Ladies and gentlemen, Good day and Welcome to the Conference Call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Richa Periwal. Thank you, and over to you, ma'am.
Thank you, Samer. A very good morning and good evening to all of you, and thank you for joining us at such a short notice. Earlier today, we have entered into a definitive agreement with Haleon plc to acquire a Nicotinell and related portfolio. To discuss the acquisition, we have the leadership team of Dr. Reddy's, comprising Mr. Erez Israeli, our CEO, Mr. Patrick Aghanian, our Head of Europe Generics Business, Mr. Parag Agarwal, our CFO, and the entire investor relations team. This call is being recorded, and the playback and transcript shall be made available on our website soon. Please note that today's call is a copyrighted material of Dr. Reddy's and cannot be rebroadcast or attributed in press or media outlets without the company's express written consent.
Before I proceed with the call, I'd like to remind everyone that the safe harbor contained in today's press release also pertains to this conference call. Now, I hand over the call to Mr. Erez Israeli. Over to you, Erez.
Thank you, Richa. Good morning and good evening to all of you. Thank you for joining this call at such a short notice. Really appreciate it. I'm delighted to announce that today we signed an agreement with Haleon plc to acquire the global consumer healthcare portfolio in the Nicotine Replacement Therapy, we also call it NRT, category, in line with our stated strategy. We have consistently maintained that in addition to focusing on our core business of generics, biosimilars, and API, we would also be investing in growth drivers of the future for the future of three areas. One is access to novel molecules like NCEs, NBEs, and CAR-T, digital therapeutics, and consumer healthcare, including nutrition and OTC wellness products.
We have been increasing our processes in consumer healthcare, including through recent acquisitions of women's health portfolio in the U.S., namely MenoLabs and Premama for menopause and fertility, respectively, the launch of anti-allergy medication Histallay in the U.K., and a nutraceutical joint venture with Nestlé India, to bring well-known global range of nutraceutical health solutions of Nestlé Health Science to India. Through these acquisitions, we are adding a market-leading brand, Nicotinell, along with three local market-leading brands such as Nicabate, Habitrol, and Thrive, to our portfolio, and all formats such as lozenge, patch, gum, as well as pipeline assets outside of the U.S. Nicotinell is the second biggest brand globally, excluding the United States, in the Nicotine Replacement Therapy category. The brand has a successful footprint in 30+ markets, mostly in the developed markets like Europe, Canada, Australia, New Zealand, Japan, and with the potential for expansion in emerging markets.
Complementing and building on our existing global presence and capabilities, these acquisitions give a strong footprint in Europe, as well as other global markets, as well as access to key customers, making this a perfect anchor around which a global OTC platform will be built. The portfolio has maintained steady sales over the years, with revenue of GBP 217 million generated in 2023. The portfolio also has healthy profitability and is marginally accretive for Dr. Reddy's. The acquisitions will be for a total consideration of GBP 500 million, including an upfront cash payment of GBP 458 million and earn-out payment of up to GBP 42 million, payable in calendar years 2025 and 2026. These acquisitions will be funded through internal accruals. The closing of the transaction is subject to satisfactory completion of customary conditions and regulatory approvals.
The transaction is expected to close in early Q4 of calendar year 2024. Operations will move to us in a phased manner, and we will leverage a solid supply relationship to ensure seamless transition. While the focus over the next few quarters will be on successful integration of these acquisitions, leveraging our strong balance sheet and healthy cash flow that will continue to be generated, we will continue to identify and evaluate value-creating inorganic opportunities and business deals across geographies, including India. We have made progress on our pipeline, and over the next 2-3 years, we are planning certain key launches with a significant revenue contribution from compound generics, including peptides and biosimilars. Our in-house R&D efforts will also be complemented by collaborations.
In recent months, we have successfully concluded multiple strategic collaborations for near-term and long-term business drivers, such as a deal to market Sanofi's vaccines and Bayer's heart failure drug in India, strengthening our long-term collaborations with Amgen in India, initiate a joint venture with Nestlé India for nutrition products, with Alvotech for their biosimilars denosumab in the U.S., U.K., and Europe, with Theranica for a drug-free migraine management device in the region of India, South Africa, and multiple markets in Europe. These deals mark an important milestone in building global consumer healthcare business and taking a step closer towards our medium to long-term goals. I would like to reiterate that the acquisition of global portfolio including brand Nicotinell is a logical extension of our efforts for consumer healthcare OTC in the recent years.
