First of all, a big welcome to our presentation of the full- year results 2022. I think many of you have attended sessions with us previously. The suggestion is if you've got questions, more than happy to answer them. If you want to pop your hand up, and then we will come to you in turn, and between us, unmute you somehow so that we can hear you. Hopefully, as there aren't huge numbers of people on the call, it should be relatively straightforward to do. I'm joined, actually, Chris and I are in the same room. We just have very different backgrounds. We're both in the room. Helen is also helping us, and Neil is online. And Neil has helped us to get to this point, so Neil is part of our annual curtain.
Helen's already got her hand up. That's quite impressive.
Somebody has raised their hand. Mike mentioned.
Mike, you've got a hand up already. Does that mean we need to hear from you?
No.
No. Disappeared. All right. Well, we'll push on, and then hopefully, if we take questions at the end, unless there's anything absolutely desperate halfway through, we'll be keeping an eye open. I'm going to kick off, hand over to Chris to talk some specifics about the financials and obviously answer all the tricky financial questions. We will do that. By way of introduction, these are the five pillars that we've been talking about since 2019. I think what my summary of where we got to in 2022 is we're making really good progress improving the quality and sustainability of our business. Unfortunately, underneath in our existing portfolio, we have experienced two main events that created that decline in revenue. One of which was the loss of a distribution contract, which I think we've talked to people before.
We were conscious of the risk involved in having distribution products, clearly one of those risks came through. The second one was that we saw a decline in the antibiotics for production animals in Spain, and that had been quite a significant part of our portfolio. If you look overall, the new products launched in the last three years were driving about GBP 5 million of sales, and we lost about GBP 4.5 million through those two things that we talked about. We managed to compensate overall for about half of the loss. It was a bit frustrating; I think I'll use that word. Other than that, we see really good progress in where we're trying to get to with our strategy.
Just using these five pillars, we'll talk about them in more detail. Business development in 2022, we did the Orthros partnership. We're going to talk a bit more about that because it's really starting to be quite exciting and that gives us a pipeline and a product for the future. Identicare, you will have seen that we repositioned this. We provided specialist leadership. We operate that as a very specific unit. We're going to talk a bit more about Identicare because again, I think this is a great platform for the future. Early days, small, but, you know, we're going to start talking about that a little bit more now we're confident in the direction of travel. We continue to have a great platform for M&A and licensing.
Recognizing that we'd hoped beyond the Orthros deal that we'd be talking about a new business development M&A. We are going to talk a little bit more about what we're trying to do there. We're still very active. There's been a bit of market turmoil, we're still really focused on M&A. Pipeline, Orthros, we talked about Stem. We launched the first of the Stem products, the Plaqtiv+ range. Really great feedback so far, we're quite excited by that. We've also invested a little bit in our pipeline products, both from a Daxocox and Plaqtiv+ lifecycle management, also a couple of OTC products that will come through in 2023. The organization, we've really focused the organization on growth. The biggest part of our organization is our sales force and our sales and marketing organization focused on talking to vets.
We recognize that sales force productivity for us, because we're relatively small and competing with some of the big guys, needs to be absolutely spot on, and we've invested in making sure we have the right sales people talking to the right people about the right things. Still relatively small. It's a real focus for us. Recognizing the inflationary pressures on individuals around our business, we've got different inflationary pressures in different countries. We've made sure that we're focused on the people we really want to retain and making sure that those people feel that they're being actively developed, doing things outside of salary increases. That's been a big focus for us. We've got our new board members. We've got Doug and Sylvia, and they are very active and very supportive.
Doug, from a pipeline and BD perspective, knows everybody in the industry, knows everything about the products. We talk to Doug a lot about making sure that our future growth is coming from products that are valuable, creating additional value for the overall organization. Sylvia heads up the audit risk and has been an absolute brilliant addition to our organization, so we're very excited by that. Chris is going to talk much more about finances. You know, you can see where we were with the revenue margin improvement, which we're really pleased because that's part of this drive towards sustainability and quality in the business. We've still got that good financial platform that really is we're looking at to fund BD. Okay.
I think in 2022, we've seen lots of news flow about the animal health market, and we're absolutely certain this is still an attractive market. I think what we've seen in 2022 is quite a lot of dynamism and quite a lot of movement around the around the market. The way that we see it is it splits into two separate pieces. Overall, the demand from an overall animal health perspective it continues to be resilient. We still see high levels of pet ownership. We see pets growing older, and with that comes more chronic illness and more demand from the pet owners about the expectations for the health for their pet. We've also seen some more self-service.
I think this was particularly driven in 2020 with COVID, where owners started to bypass vets because it was quite difficult to get to see them. We've seen a bit of shortage of vets, people can't get a quick appointment with their vet, they go to a store or online and buy all sorts of things, mostly in the non-prescription business. We're seeing some OTC growth. The animal health market has had some churn, overall is, we see as a really, really healthy market. If we look on the right-hand side, which is a bit more about the segment of that market that we operate in within the pharmaceuticals business, about 80% of our business continues to be prescription medicines. We're seeing that there's a real premium for innovation.
