Animalcare Group plc (ANCR) Earnings Call Transcript

Good morning. Hopefully, you can see the presentation and hear Chris and myself. So let me know if not. I've got the attendee list open. So some -- hopefully, somebody will flag if there's any challenges. So welcome to the Animalcare 2024 Interim Results. Looking forward to sharing with you the progress that we've made in the first half of the year, and we continue to make since the end of June. For anyone who's not very familiar with Animalcare, this is really just to articulate the strategy, the 3 pillars of our growth, from left to right, organic growth. That is our existing brands in the portfolio. That's new and existing. We always talk about new being products launched in the last 3 years. Inorganic growth, this is all the activity that we're doing to build our future and our new product development. And those 3 areas are really the fundamentals of our business. In terms of the underpins for our business, strategically, we absolutely have to have strong finances and we've made a lot of progress there in the last 5 years. Our people, we are very focused on making sure that we have highly capable team. We have got a lot of people, so we need to have the best and making sure that we continue to build capabilities and processes to exploit the opportunities that come our way. So just highlights. The highlights for the first half, commercial delivery, you'll have seen from the notes and the results that we released today that we continue to see progress in all 3 areas. In terms of organic growth, we're particularly pleased to see that both Plaqtiv and Daxocox have been doing well. In fact, in our markets where we sell and promote Daxocox ourselves, it's up a little bit higher than that, overall, it's 41% and Plaqtiv. And as those of you who know us well know that those are our 2 leading products. We're really focused on those. We'll talk a little bit more about those in the depth of the presentation. We continue to see Danilon benefit. We brought Danilon back in house in the U.K., in particular. That's an equine pain product, and it's continuing to see good growth. And actually, in Production Animals, we've got a 14.3% increase in revenue, and this is a really important part of our business, continues to deliver. And we're looking now at opportunities to strengthen that. It's predominantly in our Southern European countries. Inorganic. I guess, in terms of the first half, the main piece is the disposal of Identicare and our disposal of our minority stake in STEM, which has really increased our dealmaking power. We see those 2 really good examples of us -- of our strategy in action. Both of those were decisions that we took that help us to focus on our core business. In new product development, we're progressing with our VHH antibodies. This is such an exciting area. We seek more and more of our peer group companies get into this area. So it's a very exciting opportunity. We're still continuing to do some preclinical work. We've also been in the clinic over the summer with our VHH antibody. So that's a really exciting area. We're also expanding indications and territories for our key products, Daxocox and Plaqtiv. We can talk a little bit more about those. And we're preparing to launch 2 new products, plus actually some line extensions and that's got some Plaqtiv in 2025. So pretty busy in all of those 3 areas. In terms of strong finances, we see that balance sheet. It's just been transformed by the disposals and looking at -- we're now looking very actively at growth opportunities. We've really focused our efforts on M&A, BD and new product development. And actually, since Ed came on board in June, July as our new Non-Executive Chair, I have to say from a personal perspective, that's been brilliant. It feels like we've really ramped up the M&A, BD area because of Ed's significant experiences with Dechra over many years. And really, that's been a great opportunity for us to continue to drive that agenda. Commercial excellence, we can talk a bit more about, but really making sure that we're operationally highly effective is key to where we're going. So in terms of those of you who follow the animal health market know that this continues to be a really good market to be in. It's really hard. We find it quite hard to get consensus on the actual sales growth. I think even in the last week, we have 7% growth, 9% growth. But we think it's an average of about 5% sales growth from the top 10 animal health companies in the first half, which is slightly ahead of the first half in '23. The Companion Animal sector does remain the main driver of growth, but we're also seeing growth in both Equine. And for us, personally, we're seeing growth in the Production Animal sector, although the Production Animal sector is a little bit more balancing. We are seeing high levels of pet ownership, despite the sort of news of pets re-homing being up, but we don't see that in our business. We see pets being presented to the vet. The vets are really busy. We continue to see some changing customer base. This is predominantly relating to the corporates, but what we have seen in the first half of this year is because of the U.K. CMA review, we've seen the corporates changing pace a bit and really looking a little bit more inwardly about how they're managing and trying to deal with the CMA review, but we continue to see demand for our products through the corporates. If you look at the marketplace, the really big growth areas of the novel innovative products, so those are definitely driving growth and commanding higher margins. These are products that absolutely show a differentiation from what's available out there today. And when you look at our peer group companies, the same as us, we're looking to get into those markets rather than in the area of the market that will always be subject to either price competition or technology advances. So I think we're seeing -- it's a really good place to be attractive long term. And actually, across the board, we're seeing more appetite for M&A of all types. So it's a very active M&A -- been a very active M&A first 6 months. Not so much in actual deals done, but in terms of the number of deals that are being discussed and coming to fruition. Chris, to give the details on the finances?