I'm looking forward to strong execution and to continued growth and momentum in the base business, as well as seamless integration of acquired assets in the coming quarters. With this, I would like to open the floor for questions and answers.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone phone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Participants are also requested to ask not more than two questions and rejoin the queue in case of incremental queries. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question is from the line of Kunal Dhamesha from Macquarie. Please go ahead.
Hi. Thank you for the opportunity. The first question is on the profitability of the acquired business. While we have said that it is accretive to our profitability, can you provide some color as to what has been the EBITDA margin or operating margin for this business and how it has moved in the last few years?
Yes. Thank you, Kunal. This asset is very profitable. We are going to use some of this profit also for investment in the brand, as we believe that there is an opportunity to grow the brand, as well as there are certain considerations of expenses that we'll have to incur at the beginning. So if you add all of that, it should be in line with our normal guidelines, even maybe a plus of the 25%.
Sure. And secondly, can you look at our current OTC business? The first part is, what is the size of our current OTC business? And if you can give some color as to how it is split between U.S. and other than U.S. markets? And then how does this acquisition fit into our current piece of OTC business? Do you see any cost synergies coming out of it and the revenue synergies coming out of it?
Sure. So it's primarily complementary to what we have. We have about $140 million of business today in OTC, across markets. This is by design complementary to this effort. This deal is not including the U.S., so this deal is primarily outside of the U.S. in which we especially in markets in which we have OTC, but it's not as big and strong. And it can serve as a platform because now you have access to customers and access to markets and access to talent that allow you to bring more products. So I'm just, Kunal, using your questions to explain. We call it an anchor deal, meaning that around that, we can continue to add asset to it because we have the basic capabilities to invest behind it. So it's primarily complementary.
The main synergies will come by the ability to grow the assets, to use it as a platform for additional products, and to go to markets in which we now do not have the relevant presence, for example, India, China, and other markets, etc.
Second, one like what we have been doing with our endemic portfolio utilizing it for the U.S. portfolio utilizing it for the other markets, similar kind of cross-selling opportunities with the latest deals?
Yeah. So we can absolutely use this portfolio for other markets. Absolutely.
Sure. I have one question.
Yeah.
Yeah. Kunal, I just want to clarify that Erez mentioned that our current OTC business is about $140 million. That's in our North American business. Globally, our OTC business is approximately 10% of our total business, which is in excess of $300 million. So I hope that clarifies.
Yeah. Thank you for that. Thank you for that.
Thank you. Our next question is from the line of Neha Manpuria from Bank of America. Please go ahead.
Yeah. Hi. I hope I'm audible. So on the platform that we've acquired, how do you think this can grow? And if I were to take a slightly longer view on the entire OTC business, from the current $300 million with the Nestlé portfolio, the menopause acquisition in the U.S., how big can OTC be for Dr. Reddy's, let's say, in fiscal 2027, fiscal 2028? How should we think about the size of this potential of this business, including the acquisition in a few years from now?
Yeah. So obviously, we are aiming for a very sizable opportunity. So if you are, it depends on the time frame that we are discussing. So for the initial part of your question, it is primarily this type of business was not a priority for early on, and they did not invest much in this business. We believe that there is an opportunity to grow this business by investing in it. That's why I also gathered for the 25%. We want to use some of the money to invest in it. And this is in the current geographies. In addition to that, there is ability to come to other geographies, especially in Asia.
If you add the other component of the OTC, like you mentioned, Nestlé stuff, this is, of course, adding hundreds of millions of dollars to this, but some of it will build over time because these are brands that need to be introduced, being, of course, built organically over time. So what you're going to see is a kind of organic growth of those brands, but absolutely, we are aiming for a significant size of the team that one day, I hope, will speak in billions in the OTC after all of those moves will happen. But in terms of 2026, 2027, 2028, it's about moderate growth on the introductions. The activities of products that we've not launched yet will not impact significantly by that period of time. It will take more time for them.
So essentially, for the existing $300 million base to double, it will take us longer. Is that a fair assumption?
It can be even triple. Just a matter of what is the time that it will take. The current business is now growing in single digits, and we believe that we can grow it faster than what it is. All the places that are related to new brands, like in the case of Nestlé, this will take more time, yeah, because we need to introduce and to normally take 3-4 years to establish a good brand in a market for example like India.
I understand. Sorry.