When you look in most countries at the, at the growth rates, you see a different growth rate for the older, more established products, generic-type products. You see some volume growth there, we see that ourselves. We see value growth really being driven by innovative and novel medicines with greater effectiveness. For us, things like Daxocox and Plaqtiv+, we're seeing that growth come through. There's a difference between the two different segments of the market. In terms of assessing exactly what we think the market growth will be, we're predominantly Europe, so Europe always seems to be a bit lower growth than the U.S. Difficult to predict, but we assume that that market will be growing at somewhere around the low single- digit, 3%-5%.
Depends a bit on, you know, who you talk to and what you look at, but around that low single- digit. We still see that growth, but it is this mixture of volume growth with generics and value growth driven by innovation, novel medicines and products that are more sustainable and high quality, which exactly is where our strategy fits. When we look at the customer landscape, we're seeing a sort of change in customer dynamics. Here, for us, our customers are the vet, and to get to the vet, there's the distributor in that supply chain. What we are seeing is growing influence of corporates. We talk about the corporates as though they're all the same, but they're not. We see quite a lot of difference between the different corporate customers, whether they're private equity-owned, they're listed.
We're still, we're managing to work with the all those different styles of and those different strategies. We are working closely with those organizations, looking for opportunities where we can drive our business more rapidly and recognizing where really the corporates are trying to grow in Europe. We're keeping an eye on that, et cetera. We've got structures in place to manage the corporates, but the really interesting thing is they're all doing something slightly different, and they all have a demand for slightly different strategies from us. We're also seeing evolving distributor networks.
This particularly is true in Spain, where historically we were dealing with sort of 400+ distributors, and over the last probably three years, that's declined rapidly, and so that you're starting to get a more normalized to the rest of Europe position with distributors. This is sort of the wholesale network as well as individual distributors. But for us, they are part of our delivery mechanism to the vet market, and so we see quite a bit of disruption there as the distributors and wholesalers work out where their position is in the overall market. Historically, it's always been a margin business. Now that's changing. That's getting squeezed. We work closely with our wholesale partners to do that. We're seeing some changes in prescribing.
I think we've seen some reports and experienced a little bit where, historically the vet was prescribing a product to a pet owner regardless of their social status or affordability. We're now starting to see the question of affordability at pet level coming in, and as I mentioned before, we're still seeing some vet shortages. We see these two bits of the market, both of which we see as really attractive. We're continuing to work closely with the stakeholders. What we saw in 2022 was this sort of moderation in demand from what we saw in 2021, which was this sort of post-COVID bump and excitement. I think all of you will have seen that from a lot of our peer companies. I'm going to hand over to Chris at that point to talk about the financials.
You'll have seen the RNS today.
Thank you. Firstly, good morning, everyone. Hope you're all keeping well. I'm gonna work on the assumption that you've all read the announcement front to back. We've just got two slides to summarize the financials. We'll cover the main financials on here, then we just give a bit more
Color on revenue on the next slide, but it's a very summarized number. I think to set the scene and to kind of echo what Jenny said, I think, you know, we actually are really pleased with the, from a financial perspective, the overall performance in the light of that moderating revenue line. Again, you know, from the point of view Jenny talked about is progression in the business. If we look at the revenue line, which is down around 3%, you know, we've talked about it, we'll come onto more, but really we're summarizing that from the perspective of two things really. It's the moderating market, but we've talked about what we call more specific factors.
The two specific things we will cover are in companion animals, the impact of cessation of distribution agreements, which is offset, as Jenny said, the positive progress on the sales growth of new products. In production animals, it's really the impact of the AMR legislation that was in Spain. We'll come on to more of that. That's really a kind of, you know, summary of the, of the revenue line. If we look at underlying EBITDA and EBITDA margin. EBITDA was down 2% to GBP 13.1. The EBITDA margin pleasingly was just a notch above prior year levels, which really is, we talked about kind of disciplined kind of cost management towards the end of the year. That's at a time still where we're continuing to invest in the business.
It's really pleasing that, you know, we've maintained that EBITDA margin at a time of the moderating revenues. A real factor of that is the gross margin improvement. You're seeing about 3.5% increase there, mainly driven by sales mix towards the higher margin brands. We'll see that in the Top 40 that we'll come onto later. A little bit on pricing, where we sought to mitigate, as we're all aware of the rising inflation. As we'll talk about more later on, the repositioning and growth of the Identicare business, 'cause that's a part of that business, which is subscription is very high gross margin. We'll come onto that.
From the point of view of SG&A costs, we've had this team for a number of years where we continue to invest in optimizing and scaling the platform. That's really kind of having that platform ready for business development M&A. The majority of the GBP 1.5 million increase in SG&A costs, it is people costs. They are pegged with broadly in line with last year. Some of that's inflation, but mostly it's continuing to invest in areas which are driving growth of sales team, et cetera. Another driver of the increased spend in the year, which will become an increasing factor into next year, was Orthros. Kind of conscious, if you look at our P&L, the research line looks about the same as last year, but the research costs get.
