

Other Central Eastern European and other Western European countries are broadly stable. You'll recall last year these countries were less impacted by COVID, these being countries where we've established our presence more recently and also countries where Eligard is also making already a good contribution and therefore showing a relatively stable year-on-year revenue trend. The same is true of our business in Tunisia, which is continuing to grow double digit, with the total North Africa's revenue down due to delays in import licenses for this year to some of our exports businesses, particularly in Nigeria.

And finally, our international sales down due to the loss of exclusivity last year of pitavastatin and silodosin, which offset good growth, as I said, the lercanidipine franchise.

Moving to Slide 12 and looking at the P&L. Gross profit at 73% is marginally up versus the levels achieved at the end of last year on the back of improving mix, but it's also slightly flattered from the accounting of Eligard, which, I will remind everyone, we account for the net revenue level on a net gross profit basis until we transfer market [ authorization ] and distribution from Astellas.

SG&A costs of EUR 113.4 million are lower than prior year by 4%, and really driven, as we saw in the back end of last year, due to the reduction in selling expenses, which stand at 24.3% of sales, down because of the lower activity levels and spend in the field, particularly on the SPC business, with G&A slightly up just above 5% as we strengthen our structure behind new franchises.

R&D costs up to 10.8% of revenue are up 18.7% versus 2020. 1/3 of the increase is due to the additional amortization charges on both the endo franchise and Eligard. Another 1/3 is due to the progression of the clinical trials, both the ones we inherited from Novartis and the ones that we are progressing in our own pipeline, namely the MC8 project. And the other 1/3 is due to the strengthening of our marked medical sites zones in the field and additional pharmacovigilance and regulatory spend behind the new franchises.

As a result, operating income and EBITDA, as mentioned, a decline versus prior year by double digits, but with margin levels remaining strong with EBITDA at 39% of sales. Net income at roughly EUR 90 million reflects, in addition to the operating results, also additional financing charges in the quarter due to unrealized FX losses of around EUR 3.7 million, which compared to Q1 2020, where we actually benefited from around EUR 1.9 million of gains related to currency swaps that were no longer treated as hedges.

Just a final note on the P&L. As you all will know, we completed in April the reverse merger transaction with Rossini and Fimei, and therefore in Q2 we expect to record the nonrecurring tax benefit of EUR 12.9 million that came from that transaction as foreseen in the plan. And as we said at the time, we expect no other impacts from the shortening of the control chain.

Quickly on Slide 13, which shows our rare disease business continuing to account for roughly 22% of revenue but rose by around 25% to 26% of operating income and EBITDA, margin levels on those businesses being broadly in line with the levels achieved in the full year 2020.

When it comes to -- on Slide 14, you will see we've added to our standard quarterly reporting pack an additional slide, which we do plan to also include in our next quarter's reporting, which gives a bit more visibility on the drivers of our cash flow, which we do believe is a key area of strength of the group. Of course, as always, there is a seasonality to the cash, as cash flows in Q1 is particularly positive as we tend to pay very little taxes in the first quarter of the year. But that aside, free cash flow of EUR 110 million is up, as I said at the beginning, EUR 21 million roughly versus the first quarter of last year, mainly due to a lower absorption of working capital clearly due to the revenue dynamics.

So intangible assets increased by EUR 53 million in the quarter, with the main item there being the EUR 35 million we paid to Tolmar on completion of the [ EL ] for Eligard and the EUR 14.5 million paid to Almirall for the Flatoril rights in Spain. And we also, in the quarter, had net share purchases of EUR 43 million. [indiscernible] close of EUR 49 million, reflecting a new 5-year loan that we've taken out to benefit from currently low interest rates and to increase the average duration of our debt.

And finally before turning over to Andrea, on Slide 15, you will see our net financial position remains strong. Net debt of EUR 852.6 million is below end of 2020 and is on the -- 1.5x to 1.6x last 12 months trailing EBITDA. And with that, I'll hand over to Andrea.

[Andrea Recordati, executive]

Thank you, Luigi. So if you could turn to the agenda, please, Slide 16. So let me now take you in more details through the 2 -- our 2 businesses and describe the key drivers of our plan from '21 to '23. I will start with SPC, which today still represents, like we mentioned before, 78% of total revenues and 74% of our EBITDA.

So Slide 17, next slide. So as you can see from the summary overview on the slide, our presence in SPC is focused on Europe, Central Eastern Europe, CIS, Turkey, with direct selling organizations in over 30 countries and with approximately 1,900 [ strong ] sales organizations. But we've also an important business, as we like to remind, worth roughly EUR 100 million, which is selling profitably on other international markets by licensors.

We have a very broad portfolio across a number of therapeutical areas, key ones being cardiovascular, urology, eye and anti-infectives, like I mentioned before. We've a product offering including both Rx products but also OTC products, OTCs being roughly 8% -- 18% of total SPC. You will see here some of the key brands, which is a combination of products we have developed internally and ones we have acquired only licensed from our partners.

You can move to the next slide, please, Slide 18. So specialty & primary care is the backbone of Recordati, offering a robust and resilient portfolio with no loss of exclusivity exposure in the plan period and very little exposure beyond that. Growth of 6% CAGR in the plan period or 3% CAGR when excluding Eligard, with growth across all markets and all key categories in the next 3 years despite some assumed FX headwinds in the plan in Turkey and Russia. We will focus our commercial efforts on accelerating growth from the assets with potential, namely Eligard, Reagila and the forthcoming launch of RS1, as well as the selective promotion of key OTC brands like Procto-Glyvenol, [ ginosin ] and Magnesio Supremo. In parallel through the period, our large and diverse portfolio of established brands in areas like cardio, uro and gastro, are stable or marginally growing post recent LOEs. We've focused promotional efforts exemplifying the robustness and resilience of our SPC business.

With this diverse and well-balanced portfolio, SPC offers a very solid and diversified platform with single-digit growth but can be leveraged with accretive business development deals that complement our capabilities and footprint just like the recent one with Eligard. Hence, our continued focus on inorganic acquisitions or new licenses to accelerate growth and sustain margins of this part of the business.

If you please move to the next slide. So looking into our portfolio by key categories, let's start with the areas that have suffered the most due, like we mentioned before, due to the COVID pandemic, being the cough and cold and ENT infections therapeutical portfolio. The lack of pathology due to the COVID prevention and restriction measures has resulted in a decline in our reference market of roughly 25% in 2020 and almost 50% in the January to February 2021 period. This is actually IQVIA data in volumes. And this has been translating into a significant sales decline of almost 40% of our portfolio versus pre-COVID levels and versus 2019.

