Dr Reddy's Laboratories has taken a big step in its ambitions to scale up its over-the-counter (OTC) healthcare business by making one of its largest international acquisitions.
Shares of the Hyderabad-based pharma giant surged over 2 per cent on Thursday as investors gave a thumbs-up to the company's announcement that its subsidiary Dr Reddy's Laboratories SA has signed a definitive agreement with Haleon plc to acquire the latter's global portfolio of consumer healthcare brands in the Nicotine Replacement Therapy category outside of the United States.
Dr Reddy’s will acquire the share capital of Northstar Switzerland SARL (a Haleon group firm) for £500 million with an upfront cash payment of £458 million and performance-based contingent payments of up to £42 million, payable in 2025 and 2026.
Why is Dr Reddy's acquiring this business?
"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," said Erez Israeli, CEO of Dr Reddy's.
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 Dr Reddy's.
Nicotinell is the second biggest brand globally (excluding the United States) in the nicotine replacement therapy category. Dr Reddy's pointed that the brand holds the first or second position in 14 of the top 17 global markets, with the lozenge/mini lozenge format holding top position globally . Nicotinell also ranks among the top 15 biggest brands among all OTC brands in Europe (excluding Russia, Italy).
In calendar year 2023, the portfolio generated close to £217 million in revenue.
Nicotinell is sold in over 30 countries and local market leading brand names of the product include 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.
"As a business, consumer healthcare is a growing and sustainable business with favourable long-term trends. 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," said Israeli.
He further said Dr Reddy's can unlock more value, grow the portfolio further, and increase consumer access around the world to these global brands.
"It is the ideal anchor around which to build a larger global OTC platform," he noted.
Acquisition to strengthen Dr Reddy's OTC business: Analysts
"The acquisition gives a boost to Dr Reddy’s OTC sales, contribution of which may increase to 17 per cent of revenue in FY2026," said Abdulkader Puranwala, research analyst at ICICI Securities.
According to the analyst, the brand grew 8 per cent year-on-year in 2023. Dr Reddy's would be expected to take steps to grow it faster.
"Going ahead, the company may introduce this brand in new markets, launch new line extension and increase promotional spends to ensure the brand grows at a faster pace," opined Puranwala.
Dr Reddy's has made several moves in the OTC space in recent years. In April this year, Dr Reddy's and FMCG giant Nestle India had entered into definitive agreements to form a joint venture for nutraceutical products. This partnership would bring together global range of nutritional health solutions as well as vitamins, minerals and supplements of Nestle Health Sciences with commercial strengths of Dr Reddy's in India.
In January, Dr Reddy's had acquired MenoLabs business, a branded portfolio of women's health and dietary supplements from Amyris Inc.
The same month, the company entered UK's consumer health market with the launch of allergy medication Histallay.
Sumit Gupta, research analyst at Centrum, also said the acquisition of Nicotinell is in line with Dr Reddy's focus in growing its consumer healthcare OTC business.
"The latest acquisition helps in strengthening its footprint in European OTC market as well as other global markets," he said.
Dr Reddy's shares were up 2.2 per cent at Rs 6,199.10 on the BSE in afternoon trading. The broader Sensex breached the 79,000 mark for the first time on Tuesday.