Lotus Pharmaceutical Co Ltd

TWSE:1795

Earnings Call Transcript 2024-Q3

[Yu-ying Yang, executive]

Okay. Good evening, good afternoon, everyone, and welcome to Lotus Pharmaceutical's Third Quarter 2024 Earnings Call. This is Yu-ying Yang, Corporate Communication of Lotus, and thank you for joining us today.

So, on today's call, we are pleased to have our CEO, Petar, and our Group CFO, Bjartur with us. They will provide insight into the strong results we have achieved this quarter, and share updates on the progress of our key initiatives. And we encourage you to submit any questions you may have through the online platform at any time during the call. And I will read your questions to the management during the Q&A session following the preparation remarks.

Okay, now, I'd like to turn the call over to Petar, who will begin with an interview to the third quarter. Petar, please.

[Petar Vazharov, executive]

Thank you, Yu-ying. Good afternoon everyone, and welcome to the third quarter earnings call for Lotus Pharmaceutical. I'm glad to have the opportunity to report that Lotus has delivered outstanding results in third quarter 2024. In fact, this quarter performance has been the second highest in Lotus' history. So I would like to congratulate Lotus' team for outstanding deliverable on execution.

The revenue in third quarter reached TWD 5.2 billion, which represents 10% quarter-on-quarter and 40% year-on-year growth. The EPS reached TWD 5.98, accounting for 17% quarter-on-quarter and 25% year-on-year growth. We have seen also great improvement in both gross margin and operating margin, which reached 63% and 40% respectively, especially operating margin further growth 6% quarter-on-quarter and 8% year-on-year.

The highlight for third quarter, besides of course the strong financial performance is the deal signed with Sanofi for the acquisition of Alpha Choay in Vietnam and Cambodia. This is a leading brand which obviously is changing significantly our presence and footprint in one of the key largest markets in Southeast Asia, Vietnam.

Going through the main business lines, Asian business grew 5% quarter-on-quarter and maintained similar level year-on-year. The key driver for quarter-on-quarter growth in Asia have been Teva Thailand's acquisition. As you remember, we signed the deal with Teva for acquiring their business in Thailand in June. And as 1st of August, we have successfully closed the transaction. So as of 1st of August, we are consolidating fully in our books this business. And I'm very happy that we managed successfully to integrate the team, the commercial team. And we are seeing very strong results coming from this business, which is exceeding actually our expectations which we set prior to the deal with Teva and discussed also prior to approving the deal with the Board of Lotus. Also, we have seen very strong performance in addition to Taiwan, also from Korea.

Our flagship product, for example, Qsymia year-to-date for the 9 months has achieved 21% growth compared to first 9 months of previous year. Also Mercilon, which is another flagship product grew more than 40% year-on-year for the first 9 months of 2024. Overall, we launched 11 SKUs in Asia during third quarter. I would like to highlight few launches which are quite important. We launched [ Aerofinib ] in Vietnam. It's a sizable anticancer product. So we are basically in the first wave of launches. We launched also [ Sorofenib ] in Taiwan. This is more than USD 20 million brand according to IQVIA sales. And we are well-positioned to capitalize on that. Very important milestone which we delivered on third quarter in Taiwan, we have successfully switched supply chain of Cialis, which is one of our key products overall in Asia, from import product from [indiscernible] supply chain towards manufactured in Taiwan, in our facility in Nantou. So this allow us to increase the gross margin with 50%. So this is, obviously will have significant impact on our profitability going forward. So this is very important. Obviously it's not a new market launch, but this is launch from the perspective of switching from, let's say, cheaper supply chain and achieving significant synergy out of this important brand acquisition deal.