Good morning, everyone. Just before I start going through the financial performance, I just thought I'd begin with clarifying the basis of the presentation of the financial results because you've obviously seen that that's changed quite significantly versus how we presented it normally. And this is really around the split of continuing and discontinued operations. So just to be clear, in terms of the things on this slide, all of the profit and loss figures are from continuing pharma operations with the comparatives like-for-like. So we've adjusted our Identicare in both periods. And what I've done that hopefully helpful is in the back of this deck, in the last slide of the appendix, the pro forma P&L for 2023 full year. So hopefully, that helps with, one, just seeing what the full year was like last year. And secondly, when we -- there's an anchor and a reference point to the consensus forecast that we put into the RNS. Just to note, STEM is not discontinued. So the income that we get on the license, which remains, is the same, so that the equity is a non-underlying item. And then in the cash conversion, you can see on this slide does include Identicare, but there was only 2 months of trading. So the difference is immaterial. So we'll focus on that. In terms of headlines for the first half. So I'm really pleased to report organic growth of 5%, that's 7% at constant currency. I'll talk a little bit more about FX in a bit. You can see that's at least in line with the market based on more top 10 animal health company performance, which is about 75% of the market. That's why we use that reference point. Continued positive progression on gross margins, largely through sales mix and significant improved levels of cash conversion versus last year. So we're saying we're on track for delivering the full year target of 85% to 90%. Jenny noted clearly transformational change in our balance sheet with about GBP 33 million of cash on the balance sheet, excluding leases. And linked to that funding capacity, you've seen that we've refinanced our RCF per period end. And that we've now got those facilities out to 31st of March 2029. So that all adds to the firepower we've got for M&A and BD. And then finally, we've noted that we've seen some -- the continued positive performance we've seen carry on through Q3 as far as we're through that so far, and therefore, expecting FY '24 results to be in line with market expectations. As previously, I'm going to cover areas in more detail apart from the underlying EPS. So we'll just touch on that there, and I'll touch on the effective tax rate, while we're hearing because there's been some changes to forecast. So in terms of EPS, that's down by around 5% versus the prior period, and that's all in the tax. And we can see that there's an effective tax rate of 27% is a lot higher than last year. The main reason for that are the increase in the U.K. tax rate and also we've seen lower innovation release in the period. So where we're guiding to from a full year basis is that based on the forecast and assumptions we've got around geographic mix of profits by territory, we're expecting the ETR to be broadly in line with what we can see here for the half year. Going forward, we expect that to normalize, and we think our normalized rate will probably be about 23. So that will come down from 25. So just very quickly on this slide. So revenue, again, I'll cover in more detail with some headlines. So up 5% to GBP 37 million. FX has impacted revenues were seen by around 2%. And then we expect this variance to be feature or potentially increasing feature for full year. GBP, euros kind of just hit the 120 mark. So just to give some guidance on FX impact, every cent move in GBP or euros has an impact of around GBP 1 million on the top line and around GBP 0.2 million on EBITDA. And in the half year, we had about [ 2% ] difference on average stuff where we're seeing that. So we expect FX to be a feature of the full year. In terms of overall growth in revenues and [indiscernible], I would say, it's broadly 50-50 mix between price and volume at CER, volume growth incorporates around 1 million of new products or recently launched product revenue and that's predominantly in Companion Animals. On gross margin, as I said, we've got a 0.5% improvement there, predominantly driven by sales mix. Really, that's this continuing focus around the kind of larger and higher-margin brands, Plaqtiv and Daxocox, and clearly contribute to that as it's done. Just to touch, we continue to see COGS inflation. Certain we've actually agreed to take to improve surety supply in terms of a couple of key brands. As historically, where possible, we are mitigating this inflation through selective price increases, and we broadly covered that cost inflation in the first half. Our underlying EBITDA, [indiscernible], GBP 6.6 million. Overheads are up 8% and principally around 2 areas of people. In that, I think we guided at the full year that there's some quite significant inflation in certain areas of our markets, Spain, in particular, which has been government-led. So there's broadly 50-50 in terms of the people increases or inflation and the rest of these investments, in particular commercial excellence and supply and then marketing. And we can see some of the benefits of our marketing investment in some of the growth that we've seen in some of the key products, like Plaqtiv and Daxocox again. Those investment areas continue to be our main focus for the remainder of '24 through '25, we're expecting inflation to ease a bit. And therefore, from a people perspective, it will be more around investments rather than inflation. We've got 3 slides on revenue performance. So we'll start with Companion Animals. Again, just to confirm, all of these figures are -- have been affective on an adjusted basis, so they're continuing only. So the 3-year track record that I've got on the bottom left-hand slide, so they've all been adjusted for the key people who look at last year. So they're all excluding Identicare. So hopefully, again, this helps with getting the feel for how this business has performed over the last 3 years. So we can see revenues are broadly flat to start with the positives that Jenny's noted, that's COGS increase of around 40%, which span across both our own operations and our International Partners, so International Partners, our export customers. If you recall the export part of our business actually declined last year in terms of a capital cost. So it's pleasing to see that, that's come back with our partner as well as continuing growth in our own operations. If we were to point to why on our own operations, I think the feeling is that the success is down to the more internal factors than external factors. I think the market, we haven't seen change. So really bringing together the sales and marketing operations, I think, has really driven sales and marketing excellence and the benefits there. Dental range. So we have Plaqtiv and then we have also -- we talked about a large brand of ourselves, called Orozyme, that's a toothpaste. Both of those continue to grow strongly, Plaqtiv obviously higher as it's still going through the growth curve and combined dental sales for the period of over GBP 3 million. So we really kind of gained some traction now on that dental franchise. Jenny is going to come talk on to a bit more detail later about some potential areas of extra investment that we're going to make notably in relation to the change in our license that we had with STEM on the deal with Dechra. These positive contributions to revenue growth were offset line, [indiscernible] supply disruption, and that's impacted 3 areas. But one is later-than-expected deliveries to our export customers. Secondly, we've had some out stocks to certain products in our own operations, notably U.K. and Germany. We've seen some of the impacts of those unwind during Q3. Hence, we've seen growth accelerate in Companion Animals. So it's growing versus the kind of flat at the half year. We've also seen an impact on supply in terms of delaying new product launches. So some of those have been later than expected and actually some will be into early part of next year now. On Production Animals, as Jenny said, had a really good first half. So revenue is up 14%. The growth again is spread geographically. So as Jenny noted, our own operations are largely around south and then in our International Partners, that growth spread across a number of our larger brands. [ Dinalgen ] is a good example there. We've also seen some one-off competitor out stocks benefit. And as a result of that, what we're guiding to is we expect full year growth to be in the mid-single digits. So we'll see growth often in the second half of the year. Finally, on Equine. So with this -- for us, this is a small but growing and profitable portfolio with the leading brand as Jenny noted in Danilon. Danilon was again one of the key drivers of the growth, but we've also seen some growth across other brands within this part of the business, notably in our fluid range. We're building the Danilon brand outside of the U.K. That's about 90% of the Danilon sales. So we've seen that we've been -- we've done some territory expansion across 3 territories, and we'll start to see benefit of those coming into next year.

