Recordati Industria Chimica e Farmaceutica SpA

MIL:REC

Earnings Call Analysis

Recordati's Q1 2024: Strong Growth and Robust Financial Position

Recordati reported net revenue of EUR 607 million for Q1 2024, a 10.2% increase year-over-year, bolstered by double-digit growth in both Specialty & Primary Care (SPC) and Rare Disease segments. Despite adverse FX impacts, the company achieved an EBITDA margin of 40.2%. Adjusted net income rose 5.6% to EUR 163.7 million, with free cash flow at EUR 147.1 million. Significant progress was made in R&D, with key drug applications in the pipeline. The company is on track to reach the upper half of its financial targets for 2024 and maintains a positive outlook for 2025.

Strong Start to 2024 Drives Revenue Growth

In the first quarter of 2024, Recordati achieved a robust performance marked by a 10.2% increase in net revenues, amounting to EUR 607 million. This double-digit revenue growth was observed across both their Specialty & Primary Care (SPC) and Rare Disease segments, with SPC posting a 10.1% increase and Rare Disease soaring with a 13.9% rise. A notable challenge was the 5.7% FX headwind, heavily influenced by conditions in Turkey, but despite this, the company managed to sustain sector-leading margins.

Sustained Profitability and Cash Flow

Recordati maintained a strong EBITDA margin of 40.2% in Q1 2024, demonstrating an effective operational strategy. This performance translated into an adjusted net income of EUR 163.7 million, a 5.6% increase compared to the previous year. Notably, the company achieved a free cash flow of EUR 147.1 million, exhibiting a EUR 43.7 million rise from the prior year, and reduced its leverage to 1.75x EBITDA pro forma.

Progress in Research and Development

Quarterly advancements in targeted R&D projects were significant. Recordati plans to submit a supplemental new drug application (sNDA) for Isturisa to extend its label for Cushing's syndrome in the U.S. by Q3 2024, backed by positive FDA feedback. Additionally, an NDA for Signifor LAR was submitted in China, further solidifying the company's growth trajectory in specialty treatments.

Specialty & Primary Care Performance

The SPC segment, as the backbone of Recordati, continued its strong performance with a 10.1% growth. The Urology portfolio, particularly driven by Avodart and Combodart contributing EUR 27.5 million, highlighted standout results. Eligard also experienced a seamless double-digit rollout exceeding competitors across key markets. Cardiovascular and gastrointestinal segments remained on par with Q1 2023, although Turkey faced adverse FX impacts.

Rare Disease Segment Momentum

Recordati's Rare Disease business started the year robustly with organic growth nearly reaching 14%. Isturisa and Signifor showed strong patient acquisition, while oncology drugs like Qarziba outperformed expectations in Europe. Significant growth was also observed in other geographies and products such as Sylvant.

Guidance and Future Outlook

Based on Q1 performance, Recordati is likely to hit the higher end of its 2024 financial targets. The company expressed confidence in sustaining growth driven by their consistent strategy and capital allocation policies. This optimistic outlook also draws on stable geographical performance, with the U.S. remaining Recordati's primary market, showing local currency growth upwards of 16%.

Addressing Financial Expenses and Risks

Financial headwinds included increased financial expenses due to higher interest rates and hyperinflation accounting adjustments in Turkey. Nonetheless, Recordati anticipates a decrease in financial expenses later in the year. Key risk factors such as further adverse FX impacts and regulatory changes are monitored, though the company remains optimistic about maintaining its robust performance.

R&D and Capital Allocation

R&D expenses increased slightly to 11.1% of revenue in Q1, driven by amortization costs. This investment supports key programs such as Isturisa's label extension and ongoing trials like REC 559. The company plans continued disciplined capital allocation to ensure steady progress in product development and market expansion, aligning well with their long-term growth strategy.

Mergers and Acquisitions Strategy

M&A remains a core aspect of Recordati's growth strategy. While not disclosing specifics, the management indicated ongoing projects with a balanced focus on both Specialty & Primary Care and Rare Disease. Successful partnerships, like the recent one with Glaxo for Avodart and Combodart, underscore Recordati's commitment and capability to seize valuable opportunities in the market.