Export business also has basically shown significant growth, quarter-on-quarter 16%. And as a matter of fact was the fundamental pivot in the year-on-year growth for Lotus driven by extremely strong performance of Lenalidomide in the U.S. So basically we have seen on quarter-on-quarter and year-on-year very strong performance for Lenalidomide sales in the U.S. which are fully offsetting the decline in Buprenorphine/Naloxone. Outside U.S. also we have seen very strong performance with our oncology products. If you look at the first 9 months of the year, for example, Lenalidomide sales outside U.S. increased 70% compared to same period last year. Another flagship product for us is Vinorelbine, which is launched back in 2018. The sales has grown 37% during the first 9 months of this year compared to the same period of last year. Enzalutamide soft gel product, which is also internally developed and manufactured by Lotus, the sales revenue for the first 9 months more than doubled compared to the same period of last year. So really, really strong performance with the export not only limited to the U.S., but also outside U.S.

Next slide, please. I would like to share with you some positive updates on Lotus' environmental, social and governance performance. We have completed our first greenhouse gas emission inventory, which has been verified by a third party. This is ahead of regulatory requirements in Taiwan and demonstrates our proactive approach to sustainability. Additionally, we have established an [ ECG ] (sic) [ ESG ] workforce to further integrate sustainable practices into our daily operations. In our previous Board meeting, our sustainability reports also verified by third party was reviewed and approved by the Board of Lotus. We are also excited to report that our ECG (sic) [ ESG ] ratings have been steadily improving across several global benchmarks, underscoring our commitment to responsible governance and sustainable practices.

One highlight is our MSCI ECG (sic) [ ESG ]rating, where we have seen a notable improvement, moving up to an A rating in October '24 from BBB rating in March. These advancement reflects our efforts in areas like human capital development, quality initiatives for successfully past several health authorities, GMP audits and also corporate governance. In summary, these improvement ratings across multiple ECG (sic) [ ESG ]platforms reflect our dedication to high standards across all areas of our operation and also they validate the hard work we have put in and motivate us to keep us push forward in our journey towards greater sustainability.

Next slide. Moving to key business achievements in third quarter other than financial results. In terms of filings and approvals and launches, on the export side, I would like to highlight the launch of Pomalidomide in Switzerland and Israel. So we are one of the first company we successfully developed generic version of Pomalidomide, which is a follow-up product of Lenalidomide, and it's a blockbuster. And we are rolling -- rolling the product as per the plan, launching with customers on first possible date after patent expiry.

We received approval for Nintedanib, which is our largest internal product launch in the next 5 years. We received approval in Canada and U.K., so which are 2 of the key markets to be launched from 2026 onwards. And also, we have received Tofacitinib approval in Canada. In terms of update on manufacturing side, it's very important deliverables here. We have successfully passed U.S. FDA and ANVISA health authorities inspections. U.S. FDA inspection took place in April, once again closed successfully during third quarter of this year. And ANVISA inspection in end of Q2 and was closed successfully in Q3 this year. So these are one of the most reliable and demanding regulatory authorities worldwide, and we are quite proud with this achievement.

On the R&D and business development side, the update is that we have completed 1 PK study successful. We have initiated 1 new oncology project. And we have several submissions planned for end of 2024. Business development side, obviously, the highlight is the deal signed with Sanofi for Alpha Choay brand in Vietnam and Cambodia. We have more than 20 products currently under discussion. Some of them are on a contractual phase, some are early stage, some are in due diligence. So there's a lot going on, which will obviously reflect the pipeline and the footprint of the company in the next 3 to 6 months. I would like to give you more flavor on Alpha Choay acquisition in Vietnam, Cambodia. Basically, the sales of the brand are 95% driven by Vietnam. But of course there is some small portion linked with Cambodia. Alpha Choay is one of the most popular brands in Vietnam. It's an anti-inflammatory treatment. The brand has a history of more than 30 years and has significant market share, 25% in terms of value, which has been called by Sanofi regardless of significant competition. So the brand value, the brand recognition is extremely, extremely high. The product is manufactured by Sanofi in their facility in Vietnam, local facility, which is approved also by some international health authorities like, for example, Australian health authorities. So it's a high-quality manufacturing site. The brand sales in 2023 reached $22 million with a very high gross margin and expected EBITDA margin. So definitely this deal is completely changing the game for us, not only in Vietnam, but overall in Southeast Asia, it's adding significant critical mass to the business. So you can see here on the slide, our Vietnam revenue will increase 4, 5x only based on Alpha Choay deal.