I was just going to cover up a little bit more about the portfolio. Before I do, I did forget to mention that if you do have any questions, we'll take them at the end. If you raise a hand, we can come to you with questions. So just a reminder on that one. So in terms of where we are with the portfolio, a lot of the work that we've done in the past, we're very comfortable with where that leads us and where we're moving to. So we have got a mix during the portfolio, which is, I think, a good thing because it gives us the balance across the portfolio. So we've got some really mature products with strong brands and differentiation that continue to grow. Chris mentioned Orozyme, Danilon, we have a product called Dinalgen, and those products continue to be really the mainstay of our existing portfolio. We also have worked very hard on making sure that we have more products in our portfolio that are what we described as owned and long-term licenses. These are effectively either the products that we own the IP on or licenses that actually are evergreen, nobody can take them back. So that's now at about 65% of revenue. I think it's moved from around 50% a few years ago. The other big area for us, similar to our peer companies, is we're moving our portfolio from generic towards novel products. So we're very conscious that we've got some great generic products in our portfolio, and we will continue to support those, but we're very keen to make sure that we're moving to novel products such as Daxocox, Plaqtiv as a larger percent. And the other encouraging thing is that recent launches over the last 3 years are now accounting for about 10% of revenue, which is an indicator of how we're trying to move forward to gradually grow this business and compensate for whether there may be price competition or technology advance. So 10% of revenue in recent launches. And just on the right-hand side is a bit of a reminder that in this market, particularly in Companion Animals, you see that the life expectancy is increasing through a lot of the time, improvements in advances in local care for these pets. We have got an increase in pet population. So that's driving the opportunity to value over the lifetime of the pet. And we are actively looking at those areas on the right-hand side, dental care, obviously, some of the things around ear infection, stomach upset, we're launching some products in that area next year, kidney disease, heart disease, thyroid, arthritis. So we're very active in those areas that are growth areas giving us an opportunity. We are not playing significantly in the parasitology vaccines area, which -- so those of you who are looking at companies in that area, you can see that there's quite a lot of movement in that area. But we don't play there. We're not investing in R&D. So really, we recognize that our volume growth is being driven by generics. So more pets being treated. The value growth is really being driven by innovative and novel medicines and within that, things like Daxocox. Okay. Chris is driving the slides. And just as if you haven't heard enough about Daxocox and Plaqtiv, but just making sure that we cover off where we've got to, really pleased with how this has performed -- Daxocox is performing. And there are more and more elderly dogs with arthritis. The prevalence of arthritis is increasing. And we know that the recognition of the opportunity to treat those with arthritis is gaining momentum. We have 2 new indications for Daxocox on track for 2025 submission, early '25. So they will be going through the regulatory process next year. We also are actively discussing opportunities to expand the range of indications on this discussion. If you think about some of Daxocox competitors, Daxocox has this great advantage to give it once a week. Other competitors have a broader range of indications. So we're gradually expanding the range of indications, both in terms of species, but also types of pain that Daxocox can treat. We got approval just after the half year for 2 new tablet strengths, which may seem a small addition. But actually, given that the real benefit of Daxocox is this once-weekly simplicity of dose, these 2 tablet strengths help to ensure that, that continues to be simple so that you can give one tablet instead of multiple tablets particularly to larger dogs. The regulatory process is continuing into more and more countries globally. So Daxocox, as you know, we focus predominantly on Europe. And with our partner, we're now increasing that and getting approvals over the period of time in a lot of other countries, and that work is going on. So that will help to build that Daxocox brand globally. On the other side, with Plaqtiv continuing to see great enthusiasm from our customers as well as from our sales team, which is kind of that magic combination. It's also a growing segment. Vets and pet owners are realizing that actually dental disease is an important segment. New product development is progressing so that we're working with our partners to add new indications and increase competitiveness. We are now expanding -- similar to the Daxocox piece, we're now expanding internationally with some really exciting opportunities being brought forward in some countries outside of those, where we sell directly. And as Chris talked about, we now have the opportunity to maximize the Plaqtiv franchise in all sales channels in Europe and the U.K. We're currently recruiting to bring people in with the expertise. We're also working with an external consultant, who is helping to make sure that we launch into new channels with the right capacity and capability and manage this to ensure that our prime customer, which is the vet, is part of that move, and we continue to grow in the veterinary practice as well as growing in retail. So we're just getting that balance right.