Concluding Remarks

Overall, Q1 2024 demonstrated Recordati’s strong operational execution, strategic growth, and financial health. The leadership’s optimistic outlook for the year, bolstered by their consistent performance and proactive measures in R&D and market expansion, positions the company well for sustained success.

Earnings Call Transcript 2024-Q1

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Recordati First Quarter 2024 Results Conference Call.

At this time, I would like to turn the conference over to Ms. Eugenia Litz, Head of Investor Relations of Recordati. Please go ahead, Madam.

[Eugenia Litz, executive]

Thank you, and good afternoon, everyone. I'm pleased to be here today with Rob Koremans, our CEO; and Luigi Felice Corte, our CFO. Together, they will present our results for the first quarter of 2024 before opening the line for questions. As always, the presentation is available in the Investors section of our website.

It is now my pleasure to pass the call over to Rob. Please go ahead.

[Robert Koremans, executive]

Thank you, Eugenia, and thank you all for joining us today. I'm very pleased to report our excellent start to the year with net revenue of EUR 607 million and up 10.2% versus previous year or 10.9% on a like-for-like and constant exchange rate basis. This reflects double-digit growth across both our businesses. Specialty & Primary Care was up 10.1% like-for-like at constant exchange rate, and our Rare Disease business was up 13.9% on a like-for-like constant exchange basis, and Luigi will talk you through more detail later on this call.

This robust growth was achieved despite continued FX headwinds with an adverse impact of minus 5.7% for the first quarter. This was mainly affecting SPC and driven by Turkey. We continue to achieve sector-leading margins with EBITDA margin at 40.2% for the quarter, reflecting strong revenue and operating leverage. Our adjusted net income was EUR 163.7 million, up 5.6% versus previous year, with higher operating profit as expected, absorbing an increase of financial expenses and a higher tax rate. We delivered in the quarter, free cash flow of EUR 147.1 million, a EUR 43.7 million increase versus previous year, bringing leverage to 1.75x EBITDA pro forma.

Also, we've made very good progress on our key targeted R&D projects this quarter, with expectations to now submit the supplemental new drug application for Isturisa for Cushing's syndrome label extension in the U.S. during the third quarter this year, following positive feedback from the FDA. We also submitted the NDA for Signifor LAR in China. And with this strong momentum driving the business, we are well positioned to deliver at the top half of our previous provided financial targets for '24 and our targets for '25, pursuing the same group strategy and capital allocation policy.

It's now my pleasure to hand over to Luigi.

[Luigi Felice Corte, executive]

Thank you, Rob, and good morning, good afternoon, everyone. Conscious, I start probably some repetitive opening the call is always saying I'd like to add more color on what was a strong quarter, but it is what it is. We have delivered once again. Happy to comment on that. And this is really true across the business. And as always, we'll start with Specialty & Primary Care on Slide 4, which, as you will have seen, opens 2024 with growth in the first quarter on a like-for-like basis of around 10%, which is really exceptional, if you think that it compares to a very strong performance already in Q1 of 2023.

The standout is obviously Urology franchise, which becomes our #1 franchise driven, yes, by the strong contribution of Avodart and Combodart, contributing EUR 27.5 million, but also very strong momentum of Eligard with really seamless rollout of the new device and with Eligard achieving double-digit organic growth in the quarter, and over-performing competitors in all of the key markets. So very, very strong performance there.

But equally strong to see cardiovascular GI, other therapeutic areas remaining on par with what was a very strong Q1 of 2023. Phasing of sales in international, in Turkey were very similar to the patterns that we saw last year. And with regards to cough and cold, you have seen a slide in the backup. It was a strong quarter for cough and cold comparing to an exceptional Q1 of 2023, and the decline in reported figures really is driven by adverse FX in the relevant market. So once again, Specialty & Primary Care confirmed itself, not just the backbone of Recordati but also a strong growth driver in its own right.

Moving on to Rare Disease on Slide 5. As you'll see also clearly a very strong start of the year with organic growth at a constant exchange rate of just under 14% with really strong performance in both of our key growth franchises. We continue to see strong patient acquisition with Isturisa, continue to see double-digit growth of Signifor. And you've seen a pickup in growth on oncology driven by Qarziba, where we are exceeding initial expectations with regards to patient acquisition in Europe and also, obviously, continuing to penetrate further across other geographies and good growth also of Sylvant. As Rob already mentioned, we're also happy to report a number of positive progress in some of our life cycle management programs. We had a positive feedback from the FDA on the data package that we've been working on to support submission for label extension to Cushing's syndrome for Isturisa, although Isturisa start in the U.S. We now plan to submit in Q3 of 2024. We have submitted Signifor LAR in China. And we're still on track to report progress on REC 559 and the dinutuximab beta potential sBLA for the U.S. by the middle of this year.