This has been impacting mostly those markets with a relevant cough and cold portfolio and ENT portfolio, like Luigi mentioned before, in Russia, Italy and France. We have taken what we believe a balanced view in our plan, in our expectations, of a recovery of pathology over the next couple of years, following the easing of restrictions and distancing measures and the reduction of the use of protective masks. We are still progressively recovering over the next 3 years, starting from the second half of 2022, but still expect it to be more than 20% below pre-COVID levels at the end of 2023.

Next slide, please. Moving on to the cardiovascular portfolio. Unlike cough and cold/ENT, our core portfolio of cardiovascular products has shown an extraordinary robustness and resilience throughout the COVID pandemic, with a limited impact of the LOE of pitavastatin until 2021 and then low single-digit growth of the portfolio across the Recordati geographical footprint, but also through our international partners, and particularly in China, thanks to the expansion driven by our new distributor for that market. We are expecting pitavastatin and metoprolol to be relatively stable throughout the plan period, with some growth of the lercanidipine franchise post [indiscernible] loss of exclusivity stabilization. As you know, our cardio franchise is the largest cash flow generator, which supports the continued BD and M&A activities of Recordati, and its robustness and resilience is a massive asset for our company.

Moving on to urology. Next slide, please, 21. For the plan period, we forecast a gradual similar stabilization of sales of Urorec, silodosin, after the initial top line decline following the loss of exclusivity last year. As you can see in the above graph on the right, we have been able to preserve its market share in units over the past months and expect to sustain the sales over the coming years, thanks to targeted promotion to key customers as well as calls on urologists with Eligard, and there is an opportunity for some further growth coming from Turkey and Central Eastern Europe.

Next slide, please. Moving on to Eligard, our new addition to our SPC portfolio. This is -- we consider this to be a growth opportunity. It's a great asset that will benefit from our established presence and heritage in urology and that offers the opportunity to demonstrate our ability to reverse the declining trends seen over recent years under the Astellas non-promoted tenure and therefore revitalize its growth. We kicked off promotion in March in certain key markets with very encouraging feedback from our customers. Transition from Astellas has been smooth, with our year-to-date sales on track with expectations, and now all key markets are promoting Eligard. Our collaboration is progressing well with Tolmar around the development of a new easier-to-handle device, with expected regulatory submission by the end of this year. And following the expected approval, we believe we would be able to further accelerate its growth going forward, as you can see in this graph.

Moving on to Slide 23 on Reagila. So we believe that the end of the COVID-19 pandemic will offer an opportunity to relaunch in all the brands like Reagila as and when, obviously, access to health care professionals, but both patients and sales representatives is normalized. For the majority of products launched or still in launch phase around the COVID pandemic, physicians have been obviously very cautious and generally more reluctant to switch their patients to new drugs, especially in therapeutical areas with difficult-to-manage patients such as schizophrenia. This therefore limits substantially the potential and launch uptake for this product.

During this last month, we've been preparing the ground for the relaunch of the product on, let's say, the day after -- the end of COVID, by repositioning the brand around both negative and positive symptoms and strengthening our network of local advocates and key opinion leaders as well as expanding the opportunity into new markets like Greece and Austria where Reagila is expected to be launched later in this year. As a result, we do expect an acceleration of Reagila's growth through the forecast period which could be boosted if we manage to unlock the access also in France and U.K., and which is actually not represented in this plan and should be considered as an upside to the current numbers.

Moving on to the next slide. So before we move to rare diseases, we tend to seldomly talk about key products in our OTC portfolio. And we wanted to share a success story of Procto-Glyvenol, an asset that has seen continued growth in Central Eastern Europe and Turkey since Recordati acquired it, growing from a brand with EUR 9 million in sales in 2011 to just over EUR 30 million by 2019/'20. Through the development of line extensions and omnichannel approaches, leveraging DTC investments, we're confident to reach more than EUR 40 million by 2023. This is a success story that we expect to replicate with other OTC brands across our portfolio, as I mentioned at the beginning of my presentation.

In conclusion, our diverse portfolio in SPC has weathered COVID-19 pretty well, we feel, and is set for growth across all markets and all categories over the coming years, providing Recordati with a robust and resilient platform to build on [indiscernible] growth fueled by more accretive acquisitions and new in-licensing deals that fit with our proven commercial capabilities and geographical footprint. While we bring in fitting big opportunities, we will continue to focus on accelerating growth through commercial focus on selected assets like Eligard, Reagila, RS1 and some selected [ OTC brands ], and targeted promotional activities aimed at sustaining legacy brands across all countries, especially those particularly sensitive to promotion.

So moving on to Slide 25 -- or actually, let's just move to Slide 26 to take you through our rare diseases business unit outlook. So first of all, as many of you know, rare diseases is an area of still significant unmet medical need, with only 500 of the total 7,000 designated conditions having approved medical treatments. Thanks to advance in sciences, both the diagnosis but also the treatment rates are increasing, supported also by supportive legislation by incentivized investment and innovation in this area through different initiatives, both in Europe and in the U.S. It is a vast scenario with very strong growth fundamentals, a market expected to grow double digit over the next years from an estimated EUR 138 billion in 2020 to over EUR 230 billion by 2025, and which therefore offers plenty opportunities for growth for an established player like Recordati.

Next slide, please, 27. Recordati has a long established presence in rare diseases. Starting with the acquisition, obviously, of Orphan Europe in 2006 and then the U.S. rare disease business from Lundbeck in 2013. We have a growing global footprint, which currently encompasses North America, EMEA and key markets in South America, Australasia and Japan, but with an ambition to expand further in other geographies in order to become a fully fledged global player in the field. Our legacy portfolio is mainly concentrated in metabolic diseases. So for example, products that [ strict ] in that area are Carbaglu and Cystadrops. And in the more recent times, as you all know very well, we have entered the endocrinology therapeutical area for the acquisition in 2019 of the rights to Signifor, Signifor LAR and Isturisa from Novartis. In the rare disease space, we also pursue innovation by investing through our own research into potential new treatments for some rare and ultrarare conditions.

If you move to the next slide, 28, please. So in more detail on our key priorities in the 3-year outlook. We see potential for Recordati Rare Diseases to grow at a CAGR of around 15% through 2023, with a large portion of the growth coming from our endo portfolio. Our list of priorities is extensive, but I want to focus on a few that are critical. We will continue to drive the uptake of Isturisa, while we're still growing Signifor in the respective primary indications of Cushing's and acromegaly. But we will also continue to grow Ledaga in EMEA and Juxtapid in Japan, and we'll continue maximizing new opportunities in North America, especially Cystadrops and Carbaglu newly granted indication in organic acidemia.

While we have been investing in our growth of our organic portfolio, we're also committed to growing the Recordati Rare Diseases through BD and M&A activities in order to reinforce our global portfolio and presence in the market.

Regarding the revenue outlook, all regions are growing. North America is benefiting from the strong uptake of the endo portfolio. And the decline of Panhematin would also be offset by the new product launches uptakes and new indications expansions in the metabolic portfolio that I mentioned before, being Carbaglu in organic acidemia and Cystadrops.