There's lots of other things in there apart from pure research. To give you just some direction, the Orthros costs, which were obviously zero last year, are about GBP 300,000-GBP 400,000. That's the increase in cost of the research in 2022 versus 2021. Directionally for FY 2023, and actually we've kind of revised this estimate following the trading update, because actually based on some really encouraging early data, we're going to accelerate some studies this year. We think that number, GBP 300,000-GBP 400,000 We spent this year, will probably be around GBP 1 million. That will become a, you know, a factor. We'll see that as we go through the year from a research perspective. Just finishing off on the P&L. At the bottom there, underlying EPS is up 5%.
We can see that so lower pre-tax profits with the ETRs come down. That's really driven by a combination of items, principally profit mix. There's some recognition of tax losses in there. Obviously last year took a one-off charge for the U.K. increase in the tax rate. I suppose direction that that is low as a tax rate, so we'll be normalizing about 22%-23% this year. Just to kind of flag that, you know, the taxes are, I suppose, an exceptional item a little bit in terms of that rate. Cash conversion. You can see from the figure from 2021, and if you look back, you know, we had cash conversion in excess of 100% in the three years up to the start of this financial year.
You know, which is exceptional. We guided to lower cash conversion in 2022. At the interims, we gave a target of 70%, and we've come out with just over 78%. Really pleased with that. That's what was. You know, that's a good result. If we look at the underpin of that, what you'll see is the working capital movement is you can see is a combination of higher trade receivables. That's really around phasing of sales in December. You can see our images have increased by about, I think it was GBP 2 million. Recognizing that we said it, we entered 2022 with stock that was around GBP 1.5 million lower than we expected because of some phasing of deliveries.
The increase in 2022 has been bigger because we started lower, but we are expecting to kind of manage down the working capital as we go through the year. This year we are expecting to increase cash conversion. I think cash taxes are becoming a bigger part of our cash. We're guiding somewhere between 80%-90% this year. An improvement on 2022. On net debt, really you can see that's not moved. We generated about GBP 2 million of net cash, effectively that's gone. That's gonna be offset by a combination of adverse FX movements, 'cause our debt's all in euros. What you're seeing is the lease liabilities have gone up principally in relation to the Spain and Spanish offices.
Essentially, you've got GBP 2 million of cash offset by non-cash items. Leverage is still at 0.4, as we've talked about. We'll come onto this later on. Really important that, you know, we've got that really strong leverage, because we want to use that leverage capacity to execute BD and M&A. It's not we've kind of taken out the capital allocation side, but just as a reminder, you know, we still remain, given that everything that Jenny was talking about, that we see in the market and the resilience of the market, we are saying that, you know, we will go to 2 times, tending a little bit more, for the right deal, that will be earnings enhancing and cash enhancing during the year. Next slide. Sorry. Just pressing down.
It's all good.
What we've done here, I think the geographic performance of our operations is kind of less important really because what we've talked before is production animals is largely in South. Companion animals is spread across the business in equine. What we've really focused on here is the product categories, and I'll just touch on there. Companion animals, it's about 70% of our sales, so it's always a key driver of the revenue performance, whether that's growing or declining. You see that was about 2% down.
As I said, while we're disappointed with, you know, the overall decline, particularly in that area of the business because that's where we've seen the growth, we are really pleased with the progress made with new products and focused brands, so that's Oxyglobin, for example. They contributed about GBP 2.1 million of sales in the period. What Jenny talked about earlier is that we're unfortunately impacted by the cessation of a distribution agreement. Well, it was a couple of it, but one distribution being particular, which impacted the companion animals business and effectively the new products growth was offset by that cessation of the distribution there. As we've talked about, on the whole, we've seen some moderation. If you look at our markets, most areas have moderated a little bit in terms of geographies.
As Jenny's guided to, you know, we're seeing it's still in growth, but growth probably around down to the low single -digit rather than in single -digit. On production animals, this is really around AMR. The numbers hide some really positive progress with key products such as Denogen, which grew really strongly. That's a really important part of our international partners business. Whereas the Spanish operation, which is our biggest operation, as everyone knows, was impacted by the AMR legislation. That's really centered around the use of premixes in feed. Essentially that market in Spain has gone to zero. That took about GBP 1.5 million out of our revenue there.
Production animals, say, things that we've got going into this year, growing really well, but you know, one-off impact of the AMR. Equine, you can see it's flat. But underneath that is a really important, I suppose transition for our organization. Up until the middle of 2022, our U.K. sales were actually handled by a partner. It was in international partners. We've now bought Danilon back in-house. This is one of our Top 5, Top 10 brands, so really important for us. What that means is that we now, you know, rather than a partner managing, you know, the direct customer conversations, et cetera, we've brought all that in-house, so it comes back into our commercial operations.
Obviously the, the beauty of that, bringing it in-house is that the margins, et cetera, that the distributor was making are now into our business. You've got higher revenues and higher margins. You know, that is going to be a factor in terms of moving forward into this year. I'd expect to see some strong growth in equine in 2023. As I said at the start, that's my summary actually. Hopefully that's given people a, you know, a flavor of, kind of 2022. Obviously, we'll take questions at the end, but I'll hand back to Jenny now.