So we are currently working together with Sanofi and also our lawyers and Vietnamese authorities to close the transaction. It's subject to antitrust approval. So we are expecting closing basically beginning mid first half of 2025. So you don't see any, obviously, contribution from Alpha Choay year-to-date and unlikely to see any contribution by the end of the year in terms of 2024.

We have a lot going on now actually in Southeast Asia. It's a combination of brand portfolio acquisitions, also M&A projects. So some of them are quite advanced, some are under due diligence. So if we are successful with these transactions, this will completely change the scale that we have in Southeast Asia. I would like just to remind investors that this year, basically, based on Teva transaction, we will double our revenue in Southeast Asia. Next year, having Teva plus Alpha Choay during certain periods of time after the antitrust approval as well as of course contribution from our existing portfolio and launches, we will double the revenue compared to 2024. And if we are closing all the deals that we have now ongoing, basically we'll be reaching the goal to build Southeast Asia to a level which we have now as a business in Korea, which is between $160 million, $180 million.

Next slide. Next slide, please. Okay. So on this slide we are basically giving update on the progress with the rollout of the existing products, which are already completed as development from our internal R&D. I would like to give you a particular update on Enzalutamide. Teva, our partner in U.K., didn't manage to invalidate the patents related to the products. And this will lead to delay of the launch of our product, which is capsule-based in the U.K. So Teva is committed to continue to appeal the U.K. court decision. So they are quite confident in the positive outcome. Meanwhile, we have received significant increase in the demand from our existing markets, which are the products already commercial, particularly Southeast Asian markets. And this new demand will fully offset the delay with the U.K. launch. I mean it will be lower volume but significantly higher profitability. So profit-wise, for sure, it will not only offset, but will surpass the profitability that we could have had from U.K. launch of Enzalutamide in U.K. As a matter of fact, we shipped a significant volume to Teva for the U.K. launch. And these quantities have been fully paid by Teva and this was a decision basically to build the stock at their own risk. So we will not have any reversal of sales. But of course our interest has been and of course with Teva together to continue to supply to replenish the launch buildup. And we are hopeful that they will have a positive outcome with the U.K. court decision.

We are also quite busy preparing for several important launches like Nintedanib. Nintedanib is our -- again, it's going to be our biggest launch from internal manufacturing, internal R&D perspective based on -- in the next 5 years. So the targeted launch year is 2026. So this is a global launch, similar scale as Lenalidomide in terms of number of markets. Peak year of sales will be above $45 million. So we are well positioned to deliver on that based on the partnerships that we have already signed as well as progress on the regulatory side. I mean we are currently also working on validating the product. We have also, as you know, tentative approval in U.S. and the FDA will grant the final approval based on [indiscernible] patents in the U.S. We have also approval in Europe. And again, we are moving forward with approvals in other markets like Asia, Latin America, et cetera.

Midostaurin is also an important launch for us. It's similar to an internally developed product, soft gel, oncology, highly complex. We are, as you know, first to file in the U.S. [ C-1 ]. We have finalized the settlement with the originator. And currently the team is working on the product validation. On the last 3 products, I would like to just highlight here that we finalized successfully the developments, passing through highly complex clinical development programs. And the overall market size for the brand is -- for these 3 products, the overall market size, addressable market size is more than $2 billion. So we are scheduling basically dossier filings for these 3 products during last quarter of 2024 and first quarter of 2024. So these are effectively the latest addition of our existing portfolio out of -- developed out of Lotus.

Moving to the R&D pipeline. You can see here there is not much dynamic compared to previous quarters. So we have added one program, new program, and we are working on several co-development projects with API companies as well as CDMOs. The objective is to -- we are targeting more first-to-file opportunities where we need definitely a very strong and rock-solid partnership with API companies, which are not only reliable from a quality perspective, but also in position to provide a strong IP advantage, which is obviously a critical success factor for first-to-file.