Rest of World is maximizing opportunities in newly opened markets including Juxtapid in Japan, as mentioned earlier.

With regards to EMEA, we expect to accelerate further from 2023 onwards post the Isturisa reimbursement approval, with growth of endo, Ledaga and Cystadrops and some slowdown of Carbaglu. Finally, as you can see on the bottom of the chart, we forecast the endo portfolio doubling during the plan period -- doubling in size during the plan period.

So if we move to Slide 29, a little more focus on the endo franchise. So here you take a deeper look at the end of portfolio, Signifor/Isturisa represents a significant opportunity for patients suffering from Cushing's and acromegaly. In order to maximize the potential of these assets within the Recordati rare diseases, there are several critical success factors that we need to achieve.

Let's begin on the left of slide with Signifor, in which we plan to grow in acromegaly by accelerating the step-up from first-generation somatostatin analogues but also continue to put new Cushing's patients on therapy, particularly ones that can benefit from tumor shrinkage.

Regarding Isturisa, on the right, we plan to differentiate the product to establish it as the new standard of care for Cushing's disease in the U.S. and same for in the EU and Japan. We are also putting all initiatives in place to ensure that we have the appropriate level of access for patients to receive Isturisa, not just in the U.S. but also in the EU and the rest of the world. Finally, all this comes down to the execution by our country teams with strong engagement with KOLs and thought leaders and of course, for the collaboration with patient advocacy groups, all of whom have proved very supportive to the product.

If you move to Slide 30, we will give a bit more insight on our expectations for the endo franchise, to continue on this topic. So taking all the [indiscernible] in consideration, we expect that our global endo franchise will deliver between EUR 80 million to EUR 100 million in incremental net revenue by 2023, exceeding EUR 200 million in net revenue by [indiscernible], or at the end of the plan period. Most of the growth will come from Isturisa, but we also expect Signifor global net revenues to continue growing by around 10% per year with our ex U.S. EU region growing by more than 50%. Understandably, there has been a lot of interest in better understanding Isturisa early uptake by all of you.

And while we continue to want to be cautious in disclosing too much information since we deem it to be commercially sensitive, we will provide some insight on the traction to date where the launch is most advanced, being the U.S. On the right side of the slide, you can see the very positive Isturisa patient uptake we have in the U.S. from launch last year in May until the end of Quarter 1 2021, where we have close to 200 active patients on therapy. And we expect the number of patients receiving treatment in the U.S. to exceed 500 by 2023. Further momentum will come from the launch in Japan expected in the second half of this year, and for reimbursement in Europe. We will start seeing in key markets in the second half of this year and the first half of 2022.

Our long-term view remains for Isturisa to achieve a peak sales estimate of between EUR 300 million to EUR 350 million, and with further potential upside beyond the plan years from the expansion of the indication to Cushing's Syndrome in the U.S. and the expansion in new territories globally.

If you move to Slide 31, please. So finally, on rare diseases. Here is some additional detail around the other key products in the Recordati Rare Disease portfolio. And obviously, we have a very important franchise in metabolic diseases, like I mentioned before. And here you can see on the right-hand side of the slide some of the key assumptions underpinning the plan period product performance. As I mentioned before, this portfolio represents a significant portion of the Recordati Rare Disease revenue. So I think it's worth mentioning that we expect to continue growth of several of these products over the plan period, including Carbaglu in the U.S. and Cystadrops both in the U.S. and in the EU. Juxtapid in Japan and Ledaga in EMEA, like I mentioned before, more than offsetting the erosion of Panhematin in the U.S.

Overall, our rare disease business offers a solid and diversified portfolio with a global reach and demonstrated capabilities established over a number of years, making Recordati Rare Disease a strong partner of choice for innovative companies and research institutions investing in new therapies.

We are committed to continue growing the share of our business in rare diseases, introducing new and innovative treatments for patients attacked by these very serious conditions.

So moving on to Slide, I'd say, to Slide 33. So having covered our 2 businesses, business units, and specifically the expectations and priorities for our existing portfolio, I will now briefly cover the BD and R&D areas to explain how we plan to keep using them to further enhance our business over the coming years and months. So starting off with R&D, which, as I mentioned when describing the [ data ] model, is the [indiscernible] we have historically made and will continue to make selective investments. Our SPC historically -- the focus of SPC historically -- the focus on -- of our R&D activities has been primarily on life cycle management for formulation or indication expansions with more clinical work done on rare diseases side with our own portfolio of projects focused primarily on the ultrarare conditions.

Following the recent deals, we do have a number of important projects in both areas of our business, either directly or through our partners. On SPC, the key ones are obviously around Eligard, with the development of a new easier-to-handle device, where we are on track for regulatory submission by Q4 of 2021 and with an approval expected by the second half of 2022. We clearly have also ours. We expect to engage the EU authority -- regulatory authorities on the [ form ] submitted by Q3 of 2021, with an approval and launch expected by late 2022. In addition to this, also in SPC we have a pediatric investigation plan ongoing for an indication, to [ get ] the indication expansion for Reagila. And also we are also looking to develop further our probiotics portfolio.

On the other side, on Recordati Rare Diseases, focus is clearly on continuation of studies supporting Signifor and Isturisa that we inherited from Novartis and supporting entry into new territories from a regulatory perspective, while finalizing a plan to engage with the FDA on the potential indication expansion in the U.S.

We have 2 clinical stage programs in the rare disease space. One is NT8 for neurotrophic keratitis, which is in Phase I/II started with [indiscernible] patients enrolled, and we expect a study readout by second quarter of 2023. And also we have Maple Syrup Urinary Disease product, which is expected to be filed in Q4 of 2021.

Moving on to BD. I think that it's important that when we plan for the future, it's always a good idea to look at our history. And this chart, you can see clearly how BD track -- our very productive BD track record is an integral and fundamental part of our development history. We selected 2007 as an entry in the rare disease business as an ideal starting point for this slide, even if the BD journey of Recordati started even earlier, in the late '90s when the group started to reinvest cash flows generated by lercanidipine for the initial [indiscernible] expansion in the key Western European countries.

Since 2007 and the acquisition of Orphan Europe, we've completed more than 30 transactions, both accretive and growth, both in SPC and ride diseases, with a total investment over EUR 1.8 billion. And throughout the period we have never stretched our net debt-to-EBITDA ratio. Having in mind our history in the next few slides, we describe what we plan to do for the future, which is very much consistent, as you will see, with our development pathway and consistent with our already disclosed strategy in 2019.

So moving to Slide 35, starting with SPC. We will continue to look actively for licensing and acquisition opportunities, and we will continue to pursue the right mix of the innovation immediately accretive mature assets with turnaround potential and OTC brands. Also, we will continue to invest preferably in commercial or near-to-market opportunities. We do not plan to further expand our geographical region for short term, but we would position ourselves as a regional partner of choice, leveraging on our commercial platform and proven integration capabilities.