And with this momentum in Rare Disease, with the progress we're making on life cycle management, really confident around this portfolio being able to sustain double-digit growth for the next years to come. So it's really a strong momentum across both business units. When looking at it geographically on Slide 6. Also, obviously, a very positive picture. U.S. confirms itself by a very small margin, we should say, the #1 market for the group with 16% -- over 16% growth, close to 18% in local currency. And here, really driven by, obviously, the Rare Disease portfolio there. Very positive growth also in Italy, double digit, of course, reflecting also the addition of Avodart and Combodart, but good performance. Again, a strong Q1 2023 of our SPC portfolio and also of Rare Disease.

Spain, clearly, is the biggest market, as we commented in the past, for Avodart and Combodart, which accounts for roughly EUR 15 million of the growth there. A comment on a couple of the -- some of the minuses there. France, minus 6.4%. You may recall, France last year started very strongly with an exceptionally strong cough and cold season. But nice to see Germany stabilizing following the erosion that we saw last year on some tenders.

Our business in Russia continues to grow in local currency, close to 8%, somewhat negative, particularly due to adverse effects on a reported basis. And finally, in Turkey, the 13% growth in euro terms really is volume-driven, with very significant devaluation in the quarter versus last year are being offset by a very, very strong price inflation, which persists in the country. So all in all, both seen on a product lens and geography, a very strong revenue momentum, which translates on Slide 7.

Combined with usual cost discipline and the operating leverage to an EBITDA margin of just over 40%, pretty much aligned to what we saw in Q1 of last year, which was, as you recall, our strongest quarter in terms of revenue. Adjusted gross profit down really due -- when we commented in the past due to the mostly due to the consolidation of Avodart and Combodart, which is dilutive at the level of adjusted gross profit. But being fully synergistic with the rest of the business, really contributes to the operating leverage, which you see, particularly at the level of SG&A, down to 25.7%. R&D expense is growing very slowly. As we said, they would -- most of the growth in Q1 is actually amortization at 11.1% of revenue. We do expect this to step up a bit over the course of the year in line with plan. And obviously, all of this translating into very positive operating results at the level of adjusted net income, which itself is also strong at 27% of revenue, growth of 5.6%, really driven by particularly low financial expenses in Q1 last year. Whilst this year, aside from general impact on increased interest rates, we also did have around EUR 6 million, if you like, of the increase in financing costs is due to unrealized FX losses and slightly higher hyperinflation accounting adjustment in Turkey. We will -- we do expect the rate of financial expenses to come down from these levels in the remainder of the year.

You will find as usual, the reconciliation between reported figures and adjusted ones in the appendix. And once again, and this is really a trademark of Recordati. You will see on Slide 8. The strong EBITDA translates also into very strong free cash flow performance for the quarter, EUR 147.1 million free cash flow, close to EUR 44 million ahead of last year, and really driven by that operating performance and reduced absorption of working capital versus the first quarter of last year.

With these results, and to finish from my side, obviously, closing the quarter, and you'll see it on Slide 9 with that down to roughly EUR 1.4 billion, with reduction basically being equal to the free cash flow, which was generated not much happening in the sort of nonoperating part of the cash flow statement in the quarter with net debt around 1.75 EBITDA on a pro forma basis, obviously, assuming contribution for a full year of the GSK portfolio, which obviously positions us very well for continued growth in the future.

And with that, I will turn it back to Rob for some closing remarks.

[Robert Koremans, executive]

Thanks, Luigi. I think closing on -- with our full year '24 guidance, it's clear that we are off to a very good start. And like Luigi said, yet another really good quarter for Recordati very, very proud to be leading this team that continues to deliver. And based on the quarter 1 results, we're very obviously heading towards the higher end -- towards the higher half of our guidance for all financial metrics and in a very good position to continue to deliver our growth and profit story.