Sorry. I wanted to—my name is Patrick Aghanian, and I just wanted to add to what Erez was just mentioning. I think in this category, we need to look at it in two contexts. The first one is the macro drivers, both in developed and developing markets. While in developed markets, smoking has classical smoking, meaning cigarette smoking, sorry, has declined. It has, unfortunately, been overtaken by new introductions such as vaping. And this phenomenon we see especially amongst the younger population in developed markets. Fortunately, governments are now beginning to take action against vaping, and we see our role to play in that. In developing markets, where still cigarette smoking is very prevalent, sin taxes as imposed by the governments are relatively low, certainly compared to developed markets.
We still see a lot of opportunities in the years ahead as more and more governments take up the fight against smoking. Just to also mention, that in addition to sin taxes and other regulations, simple legislation such as prohibition of smoking in closed spaces also is hugely impactful in terms of driving this category.
Thank you. Patrick, thank you for that. Just to follow up, Erez also mentioned adding more products to this platform. We already have an allergy medicine OTC product in Europe. Is there a complementary aspect to adding more products? Does the market access help? Is that why the growth will accelerate over time?
So sorry, your voice is not so clear. I understood the first part of the question, but not the second part. The first part was, are there any other products? And then the second part, I didn't catch. Sorry about that.
Yeah. So does the platform really help to add products, add more assets to it? Does that accelerate the growth of the OTC platform, or does it have operating leverage benefits?
Okay. So first of all, this asset comes with a pipeline of new launches. In consumer healthcare space, innovation is, I suppose, innovation is critical in any business, but in consumer healthcare as well. So there is a pipeline of new products which are already underway. In fact, they have just launched sprays at the beginning of this year in the Nordic countries in Europe. And sprays are indicated, for example, for vaping. And they are going to expand this. Other products are going to be also introduced in the next few years. So there is a pipeline of new products which is coming with this asset. The second thing about this asset is that it straddles 30+ countries.
Although the top 12 account for roughly 80% of the business, and the top 12 also straddle continents, starting from Canada all the way to Japan and Australia and New Zealand, the size of these businesses in each of those countries is not small, meaning this is not an asset where you have one country dominating and then you have a lot of small countries which are just as a tail. It actually very healthy, sizable businesses in each one of those countries. Third, this is an asset that allows us to interface with retailers, whether it's pharmacy chains or mass market retailers. These are very sophisticated operators. And this particular category is very valued by them. It's very valued by them for two reasons. Number one, because it actually promotes health.
This is very important from the point of view of the retailers for their point of view of self-image, I suppose. The second reason is because it's a very high-priced item for their selection of products. Since we are the number two brand in this category, it positions us very nicely to play a role and also have access to these retailers, which then, of course, allows us to leverage other products which we are developing, whether it's in this category or other categories, in order to gain space on the shelf.
Wonderful. That's very clear. Thank you so much, Patrick.
Thank you. The next question is from the line of Abdulkader Puranwala from ICICI Securities. Please go ahead.
Yeah. Hi. Thank you for the opportunity. So the first question is on an asset base. So the revenue part is quite understood. Are you also going to acquire the manufacturing units or some sort of an asset base along with this entire business?
Erez, I can take the question.
Yeah. Yeah. Please take it. Please take it.
So this business is asset light. There is no manufacturing facility which is associated with this business. It is served by CMOs. And these CMOs are located primarily in Europe. The production process for these products is actually a bit complicated and capital-intensive. There are not that many suppliers. And the relationship that this business has with the CMOs is long-standing. It stretches for more than 20 years. And we look forward to working with those CMOs in order to drive this business forward in line with our strategic aspiration.
All right. Understood. And the second question is on what kind of approvals you will require before you do this transaction. I mean, are there any major stringent government regulations which can be a potential hurdle for the completion of this acquisition?
I don't think we have anybody from legal on the line, but I can take the answer to the question. There are four approvals that we would need. We believe all of them are manageable. They are actually located mostly in emerging markets. Brazil, we need a merger control. Kingdom of Saudi Arabia, we need also, and the United Arab Emirates is another one where we need it. And finally, there is one approval that we would need for Sweden. Other than that, there are no other approvals that are necessary for the completion of this transaction.
Got it, sir . Thank you.
Thank you. Our next question is from the line of Damayanti Kerai from HSBC Securities and Capital Markets (India) Private Limited. Please go ahead.