Moving on to Slide 36, pertains to rare diseases. In this space, we will continue to look actively for in-licensing and acquisition opportunities, positioning ourselves as a worldwide partner of choice for development and commercialization of rare disease products. While our preference remains for late-stage opportunities, we are also keen to look at early-stage assets for Recordati Rare Diseases, partnering with other rare disease companies or research institutions. We will focus on our main therapeutical areas, but at the same time, we will remain opportunistic to explore different therapeutical areas, leveraging our solid experience in the rare disease space.

So finally, I will leave the floor to Luigi to take you through the core assumptions and drivers and targets for our 3-year plan. Luigi?

[Luigi Felice Corte, executive]

Thank you, Andrea. And On Slide 38, you'll see sort of a summary of key assumptions. And obviously, I will not try and summarize everything that Andrea went through. Hopefully, we've given you some good color on both the key drivers of our current portfolio, but also the areas where we expect to focus -- and we'll continue to focus our efforts from a BD and M&A perspective. But as you will have seen, we expect a good underlying growth in both businesses despite FX headwinds, which we've assumed at around 1.5% per annum built into our forecast, with, as we said, no material loss of exclusivities expected in the period. And of course, we will continue to complement our current portfolio with M&A and BD, following a proven successful model and strategy.

And the share of rare disease as a percent of the total business, that we expect to continue to grow from today 22% of revenues to over 25% of revenue by 2023.

Now the exact split clearly will be subject to the type of deals that we will do. And as we've consistently said and as Andrea articulated, we are committed to continue investing in both those businesses. We expect margins to stay around the current levels of 38% in terms of EBITDA and 28% on adjusted net income, reflecting our intent to continue investing behind the growth opportunities, particularly those that will materialize post-COVID.

We, of course, also expect to maintain the strong cash generation profile of the group with free cash flow of around 100% of net income over the period, of which we expect 60%, per our dividend policy, to be paid out and the balance being available for reinvestment in the business.

Thanks to the strong cash generation of the group, we expect to achieve the objective that we set out with a net debt-to-EBITDA leverage ratio to stay between 1.5x and 1.8x, and clearly again here, providing a small range. Clearly, it will depend on the timing, design and the structure of the deals that we will do over the coming years, but as we said before, allowing for a little bit flexibility for that to temporarily increase up to a maximum of 3x for really high-quality opportunities, which is consistent with the guidance we gave in 2019.

So then turning over to Slide 39, which summarizes clearly the 3 key figures, we're reconfirming, obviously, the guidance for 2021, which is unchanged for this year. And for 2023, including additional M&A and BD, which were built into the plan, we aim to achieve revenue of between EUR 1.92 billion, which at the midpoint of those ranges would deliver a CAGR of over 10%. EBITDA of between EUR 720 million and EUR 760 million, again, a CAGR of around 9%, and adjusted net income of between EUR 530 million and EUR 560 million with a CAGR of around 10%.

I will now hand it over to Andrea for some closing remarks.

[Andrea Recordati, executive]

So if you can please move to Slide 40 of the presentation, which sums up the financial projections and key takeaways. So in conclusion, hopefully we've given you a good overview of the objectives we have set for the business for the next years and the key assumptions and drivers of underpinning them.

In summary, we aim to achieve a broad-based growth across both of our business' current portfolios, with growth of 6% CAGR in SPC, half of which thanks to the contribution of Eligard that we mentioned, and a return to volume growth post COVID of the next -- of the rest of the business and 15% CAGR for rare diseases with significant growth of our endo franchise and [ model ]. We aim to sustain a high level of profitability with EBITDA margin of around 38% and adjusted net income of around 28% of revenues, reflecting also continued investment behind our growth opportunities. We continue with our strong track record -- we plan to continue with a strong track record of turning a substantial part of those margins and profit into cash with free cash flow to remain on average around 100% of the consolidated net income.

We maintain a clear capital allocation policy, with dividend payout of 60% of consolidated net income and the balance of the free cash flow reinvested in the business on both growth and accretive deals in both parts of the business. And we aim to preserve a strong balance sheet, like Luigi mentioned just a moment ago, with a net debt around current levels of 1.5x likely to fluctuate between 1.5x to 1.8x depending on the timing, the structure and the type of deals, being again growth or accretive, but ready to go up to a max of 3x for really -- and I underline really -- high-quality opportunities.

So moving on to the last slide of the presentation. So finally, before opening to Q&A, in recent times we have also worked to strengthen the team in recent time and years. Not only obviously across the organization but also at top management level to obviously ensure the efficacious management of our growing and more complex organization and in order to drive more effectively towards the achievement of the goals.

So with me here today, in addition to Fritz Squindo, who all of you know, and is currently the Group General Manager, and there is also Corrado Castellucci, which who is the head of our rare disease business and has been so for many years; obviously, Luigi La Corte, our CFO, Group CFO since in 2019. But also I have joining us today also Scott Pescatore, who joined the group in February 2020 as Head of Operations for Recordati Rare Diseases. Joined from AstraZeneca, and before then having spent many years in Novartis in the rare disease division in Europe with a good and deep knowledge of our endo portfolio. And finally, but not least, Alberto Martinez, who joined the group in January of this year to head our SPC business, joining from Mundipharma where he held in his latest role, the -- that of President and CEO of EMEA.

So having concluded our presentation, I think we can move on to the Q&A session. Thank you very much for listening.

[Operator]

[Operator Instructions]

The first question is from Martino De Ambroggi of Equita.

[Martino De Ambroggi, analyst]

The first is an obvious question on the like-for-like growth. In the previous plan -- I know it's not unusual for you to include acquisitions in the long-term target, but in the previous plan, you presented a 50% organic growth and 50% coming from acquisitions. Is it still the case of 50-50? Or based on the existing portfolio, you have more visibility on the portion related to the like-for-like growth? And the second question was on the guidance. Just to have an idea where R&D costs are envisaged in your '23 target? Or what's the range over the 3-year period? And the third question is on just a clarification on what do you mean for acceptable valuations? In your Slide #38, when you talk about M&A, you underline acceptable valuation for M&A. So just to understand what you mean in the current market environment.

[Luigi Felice Corte, executive]

Okay. Thank you, Martino. In terms of like-for-like growth, I mean, it kind of depends on how you consider Eligard, as Eligard was not in the 2020 base. So it's looking at it on a sort of consistent base with how you would have looked at in 2019. I think that 50-50 would still apply. And hopefully we've given you quite a bit of sort of color on the drivers of the growth of the portfolio which we already have today to be able to get a sense of the growth of the current portfolio.