I'll just build a little bit on some of the comments that Chris made. On the established brands, we always struggle with what to call these, but they're the kind of brands that we've had for a long period of time, et cetera. I think one of the really important things that we are focused on is that some of those brands are really strong, and we can have conversations about the impact of generics, et cetera, et cetera. Some of these brands, when you talk to customers, they know exactly what you're talking about, and Danilon is one of those. Chris talked about this is the equine product. I just pulled out some of the products that were growing at greater than 10%. Some of these products are growing at up to 20%.
there's some really healthy growth in some established brands that we are driving and continuing to drive. These guys are, you know, that's not an expensive investment to keep them moving. They're really important, and they're good margin. You know, Danilon, the equine product, really excited about what the U.K. can do with that in the future. Denogen, which is a non-steroidal for production animals, is depending on exactly which month you look at, it's usually in our top two brands. Maxivax, which is in production animals and Soliphen and Prophivet. The point here is really that in that established brand portfolio of the older brands, we've still got some really strong brands that we expect to continue to grow, drive cash, et cetera, et cetera. There's a whole range of products below that greater than 10%.
Didn't want to go through every single one, but just reinforcing that we've got some, we've got some really positive growth. Clearly this year we had some offsets, but the fundamentals of that portfolio are really positive. The piece that we have put in place for that sustainable future quality, we're really pleased with how Daxocox is going. It's a tough sell, it's very competitive market, but for us, it's a top 10 product. It's growing at significantly greater than 50%. You know, we expect that growth to continue. It's got a foothold now. People are repeat ordering, repeat using. It's starting to get that really good vibe around it. The fact that this is a once weekly product is starting to kinda go, "Aha, we've got it." I think that, I think it's a good success.
Spain and Germany in particular are having some great success. That will continue to grow and be a very important part of our future portfolio. We've said so many times, this is a great margin for us, and it's our product, we own it, nobody can take it away, et cetera. Similar thing with Plaqtiv+. We launched Plaqtiv+ in 2022. I think for our sales teams, this was probably an easier and quicker uptake. It was more familiar. Daxocox needs some technical kind of sell. Plaqtiv+, almost immediately, we had great response from customers. Revenue is progressing well, we're excited about the Plaqtiv+ range, and we'll continue to extend that portfolio. Just as a reminder, this is the product and the product range that we access through Stem Animal Health, which is our joint venture.
We own roughly a third of Stem Animal Health, sorry, and Kane Biotech own the other part. This is for us, a really important move, and it gives us access to some real, really good opportunities for growth. The other thing that we don't very often talk about, and Chris often references, since 2018, 2019, so in the last three years, we've managed to launch a range of new products. These aren't major products like Daxocox and Plaqtiv+, but they're really important, and they're our products. They drive margin.
Over the last since 2020, if you look at the products we've launched in the last three years, in addition to Daxocox and Plaqtiv+, they've contributed over GBP 5 million to our sales, and the growth rate is more than 20%. It's not just Daxocox and Plaqtiv+ that we have that are driving that quality and sustainability for the future. We've also got these slightly smaller products that we own that have good margin, that will continue to help to drive that transition. Okay. One of the things that we haven't really talked about very much, you'll have seen it in the RNS, and we will be talking about it a bit more in the future is Identicare. I think we've been relatively quiet about this.
I think most of you will have seen in 2021, we set Identicare up as a sort of, not quite a standalone, but under the umbrella of Animalcare. We established the Identicare business. Historically, this was a microchipping business, and we ran it as a microchipping business. In 21 and during 22, we've really completed the repositioning of Identicare. Identicare reflects both the chipping business and the database business. Chipping is really a commodity, and we're seeing, you know, lots of churn in the actual chip business. The data that we have, and from the pet owners registering is a really important part for us. I'd summarize Identicare today as a small but increasingly valuable part of our business. We do run it as a slightly separate piece.
It is the U.K. at the moment. In the short term, we don't have plans to take over Europe, you know, we'll have a look at that. We want to get it right in the U.K. What is Identicare? It's actually the U.K.'s leading pet protection network. On the left-hand side, you've got a horse in the box. Actually, most of the microchips go into dogs, but we do also have a lot of racehorses running around with our microchips in, and they're on our database, and normal horses as well. I keep saying my dog's registered as a horse for some reason, which always causes great hilarity. The chip's implanted, the pet owner then registers that chip on a database.
If it's our chip, it's almost always our database, but also other people register their chips on our database. You become a sort of customer really for us, and we then manage your data. There are offers, there are opportunities, but our main focus is pet protection. We have, we sell insurance through that, et cetera. The pet owner can choose their level of pet protection, and that generates a subscription-based business. That's really what we've spent the end of 2021 and the start of 2022 building up. That's really how this business works. If you look at the right-hand side, why do people choose us? Firstly, quite often, if they have one of our chips, they choose us because it's easiest.
That's the information they get, and you register your dog or cat, or horse on Identibase. We've got more than 4 million pets registered, you know, there's a mix. Some of those have subscribed for our pet protection offer. We're pretty long-established, you know, in the marketplace, if you're a pet owner and you see Identicare as one of the main databases. There're experience and longevity. Bottom left, Trustpilot score of 4.7, which is pretty cool and, you know, we keep an eye on that. It's usually the best or equal best of the databases. Because we're a big database, there's actually quite a lot of really positive reviews. We have a call center set up.