Hi. Thank you for the opportunity. My question is regarding the initial cost or investment which you might require to grow this particular franchise. So can you quantify what kind of spend you are foreseeing for this franchise? And with scale-up, do you think the margins can improve significantly from the current level, which you indicated at around 25%?
So I can try to answer this question. But first, before I try to answer your question, I'd like to speak a little bit about the specifics of this business. I feel you need to know a little bit why it is such an attractive asset so that you may appreciate what I'm about to answer to your question. First of all, this is a business which, by its very nature, is very complex for the consumer. The consumer has a psychological factor at play when they are taking this therapy to stop smoking. They know it's harmful for them, but they still do it. And it takes anywhere between 8-30 attempts during the lifetime.
I repeat again, there are different sources, but the data that at least we have analyzed shows that there are anywhere between 8 to 30 attempts during the lifetime before a consumer successfully quits smoking. So we see a very, very long-term play here with this category. As already mentioned, this business has not been a priority for Haleon for a while. And therefore, the investments have been kept at a level which is very, very low. And for us to grow this business and also to address the unmet needs, we know that they exist, whether it's existing unmet need or future unmet need, for example, vaping, I mentioned earlier, clearly we have to invest more and increase the level of investment which we plan to do in line with what is the spend, in line with what our aspiration is.
So indicatively speaking, we will be increasing our A&P investments, but also our capabilities in terms of understanding the consumer. This is very important. The marketing tools available today were not available 20 years ago when you are trying to engage a consumer in a very complex psychological dynamic. What was available 20 years ago was a very simple, probably 30 second ad on TV and some advertorials. Today, you have a whole gamut of tools at your disposal, some of which are actually very cost-effective. They were not so cost-effective previously, or they didn't exist. So yes, we will be seeking to invest to grow this business.
You mentioned that.
And just to add to that, Patrick, and this is why I gather that it is margin-accretive, and it is absolutely within the guidelines that we normally do. We will use that in the same way, meaning for us, the 25% is always a decision, not an outcome, meaning we want to use the excess of this to invest into the future. And this is where we believe is a sweet spot that is also relevant for the asset. The asset has a potential to go beyond it once we feel that we invest and we put everything in place. So for long term, for sure. But in the short term, the idea is that it will be accretive. It will enable us the growth that we want and the total shareholder return.
But at the same time, we want to use the excess to reinvest in this business.
Sure. And my second question is very broad on OTC products. So in OTC, what will be the most important factor which you should focus to differentiate your products? Select your number two for this franchise. So what will differentiate your number two position versus a number one position or number three position?
So first of all, this brand, as I already indicated, occupies the number two position in the markets that it operates. By the way, in one market, it's actually number one in the Netherlands, which is number one position. In other markets, it's a very strong number two, globally speaking. And it is a very, very resilient business. As I indicated, with more levels of A&P support, not only have the volumes and the value been maintained, they have even grown, in some cases, faster than the average for the category. So plus, as I already indicated, with the consumers going through a cycle of 8-30 quit attempts during the lifetime, it's a very sticky business, which is extremely interesting from a marketing point of view. So we need to build on what has been done in the past.
We need to try to engage with existing consumers who are clearly loyal over the past 20 years or 25 years since this brand is in existence, and also try to expand to new consumers. I mentioned vaping, especially amongst young people. It is a real phenomenon that is not very nice to see. People, unfortunately, have the impression that vaping is actually less harmful. It is not the case. There's simply not enough data yet, but that data is being generated. Anyway, when you speak to governments, clearly, they are beginning to understand that vaping is not as harmless as the tobacco companies have made it out to be. So we also have to start targeting those consumers.
I already mentioned that Northstar or the NRT business of Haleon has launched a particular product in the Nordics, specifically with an indication for vaping, the spray that will be expanded to other markets in Western Europe. And then there are emerging markets. Emerging markets, already this business has a good footprint in emerging markets in countries such as Brazil, Korea, in Southeast Asia, for example, Hong Kong and Singapore, etc. And there are clearly opportunities there that we see in Saudi Arabia, I already mentioned, sorry, etc., etc. So we have to do that build-up and then targeting new consumers.
Sure. That's helpful. Thank you for your response.
Thank you. Our next question is from the line of Bino Pathiparampil from Elara Capital. Please go ahead. The line for the current questioner has been dropped. We'll move on to the next question. The next question is from the line of Surya Narayan Patra from PhillipCapital (India) Private Limited. Please go ahead.