With regards to R&D, we'd expect R&D to be between 10% and 11%. Now don't forget, close to -- over 40% of our R&D cost is actually amortization of licenses. So it will depend also on the type of deals that we do with an acquisition, with goodwill, which is not amortized. Obviously, we're not after that. If we do -- if we acquire product rights, which are amortized, clearly the R&D line will be on the higher end of that range. I think acceptable valuations means we'll continue to be as disciplined as we've always been. I don't know Andrea.

[Andrea Recordati, executive]

It means, keep our good discipline in not overpaying for acquisitions whatever they may be, okay? So this has been part of our way of doing things until now, and we're not planning to change this. So clearly, every deal, a growth deal has different multiples from an accretive deals. But clearly, every case is a different case. So the main kind of point is discipline and not overpaying. I hope that answers your question.

[Martino De Ambroggi, analyst]

Yes. Just a follow-up for the first question, Luigi. 50-50 is considering Eligard as M&A or organic?

[Luigi Felice Corte, executive]

No, if we were -- if you were comparing it to the guidance, which broad guidance which we've given in 2019. And I -- what I'm saying is if you're doing it like that, then you have to take into account that the 2020 base that the CAGR is built on obviously didn't have Eligard in that. Yes.

[Martino De Ambroggi, analyst]

So if we include Eligard, which is in the pocket today, you had more visibility than the 50% on the...

[Luigi Felice Corte, executive]

Okay. Yes, of course.

[Martino De Ambroggi, analyst]

And if I may, last question on the strategic optionality. I clearly understand it is not an issue today, but would it make sense in the medium term if you separate the rare disease business through a spin-off, a separate listing, a merger with another to become larger. I don't know, strategic optionality on the rare disease is something that could be taken into account?

[Andrea Recordati, executive]

At this moment in time, we believe that keeping the 2 businesses combined is fundamental for the development of both. And I think that also for rare diseases, having the strong cash generation generated by SPC is a major asset for rare diseases because it allows solvency to be more ambitious and invest in a more ambitious way on the development of that part of the business. So today, you can never say never, but today we're not planning or we're not even remotely thinking about something like that.

[Martino De Ambroggi, analyst]

Very clear. Is there any size -- ideal size for the rare disease business to think about it? Or...

[Andrea Recordati, executive]

No. We cannot generalize on the assumptions about size. I mean it depends on the opportunity. We look at a lot of opportunities. We get new opportunities over time. Today, I wouldn't kind of give you a ball park number to -- for size around opportunities that we'd look for rare diseases. Depends if it's product addition, it depends on the portfolio, it depends on our [indiscernible]. So every case is different and gets measured and weighted ad hoc.

[Operator]

The next question is from Jo Walton of Crédit Suisse.

[Jo Walton, analyst]

Firstly, can I say what an excellent presentation I thought it was. You've really set out the parameters of the company to make it a lot easy for new investors to understand your company, so well done. My second -- now my 4 questions, please. I have 2 product ones and 2 more strategic ones. So the product ones, the first one is on Isturisa. How confident are you that you don't need more studies in order to be able to extend the indication to Cushing's Syndrome in the U.S.?

I believe you felt in the past that you haven't needed those, but you are still going to have a discussion with the FDA, although not until next year. So just a little bit on why it's taking you so long and what the risks are, and what you could be asked additionally to do. And perhaps if you are lucky enough to be able to file with what you have, what the peak additional sales might be?

My second question is on Reagila. You said that the U.K. and France is not in your plan. It's an opportunity for you, an upside opportunity, but you need to be able to get a good pricing there. I wonder if you could just talk about some of the positives and negatives on the -- so that we can try and handicap your likelihood that you would be able to get that within the planned time frame.

And then my strategic questions. One of them is, I think, a little bit mean, but I'll try it anyway. So looking back in 2019, at what you were expecting to be able to do in 2021, clearly it was about EUR 1.7 billion. You're coming in quite a bit short of that. And I appreciate there's been a massive pandemic in the meantime, but if we were to characterize crudely the miss there, would it be that you haven't been able to find as many acquisitions as you have hoped to be able to do over that time frame.

And looking a bit more forward, I wonder if you could talk a bit about the balance of your M&A objectives, between getting new specialty-type products to go into your rare disease franchise and buying tail assets which are immediately accretive. And if you could just talk a little bit about the pricing, the level of opportunity that you have in that? That would be very helpful for us.

And my very final question, and I apologize for taking so long. Just looking at R&D, as you've said yourselves, your R&D at 10% of sales, I mean that's low by industry standards, particularly low for innovative pharma companies by industry standards, and yet within that you've got a high level of amortization. So looking forward, could you tell us a little bit about what your objectives are in terms of building up a genuine development franchise -- or development capability.

so that you are more able to buy in, let's say, mid-stage assets and finish them off for the market, rather than being somewhat more restricted perhaps to late-stage assets like Isturisa, which was just ready to roll, or tail assets. There's a whole sort of section in the middle which you don't seem to be able to address at the moment.

[Andrea Recordati, executive]

Okay. Maybe I will let Scott Pescatore to take the first question, Jo, on Isturisa regarding the indication expansion in the U.S.

[Scott Pescatore, executive]

Yes. Good afternoon, everybody, and thanks for the opportunity. So it's always been our plan to have a possible label expansion in the U.S. for Cushing's Syndrome. Any sort of peak opportunity for upside in the plan, we won't be sharing the details, but it will fall outside the planning period. As you mentioned, we don't have any current time lines for the approval of the Cushing's indication; we'd have to meet with the FDA first.

We have a robust data package that we can bring to the FDA. But first, we need to understand exactly what the requirements would be in order for us to achieve that label extension. One thing I can tell you, though, is that we don't expect to start any new clinical trials to generate that data. But data generation through [ available ] evidence and other [ means ] would be our proposed strategy for any additional data that we use.

[Andrea Recordati, executive]

Okay. Reagila, I will ask to Alberto Martinez take on this question.

[Alberto Martinez, executive]

Thank you very much. Good afternoon, everyone. On your question around the opportunity for Reagila in U.K. and France, I'm afraid the situation in France is difficult, and it's unlikely to get reimbursement from a realistic perspective. So I don't think we should consider that as an option. However, we are actively working on it and continue to work on it with the French authorities and certainly will not give up for the patients with schizophrenia in the French market.

In the U.K., we are in the market, and we are actively promoting. However, we face significant hurdles in terms of assets. And the team is rethinking and revisiting the opportunity there, looking at new ways of approaching the promotion of the products, on lifting the hurdles that we're facing from a market access perspective.

I would say the options in the U.K. to improve the position of Reagila are somehow more positive than those in France as a potential upside. But we have been prudent and cautious in our projections for this product.