Okay. Just, I think we covered off most of the given on this slide. So the headline, again, transformational change in the balance sheet. If you look at the cash flow bridge at the bottom, it's about GBP 28 million inflow from Identicare and the equity disposal instead, and then about GBP 4 million of free cash flow. So they're the main drivers of that increase from the prior year. And at the same, we've got a really strong increase in cash conversion. Look on the right-hand side, what we can see there is it's in the working capital movement, just to give a bit of color on that. So firstly, in terms of inventories, we've had an increase in inventory this year. We guided to this when we're coming into the finals because we had a very low base to start from coming into this year. The situation was reversed in '23 first half, where we actually stopped build up to the end of '22. And that continues into creditors. So this is where the main big movement is as well. So we had an increase in the period in creditors. That's really around phasing of purchases of inventory. So quite a lot towards the end of the first half. Again, contrary was prior where, as I said, we built inventory in Q4 '22 and paid for that in effective Q1 of '23. The other point to note was that we had a change in our IT partner that helps us with calculating the payment of retro discounts in the U.K. because customers are wholesalers, but we deal directly with the vets. So there was a delay in 1 month's worth of discounts there. So again, that came through as kind of one-off in the prior year. As I've said, on target to deliver the 85% to 90% cash conversion for the full year. As ever, that really will depend on trading partners as we go into Q4. And actually, we've talked about some supply disruptions and decisions we may take regarding strategic stock build to improve that surety supply and support sales into '25. So target 90%, but we'll see where we get to. I talked about the refinancing. So where we are is the RCF was increased by about GBP 3 million, from GBP 41 million to GBP 44 million. The acquisition line was repaid obviously with the cash in the balance sheet. Those facilities run out to March '29. And for those that area are interested, the margin on our facilities actually we've reduced a bit from 1.5% to 1.25% above the order book.