Yeah. Thank you for this opportunity. My first question about the NRT is, what is the outlook of NRT? And as in clarification to our earlier commentary that you mentioned NRT is declining in the advanced market, but it is progressing in the developing market. Is it right? That understanding. And what is the growth outlook here NRT as a therapy? And what is its positioning compared to alternate therapy for smoking cessation?
If I understood your question, the first question, sorry, I have to repeat it so that I make sure I understood your question. The first question was, what is the growth prospects? Second question was, what are the alternatives? Did I understand it correctly to NRT?
Yeah. Yes.
Okay. So first of all, in terms of growth, I thought I heard you said that there has been a decline. I don't believe we said there has been a decline. The category actually has been growing across all geographies in mid-single digits, a little bit lower than mid-single digits. Nevertheless, it's been growing. When you look forward, we believe that this growth will be accelerated. First of all, as I indicated, this business comes with new products, innovation. This business has not had any new launches over the last, I don't know, maybe seven years, eight years. So it's been starved of new launches. And now we have a pipeline of new launches that are going to be introduced. Furthermore, we're going to support the business in terms of additional A&P spend. So we believe that we're going to accelerate the growth across the different geographies.
As said, there are also a new segment opening up, which is around vaping. Vaping, as I indicated, is unfortunately a big issue that we are seeing in both developed and developing markets. We believe that developing markets will also start targeting classical smoking with additional sin taxes and also more restrictions on where people are allowed to smoke. This will definitely give a further push for people to try quitting smoking. By the way, the NRT category is officially recommended and approved by the WHO. So this is a very important consideration for us in Dr. Reddy's. And in terms of alternatives, well, there are alternatives that are available. For example, there are prescription medications such as bupropion and varenicline. This is available, but there are prescription drugs. Their mode of action is different. They target the nicotine receptors in the brain. But nevertheless, that's an option.
There are, of course, behavioral therapies, which people can use mostly in the area of psychological support and counseling. I hope I've answered your question.
Yeah. Yes. So my second point was also that WHO recommendation to include NRT as an essential list of medicines. What does that really mean in the emerging markets or markets other than the U.S.? And have you seen any benefit or have you seen any benefit happening to this NRT therapy post the recommendation in 2020?
Sorry. Again, if I understood you correctly, you were asking whether this NRT therapy would see opportunities in developing markets. Did I understand correctly?
No, no, no. Sorry. I'm repeating my question. How should one read this WHO recommendation that NRT is part of the essential list of medicines? So this has been recommended in 2020. Have you seen any benefit according to this NRT? And how should progressively this recommendation benefit us?
Yeah. So definitely, the WHO recommendation is what also makes it attractive for a company like Dr. Reddy's. I mean, we are a science-based company, and we deal with products which are very important in terms of their unmet medical needs. In terms of what we are seeing in emerging markets, we are seeing more and more government tenders. So for example, we've seen pretty big government tenders going up post 2020. The biggest that has happened recently is in Brazil, where this business has won a significant tender with the Brazilian health authorities. But it is also the same, for example, in Saudi Arabia and in other geographies. And we believe there are other geographies where Haleon has not been present. Haleon, being a British company, historically has not been very active in, for example, French North Africa. Sorry, French-speaking North Africa, such as Algeria, Morocco, Tunisia, etc.
Now we can potentially access those markets through our businesses that we have set up recently in those places. Yes, we do see increased interest by the side of governments.
Okay. Just last question from my side. It's a clarification, in fact. What you mentioned in the initial commentary that this is a business which will require investment to take it forward. But even after the investment, in terms of the profitability and margins, this will still have margin beyond 25%. Is that understanding right?
Yes. This understanding is right. We are saying always that we are comfortable around the 25% as a decision, and that's what we plan to maintain the business, at least in the initial stage.
Sure. Yeah. Thank you, sir. Congratulations for the transaction.
Thank you.
Thank you.
Our next question is from the line of Bino Pathiparampil from Elara Capital. Please go ahead.
Hi. Good evening. I hope you can hear me.
Yes, sir. Please go ahead.
Okay. Great. Quick question. How does this product sell? Is it only to direct a department to the customer? And are there any regulatory restrictions around that?
So the product is primarily classified as an over-the-counter medication. In some instances, it is also classified as a prescription medication. It depends on the specific country regulation. But in most of the instances, it's an over-the-counter medication. In countries, for example, the developed countries, it is sold both in pharmacies as well as outside pharmacies. For example, in supermarkets, for example, in the U.K., there is a supermarket chain called Tesco or Sainsbury's. You will find the product in those type of outlets. I hope I answered your question.