[Andrea Recordati, executive]

Yes, exactly right. I mean, so let -- I'll reiterate what I said before, just to reiterate what Alberto said, that we did not build this in our forecast, okay? So the U.K. and France Reagila are out. To say this is important. France, obviously, we are -- we all know that it's an extremely tough market. Market access-wise in the U.K., we are on the market, like Alberto said, but it's just a matter, let's say, that the penetration of the different mental health trusts has been taken longer than expected. But we're obviously working on it, and slowly we are getting access to them. And so the uptake is slower than what we expected, but it is -- we will get there eventually.

Regarding the 2019 objective of EUR 1.7 billion, we can respond, me and Luigi together, I guess. I can tell you that for sure COVID has an impact. I think, obviously, I don't remember, honestly, the FX, the impact that we had in our plan, but it's probably more or less aligned. Clearly, we have also -- we've had other headwinds within the business. Regarding the M&A, I'll let...

[Luigi Felice Corte, executive]

I think, you already -- if you do the math, if you take the 2021 numbers, Eligard and the contribution we've had from the Endo franchise, I think you'll see -- and plus the other bits and pieces, the smaller bits and pieces we've done, I wouldn't say that it's been sort of a shortage on M&A. I mean, at the end of the day, as you said, I mean, we -- unfortunately no one else has predicted the market condition, which unfolded since the beginning of last year. That's really the key driver of the variance.

And very shortly after the 2019 plan was announced, the deal with Novartis was announced. Right now it's a slightly different position. We've just in the last couple of months, the last few months, announced the deal with Tolmar. So again, which is why I would say it's very difficult to compare that sort of split in 2019 versus what may be the sort of split now. I hope that makes sense. On the R&D...?

[Andrea Recordati, executive]

No, it wasn't R&D, it was the balance of objectives on -- organ -- Jo, if I recall correctly, the other question was -- you wanted more insight on how we build -- if I understood correctly, our M&A component, our business development component in our numbers, our 2023 numbers, between rare diseases...

[Jo Walton, analyst]

It's the balance between older products, tail products, which are immediately accretive, and buying more the specialty-type products, which may take a little while longer. I think we're trying to think about how much money you're likely to need to spend to get to your objectives. And it's relatively easy to work that out from the tail point of view, but I'm assuming that you're also keen to do more deals that will get you products at the beginning of their life cycle rather than at the end of their life cycle.

[Luigi Felice Corte, executive]

Yes. And I think you said it right, Jo. I think in terms of the way we thought about the target in the overlay, I mean if you look at the last 5 years, we've done an average of between EUR 200 million and EUR 250 million on BD. That has not been sort of consistent. I mean some years, we did north of EUR 300 million, some years we did less. And we built our set of target around that. And the leverage is -- assumption is consistent with this. And of course, within that, we're aiming to be both high growth deals and accretive.

[Andrea Recordati, executive]

So we gave ourselves an objective of additional, obviously additional growth, but we don't know at this moment exactly where that growth is going to come. We clearly have ideas of where we want to go. We want to pursue growth in rare diseases with growth deals. But at the same time, we also want to keep sustaining and developing with accretive deals our SPC business and [indiscernible]. So it's a mixture. So I think you need to take the number, you need to take our range of projected EBITDA kind of, let's say, range, and obviously also net of EBITDA to the net debt and calculate from there. I mean, but we don't -- not going to give further [ candidates ] in this. Impossible to do.

[Luigi Felice Corte, executive]

And on the sort of -- on your question around R&D, I mean you're right. I mean, I don't think that we've ever sort of have pretended it to be otherwise that relative -- we're not a sort of company which has as part of its business model a significant investment in R&D and pipeline on a cash basis. As we set out on Slide 4, we actually look to make selective investments in R&D. And whilst as we said that we are open to opportunities which are in late -- potentially mid-stage development in rare diseases, now rare diseases is also an area where there's not a lot of difference between sort of mid-stage and late-stage where we're certainly open for that, and we do think we have the capabilities for that. But if you just look historically, our track record over the last 10 years, the growth has been both sort of on market and BD-driven as opposed to product coming from our R&D pipeline. Hope that makes sense and answers your question.

[Operator]

The next question is from KC Arikatla of Goldman Sachs.

[Krishna Arikatla, analyst]

I have a few please. First one, if I look at your specialty division, you have now built a sales force for CNS with Reagila and for urology through Urorec and Eligard. As you think about in-licensing strategy for this division, are you looking at assets where you already have a presence and want to build on the operating leverage, or are you focused on also expanding into other therapeutic areas within specialty? That's the first one. Second one, what is your view on incremental pricing pressure in Europe as economies come out of COVID?

Is this something that you have incorporated in your business plan, please? Third one on China opportunity for Isturisa, you make it very clear that that is an upside and not in your business plan. I'm just wondering the driver behind that delay? Is this because you need to undertake additional trials to be approved in China, or are there any other commercial hurdles for Isturisa to launch in China?

And final one, if you could just provide an update on the clinical projects that you have undertaken historically, be it retinopathy of prematurity or Maple Syrup Urine Disease. When can we expect clinical updates here? And if you could confirm if there's any contribution from them in your business plan?

[Andrea Recordati, executive]

Thanks for the questions. I'll answer the first question, KC. So regarding the SPC, obviously, ideally, I mean our objective is to reinforce and look for assets, let it be in-license growth assets or accretive ones that fit with our current presence on the field and would fly within our kind of areas of expertise, it goes without saying. So we are also -- we're looking at urology, we're looking at cardiovascular, we're looking at gastrointestinal. And we're also obviously looking to CNS to some extent, because clearly we've set up our structure to promote Reagila and we would like to build more critical mass and synergy, let's say, on the promotion target with the addition of other products.

However, let us always keep in mind that we are -- we always see some degree of opportunistic approach in -- when we look at different asset deals. So we also look at other stuff. But we tend to focus more on areas that require -- the answer to the question is we tend to focus more on therapeutical areas where we already have a strong presence, both on the field and in our, let's say, know-how.

[Luigi Felice Corte, executive]

Maybe on pricing, KC, we still, at this stage, do not see significant sort of more -- higher pricing pressure in Europe over the next few years. I mean historically, over the last years on SBC, we've seen sort of price erosion of plus or minus 1% higher in years, slightly higher in years where we lost exclusivity, but were on average for the total group they've gone up. And we don't see a wall of new price measures being taken. Don't forget pricing, reimbursement, generic policies in Europe are still decided on the market by a country-by-country basis. They're not decided at a pan-European level.

So it doesn't -- we don't see sort of governments starting to act on that [ yet ]. So obviously, we're just not seeing. I think I may have mentioned in some calls, [ I have noted ] in the past, we've seen one price reduction across the portfolio last year as a result of COVID, being an additional 10% discount in Spain from products which have -- which were going generic, which has impacted pitavastatin.