And with that, I'll hand over to you, and we're happy to take any questions.

[Operator]

[Operator Instructions]

The first question is from Martino De Ambroggi of Equita.

[Martino De Ambroggi, analyst]

Can you hear me?

[Robert Koremans, executive]

Yes, we can hear you.

[Martino De Ambroggi, analyst]

Okay. I had a mic problem. So thank you -- the first question is on Isturisa, referring to the jump in first quarter sales. So I was wondering if it's just a matter of new regions or new patients, what else? And if the plus 54%, 55% in Q1 could be considered the floor for the full year considering the ramping up of sales around the world.

The second is a more general question for Rob. Actually, 2 general questions. The first one, referring to a recent interview, in which you, Rob, stated the target is to double sales in 5 years. I clearly understand M&A is essential to achieve it, but could you elaborate on your strategy for this? And the last one, hypothetical. So I don't know if it's true or not, I don't ask you if what we read on newspapers, SPC looking for exit or maybe just refinancing or maybe merger. But your personal view, in case the scenario is the merger with another player what could be the ideal partner for Recordati in your personal view? So without asking you if there is a searching process and other things.

[Robert Koremans, executive]

Thanks, Martino. As you might appreciate, I'm not going to speculate on what SPC might or might not do. We are aware that they are looking at refinancing, and I don't see how this impacts our business, quite frankly. And we're very, very glad with the results we're making, and I see SPC has a happy shareholder and a very committed shareholder to our middle and long-term growth. So other than that, I'm not going to speculate on anything else.

When it comes down to the -- our ambition to double by -- in the next 5 years, this is clearly aspirational, right? It was also very clear into the intent. We have an incredible good growth in our Rare Disease business with thousands of diseases still without a solution. We have stepped up in growth for SPC now consistently for the last 2 years. And with that, we -- and we have confirmed that we are definitely on track to deliver on the EUR 2.4 billion by 2025. And in order to really double, we will have to also continue with our M&A strategy. So there's no change of strategy. We believe they're really well positioned to live up to that aspiration. But let me make it very clear, this is not an official target that we commit to in any way other than just aspiration to grow, and I see us extremely well positioned to capture opportunities with our strong finance background, our current performance track record, the people on board and with our -- and let's also not forget, we're in really good markets. Yes, we're outperforming markets, but we're growing in markets that are growing, where the underlying growth will continue.

So I see a Recordati very well positioned to continue to do very well quarter-after-quarter. And that I would leave it at that in terms of the growth ambition. Isturisa is doing extremely well. You might remember that only last year, we got real full reimbursement in countries like France and Italy, and that helps with the growth. The U.S. is on an extreme good trajectory, and continues to capture new patients and manage the existing patients really well. If -- the positive feedback from the FDA makes us optimistic about the opportunity to expand the label on Isturisa to Cushing's syndrome in the U.S., and that clearly gives us additional potential to promote for, and that will help to further fuel the growth. But the peak sales that we have previously communicated for the moment, I don't want to increase that, but we're very, very happy with the current performance of the teams. I think I covered all your questions. I'll leave at that.

[Martino De Ambroggi, analyst]

Yes, Rob. And if I may, I was not obviously referring to the name of a potential partner, but just the idea if it could be an Asian -- I remember in the past when SPC entered, there were speculations that an Asian without having enough distribution network in Europe could have been the best one. So this was my purpose. So I understand that you don't want to discuss it.

[Robert Koremans, executive]

I don't want to speculate, but our strategy has not changed, and this clearly is not part of our current strategy.

[Operator]

The next question is from Charles Pitman of Barclays.

[Charles Pitman, analyst]

Congrats on the good quarter. Maybe just following up again on Isturisa. I understand like the improved reimbursement and it's going well in the U.S., but I was just wondering if you could talk maybe around what the kind of competitive dynamics are there or what the hurdles are to kind of further growth going forward? And maybe if you could just help to give us some idea around what the real commercial opportunity is for Cushing's, and how we should think about that over the longer term?

And then my second question is just on the REC 0559 trial. I was wondering if you could just give us some kind of benchmarks on what you're hoping to illustrate from the trial. What factors you're considering that will help you decide, what help to progress into later stage of development? And then just finally on Avodart. Obviously, This is going to key contributor for the year-on-year growth. But just trying to compare the 1Q '24 versus GSK reported 1Q '23 sales. It is still kind of down year-on-year. So what are the key drivers behind this decline? When should we expect Recordati's recorded sales to grow to above what GSK was recorded prior to your agreement?