It's up at the office in York. Those guys are talking to pet owners all the time, which is a great opportunity for selling, as well as the main focus, making sure their pet is safe. There's 25 of those people who are absolutely focused on talking to pet owners and we're starting to digitize all of that information and starting to be setting this up as a really interesting and future value-generating. It's a really valuable asset for us, and we're really excited about what it might look like in the future. The reason why we're talking about it now is because it is set up.
We established it actually under a specialist digital leadership because whilst Chris and I would like to think ourselves as experts in many things, we recognize that we weren't expert in digital leadership or anything. Yeah. We've brought in somebody who absolutely understands this sort of business model, and we're really excited about it. We will continue to keep people updated. At the moment, you know, we're in double-digit revenue growth. It's a profitable business because, you know, whilst the actual chip itself is a bit of a commodity, the actual data is almost entirely profit. It's a nice business and small but perfectly formed.
I think many, many people will have seen, particularly if they're cat people, that compulsory microchipping for cats comes in at 2024, but you'll start to see a little bit in 2023. Our initial research and understanding, I think cat owners are a bit different to dog owners. I'm a bit biased as a dog owner and a horse owner, not a cat owner, but we think that that will give us a bit of a tailwind as the compulsory chipping of cats comes to the fore. You know, look, this is a really exciting small business, but growing and will form a valuable asset for us as we move into the future. Exciting stuff. In addition to that, I wanted to share a little bit more about how we see that pipeline delivering and developing.
We just did a bit of a historical charge through from 2018. You know, during that period of time, people who've been with us for a long time know that we were predominantly generics. In 2019, we accelerated the development of Daxocox, and we looked at that generic pipeline, and you saw the impact of us taking some things out of that that either weren't going to be competitive from a commercial perspective or technically they were really tricky. We rationalized that portfolio. From 2020, we've been really clear. No new generic. We have anything that we can find that we can reformulate, add something to, we're continuing to do, and there's a couple of products that will come out this year, but we're not focused on trying to create more and more generics.
I think that business is probably best left to the big guys with manufacturing. We got Daxocox to regulatory. We did the Stem deal in September, so we started to access that biofilm technology. In 2021, we were getting Stem ready for launch. Daxocox, we started lifecycle management. We're looking at different indications, different species, and those studies were initiated in 2021. We launched Daxocox, obviously. Where are we in 2022? We've got two new products developed for launch in 2023. These are OTC products, but they're sold through the vet, and they enhance our portfolio, so they're fairly simple products. You might have heard me talk about them. They're for those delightful areas of diarrhea and blocked anal glands. We're launching those this year. Apparently, there's a big market for them. For dogs, by the way.
Orthros, I'm going to talk a bit more about because we're just getting to quite an exciting time with that. Chris has talked about the impact that has on our finances. Stem, we started the lifecycle management. For those of you who were around when we did the Stem deal, that gives us access to two biofilm technologies, one of which is Dispersin B. The coactiv+ is the product in Plaqtiv+. The Dispersin B, we're just working through. We had a bit of a delay because it cost a bit of time. The technical team have been solving that sort of manufacturing technical perspective, I think we're pretty close to a solution there. We will start to see some specific products coming out of the Dispersin B technology. We launched Plaqtiv+.
I've already mentioned that, and lifecycle management is ongoing. 2023, whilst we're continuing to do the lifecycle management, continuing to do the Stem lifecycle management. Those are focused for us in 2023. The big piece of excitement for us is around the Orthros collaboration. I'm going to come on to Orthros specifically. We are continuing to look for pipeline opportunities. Clearly, we'd love a product that was launching this year that had, you know, GBP 100 million + peak year sales. Strangely, everybody's looking for those, so it's quite a competitive market. We're continuing to pursue a couple of opportunities through partnerships. We're launching a distribution product with Orion later this year. We are continuing to build that pipeline. As I say, Orthros is really a very interesting product for us there.
Predominantly companion animals we want to look at. We will look at production animal, but they need to be sort of real no-brainers for us. Targeting our spend at 5%-10% of annual revenues from 2024 onwards. This is what it looks like. STEM, Daxocox, Orthros today are really driving that development balance pipeline. Okay. Just to remind you on Orthros, those of you who are LinkedIn, people will have seen that yesterday we announced that we have, together with Orthros, been granted a Eurostars. I forgot the word.
Grant.
Grant. I said account. A grant for our collaboration with Orthros. That's really exciting because that is recognition that we have in this technology, something that is commercially viable and will get, you know, can move towards a commercial opportunity. I would encourage you to have a look at that LinkedIn. It's on the Animalcare page. It's on the Orthros page. That for us is another endorsement about this partnership. Just to talk about why we're excited about this is two different parts of collaboration. The research collaboration gives us access to candidates in a broad range of indications and species for commercialization.
Rather than this being a license agreement for one product or one opportunity, what this research collaboration has given us is an opportunity to look at the use of these antibodies in a range of different conditions. Actually, at the moment, we have a number of potential candidates, and these candidates are in all sorts of different potential indications because that's the beauty of these antibodies, is their flexibility to have an impact in many different places. The science and all of that is done by Orthros with a postdoc employed by us within there. The research collaboration is that we have access to any of the animal health indications that come out, and we also are involved early in the program.