On the other hand, we've seen Italian authorities increase the level of health care budget and where pharmaceutical spend [ extended ] a percentage of health care. That's allowed a higher ceiling for total per country pharmaceutical spend. Doesn't impact us significantly either way. But just as -- just to say, we're not seeing significantly increasing pricing pressure over the next years.

[Andrea Recordati, executive]

Next question was the same concern, right? China.

[Scott Pescatore, executive]

This is Scott. I'll take the question and have some additional details on our expansion in China. And you're absolutely right that it's a key strategic priority for us moving into new territories. China offers a large opportunity for us outside of the planning period. Just to give you some additional insight as to what we've been doing so far, we hired a general manager who started in quarter 1 this year.

And we also began -- we've approached agencies to begin discussing with the filing requirements for our products that we'll be launching there with the China FDA. So things are progressing there, and we will continue to build out the organization as we also have opened headquarters in Beijing. So it's more to do with regulatory time lines and interactions with authorities.

And the same applies to the FDA on the label expansion opportunity, which we've always said is an upside to the guidance that we've given, where the FDA clearly had quite a backlog following COVID, as we understand it. So again, it's more to do with regulatory time lines than -- and building a data packet based on what we have and the evidence which we continue to accrue through the use of Isturisa in the market.

[Andrea Recordati, executive]

Okay. I think the last one was on some time lines around our pipeline development, right, KC?

[Krishna Arikatla, analyst]

That's correct. You had announced...

[Andrea Recordati, executive]

You mentioned MSUD, the Maple Syrup -- and MC8. So like I mentioned for MC8, I mean we're still in early phase. I mean, we're expecting the study readout, readout of the Phase I/Phase II study is expected by Q2 2023. So it's was obviously the end of the plan period. And also, when it comes to MSUD, we are expecting to file at the end of this year, but we're expecting an approval in the first half of 2023 approximately, just to give you little more kind of...

[Luigi Felice Corte, executive]

And then MC8, I mean it's fair to say, I mean it's true for all studies, but even more where patients are rare. I mean that the pandemic is generating -- carries some delay in terms of...

[Andrea Recordati, executive]

An involvement -- we have to be honest. Absolutely. Recruitment of new patients for studies, any clinical development study has obviously been impacted quite negatively by the COVID pandemic, which is totally understandable clearly. So -- but this for a moment, our study readout is still planned for the second quarter of 2023, then we'll update you as well. The time is still feasible for it.

[Operator]

The next question is from Rajan Sharma of Deutsche Bank.

[Rajan Sharma, analyst]

First one, you mentioned that you'd be comfortable going to kind of 3x leverage for really high-quality opportunities. So just be interested if you could define what you really see as a really high-quality opportunity regards a profile of potential asset there? And then secondly, could you just provide your thoughts on CVC in term -- long term in the business given that they've been involved for over a year now.

Can you just help give us an update on how you see that progressing going forward? And then thirdly, just on the BD piece again, the types of deals that you've talked to potentially doing, particularly in the rare disease space, are in high demand. So how confident are you personally in closing these deals? And what advantages do you seeing the group having versus competitors in this regard?

[Andrea Recordati, executive]

So maybe I'll start with the CVC one to get that off the table. So I mean CVC has been investing the company for approximately 3 years now. And honestly, they're committed to remain invested in the company for some years to come. I mean they see a lot of potential in the growth potential of the company, they are very happy with their investment. The collaboration is excellent with the management of the company. So I think on that, I can say -- that's all I can say on that. So I wouldn't add anything else. We don't expect any substantial exits shortly or something like that from what I can say and see.

[Luigi Felice Corte, executive]

Now. Rajan, first of all, I look forward to connecting and thank you for starting there to cover the stock. With regard to the leverage, first of all, just to be very clear for those of you that may be newer to Recordati, I mean, clearly, the guidance that we provided in terms of our EBITDA is not built on an expectation of 3x. It's just to say that whilst instead our sort of target on the basis of an estimated leverage of 1.5x to 1.8x.

We just want to make sure it's clear that we would not be constraining ourselves to those levels if we find an opportunity which is compelling, a strong strategic fit and generates value for the business. So it's more to speak to the flexibility that as an organization we have on the back of the results that we deliver in terms of both profit and cash flow. So I think that's how to think about it.

And in terms of BD and what -- being in high demand, thankfully that's in our experience, never -- that's nothing new. I mean, good aspects have always been in competition. We have a very strong and established infrastructure in Europe on the specialty family care side, which is appealing for many. We're not a newcomer to rare diseases. We've been in rare diseases since 2007. We have established capabilities and we've picked up as recently as 2019 2 great assets from Novartis.

So -- and I'm sure we'll continue to do so. So -- and again, good assets have always been in competition from a smart point of view. And the track record of the company, we'd like to think, is fairly robust in terms of executing on M&A and BD. I hope that answers your questions.

[Operator]

The next question is from Katarina Cackowski of BlackRock.

[Unknown Analyst]

So you talked about your leverage target at the opco level. Do you have any information to the market about what your intentions are for the expensive bonds that are sitting at the Rossini level?

[Luigi Felice Corte, executive]

No, I'm sorry. That -- we have nothing to do with the Rossini level sort of financing. You'd have to ask that question to Rossini. I believe in the Q1, when they sort of gave their update at the end of the year, they said they have no current plans, but we honestly don't have any info or insight into that.

[Operator]

The next question is from Isacco Brambilla of Mediobanca.

[Isacco Brambilla, analyst]

I have 3. The first one is a follow-up on the building block on your expectations in terms of [indiscernible]. If you take the midpoint of your 2023 target, so a speaking, EUR 500 million related to [indiscernible]. It is correct to assume that some 70% of this [indiscernible] top is related to products which are currently in your perimeter and just somewhere 25% to 30% coming from future M&A?

Second question is on your target in terms of profitability for the group going in recently toward the more profitable [ second-order ] rare diseases. It is to how confident you would be to see EBITDA margin target in line with one of the past business plans. So can you provide more color on this assumption on your margin, which is embedded in your 38% EBITDA margin target. And last question, you don't have milestones. Can you open -- why don't you follow up on the amount of milestones which is included in your financial leverage target as of 2023?

[Luigi Felice Corte, executive]

So Isacco, thank you for the question. I'm sorry if I disappoint on the first one in terms of a range is a range, and I'll not try and pick the midpoint of the range in terms of what -- now assuming we achieve that, what of that would be from current portfolio versus BD. We've given a range, which is consistent with what sort of peers will do. And we've given also quite a bit of color on what we think the current portfolio should be able to deliver.

Of course, it's never A plus B equals C. We are giving a range, which is a composition of what we believe we will deliver through the organic portfolio and what we will deliver through BD, continuing to invest at a level that is consistent with what we've done in the past and going for both growth and accretive deals and without wanting or being able to exactly second-guess over the next 3 years, which ones we will do or what kind and so on. So I think you'll have to accept that that's where we will leave that one.