[Luigi Felice Corte, executive]

Charles, I'll start. It's Luigi here. I'll start with the third one, which is on Avodart and Combodart. I mean we're actually very, very happy with the transition and how it's going. We feel it's off to a good start. We said at the start of the year when we set out the guidance that we're expecting to see this year versus 2023, a bit of erosion in Germany because of decisions which have been taken prior to us taking over on tenders, but expect the product to show growth in the key markets, Italy and Spain, and we reiterate that, that there's going to be a little bit of a headwind in a relatively small market, Switzerland, which had some regulatory changes. But honestly, for us so far, we feel we're on track, and it's once again an example of very strong execution of our teams of taking new products on.

[Robert Koremans, executive]

Yes. And to the other 2 questions around REC 559. So the study is really well on track, right, as we have reported the last patients been in, and we're waiting for the results to come midyear. Our hypothesis around 559 has always been that this is a product that is extremely well tolerated and hence, can be really used well for corneal healing. And we will comment on it when we see the results, right? I'm not going to want to now already take a shot at -- we don't know the results yet. So it's very difficult to comment on that.

From everything we know from the molecule, we have a really good chance to deliver on our idea of having a very effective and safe and extremely well tolerated and friendly to use product. On Isturisa, all of the performance is really down to helping more and more diagnosis. I mean it seems like people with all of the more news, if you'd like, around in the entire endocrinology space, where the GLP-1s definitely also play some role in creating some sort of awareness. We see an increased diagnosis of Cushing's across the border. And that is something that is positive. And with Isturisa, which is often recognized as absolutely the best product to treat Cushing's, we capture that opportunity. And I'd like to think that there's also a little bit of our own making with helping doctors and patients to understand this disease and to recognize symptoms and get patients diagnosed. But we see very much an increase in diagnosis and are able to keep patients also a bit longer on our therapy. As doctors get more experienced, they're able to deal with the product a little better. So very positive. And in the U.S., of course, we're not promoting outside of Cushing's disease.

So if -- and when FDA would approve this, I see an opportunity to increase even the growth rate there. And like I said before, super happy. And then lastly, for Isturisa that also would be an interesting opportunity is getting into China. We commented on that before. That process is ongoing, and there is a peak opportunity there of about EUR 50 million. So that's something that we're also working hard to help and achieve. And so everything is going as planned, in fact, a little better, and we're optimistic on Isturis.

[Operator]

The next question is from Isacco Brambilla of Mediobanca.

[Isacco Brambilla, analyst]

Three questions from my side. The first one is on full guidance. Can you help us understand which could be the main risk factors preventing you from achieving the upper end of guidance? Second question is more specific on 3 key products in Specialty & Primary Care: Eligard, Livazo and Seloken reported solid like-for-like growth in the quarter. Is there any nonrecurring element helping this performance? Last question is again on Isturisa, a follow-up. I remember potential enhancement of the patient base in the region of 30% to 40% in case of label extension to Cushing's syndrome. Could you just confirm whether this order of magnitude could be realistic?

[Robert Koremans, executive]

Thanks, Isacco. Let me start with the last one. That's too high for the additional potential for Cushing's syndrome, you're more looking at something of 20% to 25% of additional patients. And it's very difficult for us to know exactly how many patients that currently are being treated, basically, by doctors beyond the Cushing's disease, right? We don't promote that clearly, but you never really know. So -- but I would put it between 20% to 25% in additional potential. Luigi, do you like to comment on the guidance?

[Luigi Felice Corte, executive]

Yes. And maybe just to sort of build just to be absolutely clear, we had already sort of grossly very much expecting positive news on Cushing's syndrome in the U.S. And so if you'll recall, when we last updated and upgraded the guidance on Isturisa, we did say that, that was included within that. So I think what we're commenting on today is the uplift in prevalence rates really that you get access to with the increased -- or expanded label.