Understood. So does this acquisition come with the necessary marketing and sales team? Because you will need a hybrid team, right, for direct marketing as well as a team for prescription marketing to the physicians. Does the acquisition come with a team?
The transaction involves a combination of a transfer of certain employees from Haleon. I'm sorry, I cannot comment further on that because there is a consultation process in place, actually started with the Works Council. So that's all I have to say in terms of the transfers from existing employees. And we also have to build a new. We have to also hire people in addition to that. Yes.
No, but the answer to your question is there is not going to be hybrid in most of the businesses as OTC, so we will manage it as OTC. In the countries in which we require sales force, which is prescription, we will use it either in our people or use a partner for that. But it's not in hybrid. In each one of the countries, it's mostly OTC or prescription, but you don't need a hybrid model.
Understood. Second, the people who get to this product to stop smoking or vaping, how long do they typically use this product? Do they use it pretty much lifelong, or is it like a few weeks, and then they stop everything, all types of smoking?
This is an excellent question. It's a very fast. I wish I had a long time for me to answer this question because I have lots of slides that I can show you. There are different types of consumers. There are consumers who use this product as a stop-gap measure. They use it so that they don't have to come back, meaning they have already quit, but they don't want to restart, so they don't want to be a relapser. So they use it in that context. There are those who don't want to quit, but they want to reduce the number of cigarettes that they are smoking. So there are many different types of consumers who actually use this product. It's not just one or two. And that's what makes it so interesting and so attractive because each type of consumer has its own specific driver and need.
On the average, when somebody, let's say, wants to quit, they consume the product from anywhere between six months to a year. Generally, what happens if it's the first or second time that they're trying to quit or even the third time, they go into a relapse. They start smoking again. Then they are unhappy. They make a new commitment. They say, "Okay, I'm going to stop smoking." Then they start again, and so forth and so forth. So it goes through this cycle of start, stop, repeat cycle. I want to just give a little bit of humor. Hopefully, I know it's late for you, but just a bit of humor. Mark Twain, the American author, had a very interesting thing to say. He said, "Giving up smoking is the easiest thing in the world.
I know because I've done it thousands of times." So this is, I think, the best way to describe what the consumer actually goes through when they're trying to stop smoking and use these products.
Understood. Thank you. Finally, just one thing. If you could share some rough market share of the number one player and yourself in the overall Nicotine Replacement market with your rough number indications, just to see how fragmented the market is?
Yeah. First of all, this is a highly stratified market, meaning, for example, we are number two. The difference between the number two brand and the number three brand is a factor of 4x . It's a factor of 4x. 4x. I repeat again, 4x. So this is very, very important. It shows the strength of the brand. And roughly speaking, depending on the geography, I think we are about 25% market share across the different geographies. There is one more thing I wanted to say. Now it skips my mind, but if it comes back, I'll come back to you.
Okay. Great. Thank you very much.
Thank you. The next question is from the line of Shrikant Akolkar from Nuvama. Please go ahead.
Hi. Good evening. Thanks for taking my question. I was wondering if it is possible for you to look at the manufacturing back to India if there are some CDMOs offering such services?
This business has current CMOs set up. The relationship with the current CMOs is longstanding. They stretch back, as I indicated, many years, in some cases going back to the 1990s. We are looking forward to continue to work with these CMOs to first ensure a smooth transition and to look forward to building this business going forward. New products are very important, and the development of these new products also depends to a large extent on these relationships. We are looking forward to that as well.
Okay. And the product development part is done by Heleon or the CDMO partner?
It's done by the brand owner together with the CMO, but the actual work is done at the CDMO. So if you will, the idea generation and this is coming from the brand owner, in this case, in the future, Dr. Reddy's. But the actual work is done as outsourced to the CDMOs.
Understood. Now, a little larger question. So last few months, we have seen several initiatives such as Alvotech collaboration, Nestlé JV , and now this acquisition. We already have invested in the CDMO business, and then there are very important peptide biosimilar R&D projects. So what are the key priorities going forward with so many moving parts in the business? And if you can also, towards the end of this question, if you can answer about the ROCE expectation over the next 4-5 years. Thank you.