With regards to profitability, I think we've said consistently that margins over the course of 2020 and also now over the course of 2021 are enhanced by the impact that COVID has, by putting pressure on the top line but at the same time reducing our level of activity spend. And again, we want to make sure that -- and are reflecting through these targets the intend to continue to invest behind the growth of the business particularly once market conditions will return to normal.

In terms of milestones, I assume around EUR 100 million, EUR 110 million in each of 2021 and 2022. Of the 2021 number, as I said, we have already paid close to EUR 50 million of that in the first quarter being the milestones for Eligard and Flatoril. So hopefully that addresses your question. Again, apologies if I'm sticking with the guidance on the range.

[Operator]

[Operator Instructions]

The next question is from Niccolò Storer of Kepler.

[Niccolò Guido Storer, analyst]

Two, if I may. The first one, I would like to come back a bit on profitability and the assumptions on your business plan. I was wondering whether we can see during the plan period some operating leverage coming from Isturisa, meaning if you plan to have higher profitability in 2023 versus the one you have today on that specific product. And how this fits into your guidance of the 38% margin? And the second shorter one, on your net financial position target, how much buyback are you assuming in your 1.5x, 1.8x target?

[Luigi Felice Corte, executive]

So Niccolò, we're not -- we've never given sort of profitability by product. And so unfortunately, we can't -- we are not going to start doing that on Isturisa. I mean, of course -- and as you -- we did say, there will be some growth of rare disease as percent of total thanks to the growth of the end of franchise over the period. But we are committed to invest and grow both the businesses. But again, we don't provide sort of profitability by product.

In terms of net financial position, you should assume a level of buyback consistent with the average of what we've done over the last years, which was really to sort of cater to the management long-term incentive plan. So we've not built into sort of those leverage targets any sort of buyback over and above that, if that makes sense.

[Operator]

[Operator Instructions]

The next question is a follow-up from Isacco Brambilla of Mediobanca.

[Isacco Brambilla, analyst]

Just one follow-up from a slide. In -- [indiscernible] license. Is there any kind of turnover from this product included in your 2023 target?

[Luigi Felice Corte, executive]

No, only marginal, to be honest, Isacco, we've always said this would sort of launch sort of mid in 2022. And so it has the hands up, don't forget, I mean, in Europe, obviously, launch is one thing, then you go through the reimbursement process. So no, we -- that...

[Andrea Recordati, executive]

There's marginal sales and there's still investments launch investments, like is normal for a product under launch phase. So especially [indiscernible] negative impact because it's -- like it's normal for a product under launch, which also applies clearly to Isturisa, which is still in the launch phase.

[Operator]

[Operator Instructions]

The next question is a follow-up from Jo Walton of Crédit Suisse.

[Jo Walton, analyst]

Just a couple of questions about -- again, about your future investments. Are there any other countries where you'd like to move from, say, a distributor model to have your own footprint? And are any of those sort of geographic expansions included over the next couple of years? What countries might they be?

And also, if you could tell us a little bit about your objectives in OTC rather than prescription. Do you see a difference in that? Do you want to be more involved in products where the patients pay themselves, or more involved in government pay. And finally, because it's a market that's relatively important to you, but we don't hear much about some other people, I wonder if you could tell us a little bit about your view of the outlook for the Turkish market.

[Andrea Recordati, executive]

So for countries where we're planning to move from a distributor, that's Turkey for sure for rare diseases, okay? Clearly, we aim -- we're planning to enter during the course of the plan in China, but also that is going to be a partial -- it would be the start of the entry. And on SPC, I don't recall -- no we don't have any plans to kind of move from our distributor. I mean, as we said before in the presentation, our plan is to remain present in the countries we really present as now and be a regional player for SPC. Regarding the other question was...

[Luigi Felice Corte, executive]

On the OTC portfolio, I mean, it continues to be an integral part of the SPC portfolio. I mean...

[Andrea Recordati, executive]

We like the diversification, Jo. So we like to think that diversification would be in SPC between Rx, reimbursed drugs, but also out of pocket Rx drugs, OTX, OTC. And we will keep on pursuing a mixture of BD activities around reinforcing all those areas.

[Luigi Felice Corte, executive]

And on Turkey, maybe I'll let Alberto say a little bit more in terms of sort of current dynamics in the field in Turkey, but a fundamental view on the market longer term remains positive both in terms of volumes and in terms of our pricing. And of course, the currency is [indiscernible] these days. And we start from that. And Turkey is under some of the strictest restrictions that it's been on from a public perspective. Alberto, do you want to comment on some of the current environment there?

[Alberto Martinez, executive]

Yes, with pleasure. Turkey is being particularly these days affected with COVID restrictions, there is a current lockdown somehow hindering the ability of our sales force to access health care professionals. That is clearly dispersing the activity. But the growth in the market, the demand remains -- our business remains very strong and our commitment to continue to grow our business in Turkey is in fact -- is actually one of the large operations within SPC in Recordati.

[Andrea Recordati, executive]

And regarding pricing around Turkey or better currency issues, obviously, that we mentioned on Slide 38 that we have built a general minus 1.5% of the FX headwinds, which is clearly -- does not only apply to Turkey, it applies to the whole group, but clearly the point of that is attributable also to Turkey, but we're not going to give the full details.

But like Alberto said, I mean for us, it remains a key market, we still see a lot of potential and growth in the market. And we are happy with our size. We're not planning to do any M&A deals. I think we already have a very good critical mass, and it's working well for us.

[Jo Walton, analyst]

And could I finally ask you, I think you said your Maple Syrup Urine Disease, you'd be able to file at the end of this year, but you wouldn't get an approval till the first half of 2023. Is there any reason why it's such a long approval period? Or maybe I missed some of it.

[Andrea Recordati, executive]

I'll let Corrado Castellucci answer this.

[Corrado Castellucci, executive]

Jo, what we are going to do for Maple Syrup disease is built a package based on real-world evidence. We will file with this -- with that package, but prior to that, we're going to consult Vienna and check whether this is going to be enough and we are not going to need more. So this is pending on the impact to the positive opinion of EMA. We are seeking to have a meeting with the agency before the end of the year and hopefully be cleared through and have the chance to file at that point in time. And then the usual time lag for the approval to win.

[Andrea Recordati, executive]

So there is a little bit of healthy caution also in the time line, okay?

[Corrado Castellucci, executive]

It depends on the package.

[Andrea Recordati, executive]

And it partly depend on the package.

[Operator]

[Operator Instructions]

Gentlemen, there are no more questions registered at this time.

[Andrea Recordati, executive]

So thank you very much, everybody, for having joined our presentation today and for your very interesting questions. And have a good afternoon or evening, depending where you are. Bye-bye.

[Operator]

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

Thank you.