We're looking at all sorts of things at the moment and having a look at whether we want to develop indication A, B, C, or D. In fact, we've just started a numerical system because we're starting to get so many opportunities, and what we do with these is have a look at commercial, competitive, you know, and really trying to prioritize candidates coming out of this. It's a bit why on that pipeline slide we've put so much emphasis on this because we do believe that there's a lot of different opportunities that will come out of this research collaboration, and it's partly why, you know, Chris talked about accelerating this. What we recognize is that the things coming out of Orthros today are early, but once we can get them into clinical development, then they start to have a value all on their own.
We recognize it's a bit like with the Identicare piece, so it's a small but valuable asset. These will become small but valuable assets as we move them through that development program. We're really excited about that research collaboration, and it's going very well. We work very closely with them. We've got a mix of the science and technology, so it seems to be synergistic. The license agreement is quite specific. That license agreement is on candidates that have already been identified, so we know that they work. The license agreement is very specifically on those. We've done most of the preclinical studies, and we're looking at how we can accelerate that because I think Chris used the words encouraging.
They're really encouraging, the early data. If we can accelerate these to market, I think when we talked at the time of the deal, we said, you know, they're probably gonna be launch 2027. We'll look, you know, if we can by investing a little bit more now, speeding that up, accelerating the development, if we can launch earlier, that would be really exciting. We're very positive about that, the output from that license agreement. If anybody would like the description on the right-hand side, we'll get back to you 'cause I've gone through it many times, but it's still slightly baffling. Anyway, we have the right people and that's working really well. Okay. Just moving on to business development.
You know, a bit frustrating because we had anticipated that we would be announcing something actually last September, October time. We haven't yet. We're really conscious that this is something that we need to move quickly. We need to make sure we've got the right resources. The one thing that is really clear is we are very active. We are out there talking to people. We recognize that in a listed environment, we're seeing valuations come down aligned with the market changes. We're not yet seeing that so much in private business, because I think in many of these businesses that we're talking to and we're interested in, you have private founders who have seen previous valuations and read and so on, 17 times multiple, and yet we know that actually the value is reduced.
We're just working through some of those examples. We've done detailed assessment. When we talk about detailed assessment, you know, is it commercially viable, is it technically viable? You know, what are the people like? How would we integrate, et cetera? I roughly, I don't know, way more than 20, but we've done at least 20. Over the last 12 months we've taken four through due diligence. One has been completed. We've still got a couple in due diligence now. We are highly ambitious. I want to reassure everybody that we are absolutely clear that this is what we need to be doing. We're also very disciplined, recognizing that, you know, to use all our debt capacity to raise equity, to do anything like that has to be right because of where we've come from, and we're relatively small.
We need to make sure that what we do is right. We have described that as being highly disciplined, which we see as a good thing. We also are very active. Just a reminder, you know, we have done the Orthros Medical deal, we've done the Stem deal, both of which we are absolutely delighted by, and they really give us some future opportunities. Optimizing geographic footprint, France, also generating scale in places like Germany and Italy, which we're still looking at, still trying to do. Making sure that the portfolio is sustainable, bringing in, you know, valuable products in the short term.
Also understanding, particularly where we have OTC products, and particularly in the Stem partnership, looking at additional retail sales channels, making sure that we're operating in the places that our customers are going to buy non-prescription medicines. Okay. Just as a reassurance here, supply chain, continued improvement and robustness of supply, people and culture, Salesforce capabilities, leadership development, new board, the things I mentioned in the summary. ESG, absolutely we are, we have our task force. It's operating. We're looking at material importance to stakeholders and group, recognize the importance of making sure that we're doing the right things in our ESG strategy. From a technology perspective, Veeva, the Salesforce customer relationship management tool is complete, and this year we put in SAP MRP for our supply chain team. Okay.
Just moving on to summary and outlook, then we can come to questions. Animal Health, still attractive. Some market moderation versus last year, you know, that I think is understandable. We're seeing it across our peer group. We know we need to make sure that we're agile and able to benefit. We see that the prescription medicines are source of high future value. Daxocox, Plaqtiv+, Identicare, notable drivers of that growth. Orthros, good progress. We've got that strong financial platform, when we find the right thing, we've got the platform ready to move. We're really confident in that the business is resilient. I think it's a much better-looking business, if we're allowed to describe it as better looking.
The wider animal healthcare market is continuing to grow and therefore, you know, we're confident in that return to growth for the full year. That's our sort of summary and outlook, and at that point, open for questions. I'm gonna look at Helen and see whether we've got.
Yeah. We've got two people. Max Herrmann first and then Mike Lynch.
Okay, Max, do you want to go first?
Great. Can you hear me?
Yeah.
Yes. Hi, Max.
Hi. Hi there guys. Just a number of questions, actually. Maybe first on Daxocox, given obviously one of your key drivers and now one of your top ten products. Can you give us a little bit more color on the performance? Obviously, you said it's greater than 50% growth, last year you only had it in the market for, you know, a bit over 6 months. You'd have expected good growth here. I wonder how much you now believe was stocking in 2021, and what underlying pull-through is. Just get a bit more color on which I think you said Spain and Germany is doing well, but just get a bit more color on Daxocox.
