Dr. Reddy’s Laboratories Ltd. on Wednesday announced that it is acquiring Haleon’s global portfolio of consumer healthcare brands in the Nicotine Replacement Therapy (NRT) category outside of the United States.
According to the company’s statement, a definitive agreement has been signed between its subsidiary Dr. Reddy’s Laboratories SA and Haleon plc for purchase of shares of Northstar Switzerland SARL.
The portfolio to be acquired consists of Nicotinell, a key product in the NRT category with an extensive footprint in over 30 countries spanning Europe, Asia including Japan, and Latin America, and local market-leading brand names of the product– Nicabate in Australia, Thrive in Canada, and Habitrol in New Zealand and Canada.
“The proposed acquisition will be inclusive of all formats such as lozenge, patch, gum as well as pipeline products, in all applicable global markets outside of the United States. Nicotinell is the second biggest brand globally (excluding the United States) in the NRT category. It holds the first or second position in 14 of the top 17 global markets, with the lozenge/mini lozenge format holding top position globally,” the company said in a statement.
Nicotinell ranks among the top 15 biggest brands among all OTC brands in Europe (excluding Russia, Italy), and ranks 32 among all OTC global brands (excluding the U.S.). In CY’23, the portfolio generated approximately GBP 217 million in revenue.
Dr. Reddy’s will acquire the share capital of Northstar Switzerland SARL for a total consideration of GBP 500 million with an upfront cash payment of GBP 458 million and performance-based contingent payments of up to GBP 42 million, payable in 2025 and 2026. The closing of the transaction is subject to satisfactory completion of customary conditions to closing, including regulatory approvals.
Moreover, the transaction is expected to close in early Q4 of calendar year 2024. Upon closing of the transaction, Dr. Reddy’s will acquire the NRT business in all countries outside of the United States. However, operations will transition to Dr. Reddy’s in a phased approach to ensure successful integration of the business.
It is noteworthy that tobacco use causes eight million deaths every year from health consequences such as cardiovascular diseases, lung disorders, cancers, diabetes, and many other debilitating diseases.
According to the World Health Organization (WHO), of the 1.3 billion tobacco users globally, as many as 60% have expressed the desire to quit; however only 30% have access to the tools to help them to do so successfully. Safe and effective medical treatments to help individuals quit tobacco are available, but not always sufficiently available or accessible.
NRT is recommended by the ‘World Health Organization Model List of Essential Medicines’ for nicotine use disorders. NRT also played a key role in the WHO’s ‘Access Initiative for Quitting Tobacco’ launched in 2020 to help tobacco users quit to reduce the risk of severe outcomes from COVID-19 infection.
In line with its stated strategic intention, Dr. Reddy’s continues to focus on its core business of generics, branded generics, Active Pharmaceutical Ingredients (API), over-the-counter (OTC) products, and biosimilars.
Alongside this, the company has been investing in growth drivers of the future in three areas– access to novel molecules (NCEs, NBEs, CAR-T); digital therapeutics (wearables, apps); and consumer healthcare (including nutrition and OTC wellness products), the company announced.
As part of its consumer healthcare OTC business in the United States, Dr. Reddy’s has in recent years acquired several well-known brands such as the NRT brand Habitrol, pain-relief brand Doan’s, women’s health products such as Premama for fertility and parenthood, and the MenoLabs portfolio for menopause.
In India, Dr. Reddy’s has a portfolio of OTC products in the hydration, cough-cold-allergy, and skin care categories. The recent announcement of a joint venture with Nestlé India to bring the well-known global range of nutritional health solutions as well as vitamin, minerals, herbals and supplements of Nestlé Health Science (NHSc) to India, is another significant move to strengthen its nutrition and OTC business in India.
In Emerging Markets, Dr. Reddy’s has a long-established and sizeable OTC business with market-leading products in the allergy, pain relief, gastro-intestinal and women’s health categories in Russia & CIS, South Africa, Asia, Latin America & the Caribbean. Earlier this year, Dr. Reddy’s entered the UK consumer health market with the launch of the allergy medication Histallay. With increasing presence in consumer health and OTC in global markets, the company has been strengthening its
capabilities in brand-building, marketing, digital and analytics, including exploring e-commerce partnerships, it stated.
The latest proposed acquisition of Nicotinell and related portfolio gives Dr. Reddy’s a strong footprint in Europe as well as other global markets, complementing and building on its existing global presence and capabilities, it added.
“We see the acquisition of this global portfolio of consumer healthcare products led by the global brand Nicotinell as a logical extension of our efforts in consumer healthcare OTC in recent years, and of our purpose of ‘Good Health Can’t Wait’. We have been steadily building our OTC presence in various markets and investing in our capabilities. As a business, consumer healthcare is a growing and sustainable business with favourable long-term trends,” Erez Israeli, Chief Executive Officer of Dr. Reddy’s, said in a statement.
He also said that the business to be acquired from Haleon has maintained steady sales and strong profitability over the years.
“The portfolio is attractive for its customer loyalty, its global nature, and the access it provides to key customers. We believe we can unlock more value, grow the portfolio further, and increase consumer access around the world to these global brands. Given these advantages, it is the ideal anchor around which to build a larger global OTC platform,” it stated.
Following the announcement, Bino Pathiparampil of Elara Capital called this deal a “sensible acquisition with reasonable valuation.”
“In quick succession, Dr Reddy’s Laboratories (DRRD IN) has announced three deals that we believe add significant value to its global franchise: a) distribution agreement with Novartis in Russia, b) in-licensing of Cyclophosphamide Injection from Ingenus in the US and c) the latest acquisition of the portfolio of Nicotine Replacement Therapy (NRT) brands, including the Nicotinelle brand from Haleon plc. We increasingly feel comfortable with DRRD’s strategic direction, especially its value-focused inorganic strategy,” Pathiparampil said.
He also maintained that Nicotinelle has the potential to deliver value.
“DRRD will pay GBP 500mn for the NRT brands that have global sales of GBP 217mn (CY23). And the company expects the business to generate 25% EBITDA margin. Valuation works out to 2.3x revenue and 9.2x EBITDA. Key markets include the UK, Continental Europe, Australia and Japan. The management indicated that the category is growing at 5%. The acquired brands have ~25% market share, which makes DRRD the second largest player in the key markets. We see potential for the basket to grow in mid-high single-digits, in the near-to-medium term. The management shared plans to grow the business faster and also use it as a platform to launch more OTC products in the key markets,” Pathiparampil pointed out.
DRRD continues to be a key beneficiary of the upcycle in the US generics market that we believe is still in its early stages, the analyst maintained.
“The large cash flow from the gRevlimid opportunity is helping DRRD further its inorganic strategy in a sensible fashion.
While DRRD’s US generic pipeline is weaker than some of its peers, we still see upsides from some existing key products and complex products in the pipeline, including biosimilars and peptides,” he said.