In terms of our guidance, look, the momentum is good. And I think Rob has already said that we're to call it now, it's more likely than not that we would be on the upper half of the guidance range. It's relatively still early in the year. So let's say, but we feel really good. And on the -- we don't -- the reality of this business is there aren't big inflection points or risks that could land from 1 day to the next. So we feel really good and very confident about achieving those numbers.

Your question on SPC, the performance, any outliers? No, on Eligard, it's -- the team is doing a fantastic job. It's going well, and we do expect solid growth in 2024. I think for the others, the metoprolol, I think there was good traction in Central Eastern Europe. And some of our mature products, I think we've commented in the past. You just need to be a little bit careful about taking 1 quarter and extrapolating because sales are lumpy. We sell also to international distributors, which buy in bulk. 1 year, they may buy 1 quarter, the other -- so I'd say, look, we've always said we have a number of growth drivers. Even within SPC, those growth drivers are doing great. and we're doing a great job sustaining the mature part of the portfolio, whilst I will remind everyone also having rightsize the business over the last 2 years. So I think a really strong performance there.

[Operator]

The next question is from Naveed Mukhtar of PGIM.

[Naveed Mukhtar, analyst]

Two questions from me. Firstly, in terms of your core divisions, core markets in Europe. Can you maybe just give us an idea of how the underlying markets have performed versus your underlying performance as I'm trying to understand what kind of market share you're gaining or whether you're growing in line with the market? And second question I had was on France. When I look at the split of geographic revenues in the third quarter. I see most of the divisions are up except for France. So maybe you can just comment a bit about what's happening in the underlying market in France?

[Robert Koremans, executive]

Yes. On the -- like I commented for the -- for Europe, the -- and that's true for all of our markets. We're a bit fortunate in the selection and the focus of our markets in that sense, geography, but also the markets we're operating in with a strong focus on urology, cardiovascular and gastroenterology, which represents for SPC, the majority of our business. The markets are growing at 5% to 6% or so where we are operating, but we do 4% better, right? So we're outperforming the markets.

And I -- then this is consistently -- has been consistently the case in the last 2 years. What makes me optimistic about the future is the fact that underlying there is population growth, I mean, aging population. So an increase in prevalence and incidence of the diseases that we have solutions for which is very good, and we're able to really bring our products to the attention of prescribers and pharmacies in the right way. So we have a very strong basis there. Also, if I look at Rare Disease in Europe, this has been growing basically above expectations. The first quarter has been very good for Europe. And where in the past, we've seen mid-single-digit growth for Europe. We've now seen double-digit growth in Europe, and that is really extremely good. But that's also on the back of us having recently obtained reimbursement for products like Isturisa in countries like France and Italy, which are major markets and help us to really focus on that. So we see really good traction for also our Rare Disease products in Europe. And Europe is a good and important base, but that's clearly -- the Rare Disease opportunities for the future are global and with a specific focus also on the U.S., we're doing so well. Luigi, do you want to answer the second question?

[Luigi Felice Corte, executive]

Yes. On France, very simply, I think I mentioned in my opening remarks. France, we have a strong cough and cold portfolio. That portfolio had an exceptionally strong Q1 of 2023. Also on the back, I think the season last year was so strong in France that a number of companies struggled with supply. We were there and able to gain share. And it has, obviously, therefore, compared to a very strong Q1 of 2023. France also happens to be one of the markets where we saw a little bit of erosion on Carbaglu in Europe. But again, I would always obviously not make that much of a single quarter. The portfolio is strong and is strong across our geographies from our perspective.

[Naveed Mukhtar, analyst]

Okay. And just to confirm that in France, there was no impact on the reimbursement or price cuts for you guys?

[Luigi Felice Corte, executive]

We're not as exposed as some other companies. We've had a little bit of impact there, but we're talking a few million, not significant numbers.

[Operator]

[Operator Instructions]

The next question is from Bruno Permutti of Intesa Sanpaolo.

[Bruno Permutti, analyst]

I have some questions related to M&A. So if you see some room in -- for M&A in the next few months. And in case, looking at the market around you, where you see the more interesting opportunities interest -- which market segment are you considering more interest in this -- in the current market environment? And then just a question related to the amount of the noncash charges from PPA. Only to have a confirmation that around EUR 35 million, it is a correct assumption for the 2024? Okay. That's it.