Yeah.
That's my first question.
Okay. In answer to your question about stocking, yes, there was stocking in 21. I think it's fair to say that we had, in a couple of markets, particularly the U.K., we had a belief that the corporates would jump all over this, pick it up and sell it through, and that didn't come true. I think we learnt a very good lesson, hard lesson. There was a lot of stock in channel. One of the things that we've been focusing on this year is sell out, really looking at replacing stock rather than using stock. I can tell you that the sellout is growing every month. It's really healthy. You're seeing, you know, true use in market in 2022.
Yeah, greater than 50%, it's actually there was 70%, but, you know, we're seeing that. In terms of what we're seeing, I think if you look at the marketplace, the true innovators in canine osteoarthritis are playing with Librela, which we understand. What we're seeing is that from a pet owner perspective, where we're seeing good uptake is where people understand the once weekly pills, and that's the real driver for it. It's like, "Oh, okay, I don't have to force my pet to and chase it around with, you know, lumps of meat with a tablet in it every day. I can just do it on a Sunday or whatever day of the week it is." That's where we're starting to see the traction. Corporates are still tricky in the U.K.
Interestingly, we're seeing much greater traction incorporates in Spain, et cetera, for Daxocox. I think our big challenge in 2023 is getting it into the corporates in the U.K., and then I think we'll see quite a change. That's where we are with it. Yes. In summary, yes, there was a lot of stock in the channel in 21. That's starting to sell out now and additional orders coming through. Good progress. We know that the thing that really drives Daxocox is face-to-face interaction. When we can get our reps in to see a customer and then back in to see a customer and then back in to see a customer, that's when it really starts to fly. It's one of the challenges about us being relatively small.
You know, it's really important that they know who to call on, which is where Veeva comes in. Making sure that we have that weight of connection with a prescriber to get it established as loyal, and then the next step is the next prescriber. That's what's going on at the moment. It's really a sales force driven activity.
Great. Second question is on R&D, so I guess more for Chris. You talk about, I think, 2024 and beyond, 5%-10% of R&D, which is quite a step up from current levels of R&D. How do you see margin evolution therefore in EBIT margin, given that step up of, you know, 200-300 basis points in R&D spend?
Yeah. Good, good question. When we talk about 5%-10%, that's overall spend, and that includes CapEx. Right? If we look at, you know, what we're saying this year, which is about GBP 1 million in P&L, and I think in 2024, we're looking at something like GBP 4 million-GBP 5 million of overall spend. Essentially we'd see the R&D and the R in the P&L level out. It may fall down depending on what comes through the research collaboration. I would look at that spend as more CapEx than OpEx or P&L, and therefore-
Okay.
I don't think there'll be a huge impact on the EBITDA margin going forward.
Okay. That's helpful. I have to say. Yeah. Just a couple more. One is on the underlying growth. If you took out the Spanish business and the distribution expiry contracts, did you say that those two combined were four and a half million?
Yes.
Underlying the business grew. Am I right in saying it's about 3.5%?
Right.
Where, where-
Yeah. Yeah.
Okay. Okay. Good. Thanks for that clarification.
No problem.
Finally, I saw that there was a capital injection to the Stem business. Was that part of the original pay in agreement?
Yeah, good question. When we did the agreement, we agreed to put the equity injection in over a period of time. This year, I think we've got the last one. It's half a million a year for four years, effectively. This year is the last one. You'll see another CAD 500,000 .
That doesn't change your ownership yet. There's another then option.
No.
To change your ownership.
No. The only thing that would change the ownership is in the agreement is the option, where we've got the option to go to 51, so.
Okay. Thank you very much.
Okay. Thanks, Mark.
I think it's Mike next, isn't it? Hi, Mike. Mike?
He's still on mute.
Mike, are you.
Can you hear me?
Yeah. Hi.
Fantastic. That's great. Thanks, Jenny. Thanks, Chris. let's see. A few questions from me. Just coming back to the very first comments I think that you made, Jenny, at the start of the presentation with regards the distribution contract. I just wondered how that potentially informs your own product development strategy or to any extent that it does. You know, when you see potential risk in the future with products that potentially sit alongside your core portfolio. I guess I'm asking how much of the product development strategy has to be almost defensive in nature or even if you think in that way about new product development?
Yeah. Do we think about it that way? Yes, we do. We think about it more in terms of balancing against the risk. What we have done actually as a result of, you know, the loss of distribution contracts, which has happened over the past few years.
Yeah.
We have actually looked at all of our distribution contracts to have a look at how much risk we are still carrying. The risk is declining year- on- year.
Okay.
We're down to about the 36%-37% of our portfolio is now on distribution contracts. Of that, there are some great contracts that we don't have any concern about. There's a bit that we recognize could be at risk. In a way, those two OTC products that we have developed as a short-term product development opportunity are really trying to respond to that risk, because those are things that you can develop quite quickly. They're never gonna change the world, but they're ours, and we can get them out, and we can get some revenue from them.
Yeah.