Okay. So how we're going to spend money. We haven't made any significant change in the way that we're looking to build. We're active in all of these areas. We've tried to add a table to the right-hand side, constantly moving, but this is how we are looking at our M&A, BD and then BD strategy. Geographic footprint, we're still focused on Europe, U.S. selected Rest of World, still desperately chasing France. We want business in France. And these are really -- we want to drive additional revenue and EBITDA today, et cetera, increasingly attractive for us to in-license products, particularly when we have a fuller European footprint, but also the value of global deals. So just on the right-hand side, you can see that we've got one NBO in an increased geography, and we've got 3 early discussions going on. And those are companies who fit that bill. They have revenue and EBITDA and they give us an opportunity to build our footprint. So those conversations are ongoing. In the acquired license brands or companies, we're still talking to large company tail brands looking -- we're not talking to tail brands, but we're looking to come -- we're talking to companies about their tail brands. Slow process, to be honest. But we're also looking at brands in the U.S. or rest of the world that are not yet in Europe. Companies that build scale in existing markets, I think we've said previously, Germany and Italy, we're very active. We've actually had some NBO, some really very active in Europe, and we'll continue to have that building scale and also companies, who have products that strengthen the existing portfolio. So in that -- in 3 -- sorry, 6 in-depth discussions in that blue box on the right-hand side, those are a mixture of companies who have a great lead brand that we'll be launching in the next sort of 1 to 3 years. And sometimes, the company is for sale as well. So it really is sometimes brands, sometimes companies, sometimes depends on negotiation, could be both. And we've got one of those in early discussions. And then when we look at in-licensing early-stage assets, as you know, we've got the VHH antibodies from -- that we in-licensed from a Dutch company, Orthros. And those, we see as really -- they're high risk because they're really early, but they have a potential to create a game-changing growth trajectory. And so we will continue to have a look at those, being very careful about that high risk, how much money we're spending. And so at any one time, we're always talking to people about where the market is going, what the opportunities might be. And I think we're learning a lot about that area at the moment. So we have one in-depth discussion. Actually, that's -- that one isn't particularly high risk, but it is something that will need some development and pipeline support. So -- and then in our new product development team, we have 6 products that are in launch planning for 2025. There's a couple of new ones. There's a couple of line extensions, and there's a couple of new indications. So we are very actively focused on getting our launch planning right. Chris mentioned that some of the negatives or the slowdown that we saw in the first half was actually around new products not launching on time. And I think that's a bit of a mix about us needing to build a capability to do it right versus challenges around supply for some of these new products. So we're really focused, and it's a key area for us is getting these -- getting the launch excellence just as a repetitive effective process. We've got 6 products that we're looking at. And we're discussing 4 that are our mix to reach of products that we could bring in, that could launch in the next couple of years, but also products that we are looking at in terms of line extensions, and I mentioned Daxocox. We're looking at some new opportunities there. So really, really active. These are the sort of today's snapshot of the activity that's going on here. Beyond that, there's a lot of companies that we keep in contact with, and we're very actively engaged around the world on this particular pillar of our strategy. So we're continuing to also build out that balanced pipeline. I've said a bit about what we're doing there. We're looking for new products that meet an established need with a high probability of success. We're looking at extending existing products, and we're looking at novel products. And the really key point here is that we are trying to build that balance. So we have some products that we can launch both with a high probability of success, but also soon high probability of success and over the next 5 years, extending existing products where the risk is low because we know they're working. And so getting the balance of that low-risk piece and then just getting that balance right to products that are really novel and could be fundamentally game-changing and so that's the work that we're doing. In fact, this week, we're doing a portfolio prioritization session just to make sure that we have that balance of risk and opportunity because now that we've got a strong base, really, this is about the thing that is going to continue to drive that ongoing predictable growth in our portfolio and then start to really fundamentally change the trajectory if we can develop some of the novel products. Just a quick word. There's not much to say really along the VHH antibody development program, which is ongoing. I mentioned that we have some preclinical work that's continuing to go on. This is looking at how the product works in terms of pharmacokinetics, pharmacodynamics, how you make it, all the fundamental preclinical work that needs to go on to build the regulatory file and that's all ongoing. We've also, over the summer, initiated some clinical studies, particularly in the equine indications. No news for you today. We're looking at where we go next with that. But that really is an important step forward for us. So we've got the clinical equine studies going on. And we're looking at other indications and other species in Companion Animal, Production Animal and in Equine. So this partnership is really exciting. When you look at what our peer group companies are doing with, doing something very similar, and this is kind of pumped for the future.