[Robert Koremans, executive]

Thanks, Bruno. On M&A, let's -- M&A continues to be an extremely important part of our strategy, like I stressed before, has always been and continues to be. We see really good opportunities. I'm not going to disclose what we're working on, but there are definitely a couple of projects that we are working on. And we always said, for us, both businesses are equally important to maintain. The most recent deal was with the partnership with Glaxo around Avodart and Combodart. I would be very happy if the next one could be in Rare Disease, but it's always extremely difficult to predict what lands where first. And we're looking at opportunities for both of our businesses. And I think we're extremely well positioned. I don't see that the current market conditions are so different from a year ago, quite frankly. There have always been good assets. We're always competitive, and we managed to secure them as needed. And I'm very confident in our team's ability to continue to do that. And we definitely have the commitment and the means to be able to complete. So optimistic about that.

[Luigi Felice Corte, executive]

Yes. And on your question around the noncash charges, which arise from acquired inventory [indiscernible] that's broadly -- I mean it will depend ultimately by the volume of sales on Qarziba, but we're pretty close to finishing the inventory. There may be a small long tail, and that's simply because some of it was also sort of ingredients and things like that. It may take a little bit of time. But yes, your estimate is broadly right. And it's pretty much effectively what is left over, which I would expect us to complete in '24, then maybe a small tail still in '25.

[Bruno Permutti, analyst]

Okay. And if I may, just on a possible milestone payments that related advanced submission you are planning to do. Is there something that we should consider in 2024?

[Luigi Felice Corte, executive]

I'm sorry, I'm not sure I understood the -- your question on milestones or I wasn't...

[Bruno Permutti, analyst]

Yes, in relation to the possible submissions in the -- during -- in the next quarters, there is -- if we should consider some milestone payments to be made in 2024 or -- so this is -- so nothing in the pipeline.

[Luigi Felice Corte, executive]

Sorry. Nothing material. There are small milestones which are attached at different sort of regulatory stages of REC 559, but they are sort of later on in the sort of life time of that study. So I wouldn't expect it to be in 2024. And if you like, the only one that we have a material, which is attached to, but we're talking EUR 20 million, EUR 25 million which is attached to our portfolio is on the potential approval of Qarziba in the U.S. So we'd not expect it in '24.

[Robert Koremans, executive]

Which we'd be very happy to pay.

[Luigi Felice Corte, executive]

Yes, we'd be very happy to pay it. But I think this year is not a risky scenario, I would have thought.

[Operator]

The next question is from Giorgio Tavolini of Intermonte.

[Giorgio Tavolini, analyst]

I was wondering on the R&D cost. You now expect a slightly increase in Q2, Q4 compared to Q1 to support the key programs. You had 11% growth in R&D costs in Q1. So I was wondering what is a slight increase for you? I mean -- and how much -- to which extent, I guess, the label extension of Isturisa to the ’ Cushing's syndrome and the potential approval of Qarziba U.S. could affect this increase in the R&D expenses?

[Luigi Felice Corte, executive]

Thanks for your question. So I'd just point back to what we said early '23, where we said we were expecting R&D cost to go up versus, if you like, the '22 base by roughly 1 percentage point of revenue. You will sort of excluding amortization. I think if you run the numbers, you say we're probably halfway there. So I think that's the order of magnitude that we're talking here. It's not significant. Milan is doing a great job. We're seeing progress, and we're keeping it the spend under control. So I'm sure he'll want to continue doing that.

[Giorgio Tavolini, analyst]

Just a follow-up. Are you going to make a further rightsizing on the SPC business or you completed the program?

[Luigi Felice Corte, executive]

I mean that's something that -- I mean in terms of the things that we sort of planned and announced, that's done, you've seen there's very little cost coming through in terms of nonrecurring, the little that there was some very residual sort of costs attached to the Wise integration. It's the kind of thing that we always review, right, depending on how the business evolves, the portfolio evolves. But in terms of what we set out to do that's been done, but it is something that we continuously review.

[Operator]

Mr. Koremans, this was the last question. Back to you for any closing remarks.

[Robert Koremans, executive]

Thank you, and thank you all for having joined us today in what was, again, a very strong quarter for Recordati delivered by our teams, and I feel we're in a very strong position to continue to do so and look forward to reporting on that in the near future with you. Thank you all, and have a wonderful day.

[Operator]

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