In terms of the longer-term, bigger pipeline piece, that's just an absolute strategic decision to go for novel, new, differentiated, sustainable, good quality. I think in the next couple of years, we'll continue to do some more simple product development to offset the risk. Our belief is that if you can get Daxocox and Plaqtiv+ flying, that will offset the risk as well. Really what we're trying to do is manage that risk through Daxocox and Plaqtiv+ and some short-term OTC product development opportunities, whereas the longer term is all trying to focus on game changers.
Got it. No, that's great. Thank you for that. Just thinking then on game changes and thinking about Orthros, what should we be expecting in terms of near-term news flow? I mean, are we getting to the point where we should see publications or conference updates while the development work continues there?
Yes. We've been reluctant to be too public about it. I think the LinkedIn note that was circulated yesterday is probably our first foray. Now we're starting to get data. You will start to see scientific publications coming through with our partnership with Orthros. We'll start to talk about the science of it.
Yeah.
Why, you know, we're seeing the data that we're seeing. Then, you know, my view is that similar to, you know, a normal product development, we will start to, you know, flag when we're going into clinical, when we've completed clinical, when we submit regulatory, et cetera, because I think those are the milestones that start to build real confidence in having a future product and what that future product might look like. Yes, I think we will start to see scientific publications coming through. I think there's one in progress at the moment.
Fantastic. No, great. Just final one from me then, on Identicare. You know, it's really interesting to see how that's progressing at the moment. Just wondering how long before we start to see this as evolved, not as a standalone?
Yeah.
as a clearly discrete center of growth which could drive the top line and group margin. I mean, do we have to wait for the cat chipping in the U.K. to drive a step change, you know, more external factors? Or is this-
No, no. I think the way that this subscription business is gonna develop is, you know, all the subscriptions we've got this year roll into next year with the new one.
Yeah.
My expectation is, you know, in 2023 we'll see a step change in this business regardless of cat chipping. I think cat chipping gives us some tailwinds. You know, this year and the next couple of years will really see the value growth in this, and it will bec ome a j ust a really valuable asset.
Yeah.
I don't know.
Yeah, no. I think, Mike, it's an evolution of what we've already done.
Yeah.
As Jenny said.
Done a bit.
that the real value, as everyone knows, is a recurring subscription base that's go. You know, you're measuring long-term lifetime value now, aren't you? Rather than what have I made this year.
Yeah.
I think on cat chipping, I think there's 2.5 million. Defra said 2.5 million cats to chip. That needs to be done by July, the expectation is that to get that done, chipping has to start this year, which we think will be largely led by charities. Therefore, I think there'll be some volume that starts to come through, but charities aren't paying premium prices.
Yeah. Chips, if that makes sense.
We'll pay potentially.
Yeah. I think the market will be bigger. Like with dogs, you know, you kind of go out, you do a catch-up, and then every new cat has got to get chipped. I think, you know, the overall market increases once that's done.
Yeah.
That needs to be positive, you know, for people in that market.
Right.
Got it.
Okay.
That's fine. Thank you. Yeah.
Okay.
Thanks, guys.
Max, you've got another question?
Yeah, sure. It was just, you've obviously said you've still got 36%, 37% of your business under distribution agreements of which some come out. Are there any kind of key ones that we should be aware of for 2023, that, you know, might?
Risk?
-be at risk? Yeah. Should we be aware of those?
No, not for 2023.
Anything else, that, you know, when you look out there, are there other things that you're, you know, you're looking for that you may need to counter in the business through things like you talked about launching the OTC products and stuff like that for this year that we should be aware of?
Not in our assumptions, no. I think it would be.
Yeah.
I use the expression left field.
Yeah.
I don't know what left field was, but it sounds like something that comes unexpectedly. I'll say unless there's something left field, we're not seeing anything specific.
Okay. No, great. Thank you very much.
I'll ask you in September, Max, so it'll be like.
Yeah, I know.
From left field.
Yeah.
No, not at the moment.
Okay, good. That's great.
Really driven by partners taking a different-
Yeah.
approach to market or changing everything.
That's true. We did with Danilon.
Yeah, exactly.
Is they took a different strategy.
Yeah. Yeah.
Anyone else?
Maybe just on the Danilon, whilst I've got you on the line. Obviously, you've now got that fully in-house.
Yes.
Yes.
That's your own kind of product now in the U.K.
Yeah.
Is that a boost to margins for 2023? Does that help? Is that one of the sort of positive drivers for the business?
Yeah. The thing about margins, and we're directly thinking, you know, there's lots of ups and downs in there with everything we've talked about, Max. If I look at is it a boost to margin? Yes.
Yes.
I think Identicare is a boost to margin. You know, that gross margin is about 80%. I think those are the kind of things where we're saying, you know, they help us, you know, maintain, you know, the positive progress that we made in 2022 on margins, while you've got some pressure on generics, on Corpus and those kind of things. There's lots of up and down. Yes.
Yes, good margin.
It helps on Danilon. Danilon is a very good margin.
Yeah. Good. Anything else? Okay. Well, thank you very much.
Yeah. Thank you.
Let us know. You know how to access us, and if you've got any other questions that you want us to dig into. Other than that, I'll just say thank you very much.
Yeah. Thank you everyone.
Thanks, Chris. Thanks, Helen, for sorting us.