Okay. Just conscious of this slide is largely a repeat of what we showed in April. So I won't go through everything on the left-hand side. I think just to pull out on organic growth. So again, the debt and the only equity capacity we may have is reserved for M&A. This is really around focusing on accretive growth. Jenny has given me some examples there. We are going -- we do maintain our target of up to 2x EBITDA. So we do feel comfortable that going to that level for the right deal with the right profitability and cash generation. On new product development, again, cash conversion are really important because that's funding for our pipeline. We're guiding to -- we really want to increase the investment. And then that really -- the word balance, I think, as you heard Jenny talk about a few times. So again, capital allocation, if we go down into more detail, we need to work out kind of that 5%, maybe a bit more, how do we allocate between high-risk, high reward, et cetera, and lower risk, lower reward. And again, and we have to perhaps give some more details in due course. On the dividends, you've seen -- we've announced still declared a 2p interim. So that's the same as the prior year. So we'll continue to pay a dividend. The policy is unchanged. I think the right-hand side is showing that we paid GBP 12 million in the last 5 years, including the final that was paid post year-end. And again, I may have mentioned before that that's in the context of GBP 20 million of reduction in debt as well. So the business is continuing to generate healthy levels of free cash. At the bottom, we've got the GBP 33 million on the balance sheet. We've now got the RCF out to March '29. So GBP 50 million is up to 2x leverage. On our base business, we can leverage obviously on what we acquire. So that's a minimum level of capacity that we feel we have for inorganic growth and in-licensing late stage.

So that was a pretty quick run through where we are. We're really pleased with the first half. It's great to see Production Animal and Equine continuing to grow. And really that's for the existing portfolio that shows balance and we have an opportunity to continue that positive momentum. Daxocox and Plaqtiv, really strong double-digit growth. And that sales and marketing excellence is just really underpinning that performance. And it gives us great confidence that when we bring new products in, whether we bring in-licensed products because we're really building a team, who know how to sell effectively to our veterinary customers. The increase in underlying EBITDA reflects improving gross margins, and we will continue to invest. This is a business that we need to make sure that we've got the right skills and the right people. Identicare and STEM, obviously, increased our dealmaking capacity, and we're making the most of that is really active. And we don't support it. It has really backed up. VHH going well. It's early stage, but we continue to be excited about what those might deliver in the long term. And that encouraging first half performance, positive start to the second half. As Chris mentioned, we've seen that momentum continue in July and August and September. So we fully anticipate our year-end results to be in line with market expectations. So that's the sort of summary. Happy to take questions.

I'm just trying to -- I think, Christian, you were very quick there. Use the control -- Christian, can you -- do I need to do anything to let you in there? Just wondering How can I unmute you?