Sure. So as we stated in the past, we have two types of businesses, and I'm talking now in the high level. One is the B2B business, which is primarily leveraged business, which is our also legacy business of generics and API, which will continue to invest and grow primarily with productivity, with products, launching across markets, and gaining global market share as part of it. And we added to it the Horizon-2 , which is to grow with NCE primarily by collaborations of NCEs, NBEs, CAR-T, Nutraceutical and OTC, and this kind of stuff as another growth driver. The focus of those is India, emerging markets, as well as, of course, Europe and the rest of the activities. We are committed, by the way, to grow India. We are committed to grow faster than the IPM. We are committed to be number five in India.
Most of those investments in something with products that are better than the standard of care will be in India as well as emerging markets, while OTC is more of a global play from the region that we discussed. So this is helping us to establish what we call an anchor business globally. In terms of our guidance for the future, so the double-digit, the 25% EBITDA, that's a sweet spot in which we can both give enough total shareholder return as well as have enough to invest in business is still relevant. Again, this is an average. It's not a target. It's not reactive. Sometimes we are above it, sometimes below it. The same for the ROCE. So also in the future, we are planning to be in the same range of double-digit, 25% EBITDA on average, 25% ROCE on average.
This business will absolutely add to this component. We have enough financial capacity to go for additional businesses. This is not the end of it. We are actually just at the beginning of the journey. Is it okay?
Yeah. Thank you so much.
Thank you. The next question is from the line of Tarang Agrawal from Old Bridge. Please go ahead.
Hi. Am I audible?
Yes, Tarang. You're audible.
Yes, please. Yes, please. Yes. Okay. Good evening, and thank you for the opportunity. Congratulations. A couple of questions. You spoke about investing more in the business in order to grow it further. What kind of investments are we talking about? Are we talking about, say, beefing up the product pipeline or more ad spend or probably entering into new markets? Would that largely be what you mean by more investment in the business?
Yes. Yes.
Okay.
It's a combination of all the three.
Okay. Second, you also spoke about bridging on relationships with Haleon's customers. If you could elaborate a little more on this.
Patrick ?
Yeah. So this business is currently, as I said, sold through pharmacy chains and mass market retailers, depending on the geography, and it is a very important pillar for the success. We are looking forward to continuing the business with those trade partners into the future. I already indicated the importance. I don't want to repeat again how important it is also for the retailers, this category.
Okay. So probably use that as a platform to probably introduce other products which you'll have approvals for in those markets.
Certainly, yes. So when we have access and we are already at the table, let's say, with this category, it already makes it easier to talk about other things.
Okay. Thank you. All the best, guys.
Thank you. Our next follow-up question is from the line of Kunal Dhamesha from Macquarie. Please go ahead.
For the opportunity again, just one on the broader revenue split for the acquired business between Europe, emerging market, and other developed countries. If you can split this GBP 270 million in those three categories.
So the business, about 60% of the business comes from Europe in terms of turnover. Then you have significant pieces coming from Australia, Canada, Japan. And these countries combined, meaning the European countries plus Australia, Canada, and Japan, and New Zealand, then takes it to 80% of the total turnover, 80, let's say, 4%. And then you have other countries in the bag, such as Brazil, KSA, and others, Hong Kong, etc.
So this is really helpful. And then two more questions on the business. So you said that you have more product in the pipeline. Can you share what's the number of pipeline products? And is this more of a novel delivery system for the nicotine? Is there a way to think about it, or there are, at least in the Haleon pipeline, whatever business we are calling? And second is, how has been the ASP increase in this brand and Nicotine Replacement Therapy category in the last 3-4 years?
Sorry, I did not understand the last part of your question. Could you repeat again?
The average selling price increase in the category in the last 3-4 years?
Oh, I see. Okay. So first of all, on the new launches, as we get closer to the launches, we will, of course, disclose them. There is a competitive landscape here as well that we have to take into consideration. As far as the pricing is concerned, pricing power in consumer healthcare is directly related to brand power. The stronger your brand, the stronger your pricing power. We already discussed earlier about the strength of the brand. So that's an iron law of consumer healthcare. You have a good brand, then you are more secure. You have a weaker brand, then you are less secure.
Sure. Thank you. And all the best .
Thank you. Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to Ms. Richa Periwal for closing comments.
Thank you all for joining us for today's evening call. In case of any further queries, please get in touch with the investor relations team. Thank you once again on behalf of Dr. Reddy's Laboratories Limited. Over to you, Sandra.
Thank you. On behalf of Dr. Reddy’s Laboratories Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.