If I'm allowed to talk -- Christian? I can't talk through -- is he coming out? Okay.

Christian, can we hear you?

Okay. It's actually James Orsborne, here from Stifel. But I think Christian has also raised his hand, but I'll happily fire away. I guess, in the first half, on the Plaqtiv and Daxocox line extensions, I guess, has there been a bit of feedback there and what you're kind of hearing in the market? Or is there a bit of a product refresh? I guess how much weight should we be putting on those when they come through? That's the first question.

Yes. In terms of how much weight, I can't give you numbers. But what we see is that for a vet, it's much simpler to be able to -- for Plaqtiv, for example, one of the things they love about Plaqtiv is that we already have wipes, water additives, et cetera, et cetera, and they like having a range. So in terms of quantifying exactly how much uplift that will give us, it's really hard. But we know from our vet feedback that they really like having the range, one of the things we're launching next year will be [ Choose ], which we know are really popular dental -- a way of giving dental products. So we know that, that fits. On Daxocox, it's really interesting because what we've discovered about Daxocox is the decision to prescribe is quite -- has quite a lot of inertia around it. And because vets are treating all sorts of different sorts of pain, when they see a dog present with osteoarthritis, their habit is to use a nonsteroidal that they use across the board with pain. So what we know from vets is that the more -- the broader the opportunity to use the product, the better. So that's why the new indications or Daxocox will really help to build brand because it addresses that inertia and habit in a vet. So they don't have to think, "Oh, this is a particular type of dog. Oh, it's osteoarthritis pain." Hopefully, in the future, they think, "Oh, this dog is in joint pain, postoperative pain, et cetera." And really having a once-weekly formulation will be the driver of that then rather than having to remember what sort of pain they're treating. So that's the feedback that we get. So both of them are very aligned to our customer feedback.

Okay. Great, and that's really helpful. And then I guess just on seeing a bit of a shift, I guess, towards OTC in the veterinary market. I don't know if this is a U.K. thing based on the new prescription rules that came in, I guess, I think it's about a year ago now. I guess, I'd be interested to hear what you're seeing in the market from that perspective, but also perhaps is there opportunity for you guys inorganically to sort of tap into the OTC growth?

Yes. So I'll just pick up the second point first. We are -- we keep an eye out when we're doing our BD and M&A projects. We recognize that the OTC market is strong, and it's growing. It's also phenomenally competitive. And so whereas in the veterinary market, you have that benefit of really being able to show technical advance and opportunity there. In the OTC market, it's a lot of brand building, which we all know is an expensive occupation. So we're keeping an eye on it. We are talking to some OTC businesses. But what we're really looking at is the channel. And so working with channels that are focused and so not trying to splash into pets at home and everywhere as a leading brand. So we're doing it in a kind of managed way, but it is included in our assessments of BD and M&A opportunities. So we are looking. In the U.K., you do see a lot of growth in the OTC business, but a huge amount of competition. So we just need to work that one out carefully.

Okay. That's helpful. And final one. Just on the Equine market, obviously, Danilon seems to be improving quite nicely. Are we seeing more of an opportunity there for you guys? I guess, perhaps now, but also within the R&D pipeline, do you see opportunity to accelerate there, given the Equine market seems to be growing quite well?

Yes, definitely. And I think out of the table that I showed, I think there's probably 2/3 are in Companion Animal and 1/3 in Equine, and some of them are in both Companion Animal and Equine. So as our understanding capability and our connection with the vets is improving equine vets. And certainly, thinking about the future of the VHH antibodies equine is becoming a more important part for us, I think. And also, interestingly, when you look at some of the large peer companies, they are less interested in equine. So it's -- it's a smaller customer group. It's a more focused customer group, and also there's less people pushing in that market. So I think it's really exciting area, but I...

Very helpful.

All right. Thanks. And Seth, you also got a hand up...

Can you hear me now?

Yes.

So just a couple of questions then, if I may. First of all is, just looking at the percentage of sales from new products. I think you talked about kind of 10% of sales coming from new products. What do you think you can get that to once you've kind of deployed your capital in terms of kind of new acquisitions and line extensions? What should we be thinking as a longer-term target for that?