When it comes to partnership with CDMOs, like we had communicated previously, our objective is to develop a very competitive and lucrative pipeline of products. And sometimes we have constraints, internal constraints in terms of IP position, in terms of capability. Wherever we see opportunities which are outside of our capability to develop manufacture products, we are moving now towards a partnership model. So we have already started a few projects with CDMO companies, which has proven capability and track record in technology that we don't own. And the model is here that we are basically jointly developing or contracting the development with them with full rights on the IP. So by doing this, obviously, we are further diversifying our pipeline of products.

So currently, we have more than 25 products, majority, of course, oncology. And if you can see here, big contributor is 505b2 also as also first to file. Going forward, we will see more first-to-file opportunities and more actually 505b2. So clearly, we want to go more into 505b2 and without further complexity. Of course, we will also remain focused on day 1 launches, which are clearly creating big opportunity for the company and also adding strong diversification to the business.

Next slide. On the next slide is update on the business development pipeline. So currently we have more than 30 active projects in the BD. And here we have much more diversification on the BD side in terms of therapeutic areas. So we are dealing with a number of partners which obviously has different capabilities and access to technology and manufacturing capability. Our biggest therapeutic area is primary care lifestyle in the BD pipeline. Also, we have a very strong focus on oncology, which is overall big therapeutic area for the -- the largest therapeutic area for the company as well as CNS, nephrology and women's health care. In terms of product types, clearly BD is focused much more on complexity, high barrier products. You can see here basically more -- half of the pipeline in the BD is effectively proprietary products, 30% new chemical entities, 7% 505b2, 7% is biosimilars and 4% are brand acquisitions, which we are currently discussing with large international companies.

Next slide. I will hand over now to Bjartur for the update on the financial results.

[Bjartur Shen, executive]

Thank you very much, Peta. So I'm also very happy to report the second best quarter financially in the history of Lotus, second only to the Q3 of 2022, 2 years ago, when the company first launched Lenalidomide in the U.S.

So now during this quarter, the net sales grew 14% year-on-year to TWD 5.2 billion, which is 10% from the previous quarter. And gross profit grew 25% year-on-year to TWD 3.3 billion, which is 15% higher than the previous quarter. For the 9 months ending in September of 2024, total revenue -- net revenue reached TWD 14.2 billion, representing a 5% year-on-year growth. Gross profit rose about 7% to TWD 8.5 billion. So the Q3 gross margin came in at around 63% comparing with 58% of the same period last year, which represented a significant improvement. The rising gross margin was contributed by a larger portion of revenue coming from highly profitable products such as Lenalidomide in the U.S. and a smaller portion coming from less profitable products such as, for example, generic Suboxone.

So the total operating expenses landed around TWD 1.2 billion in Q3, which was about 3% less than those of the previous quarter. And comparing with the same period last year, the OpEx increase was also very modest, only about 3% higher. So as a result, the operating income rose 43% comparing with the same period last year. So the Q3 operating income landed around TWD 2.1 billion with about 40% operating margin. So for the first 9 months, Lotus earned about TWD 5 billion in operating income, which was more than the company earned during the entire year of 2023. And the net earnings-wise, Lotus earned TWD 1.57 billion this quarter with a net margin of approximately 30%. This was 26% higher compared with the same quarter prior year and 18% higher than the previous quarter of this year. And the earnings per share was TWD 5.98.

So during this quarter, the company also recorded about TWD 109 million of other losses, which was mainly related to unrealized U.S. dollars, Taiwan dollars FX fluctuation during the month of August. And on top of that, we recorded about TWD 22 million of impairment loss related to the termination of Enzalutamide tablet program. So if absent of these 2 factors, the EPS would have been around TWD 6.44. So on the impairment, I want to clarify, as Petar mentioned, we developed the product -- originally intended to develop products in capsule as well as tablet forms. And the impairment was actually related to the tablet form, not the capsules that we have currently. So as a developer it's late with our tablet form, therefore we chose to abandon tablets and focus on capsules, of which we remain very optimistic about the capsule market. And like Petar mentioned, we have received significantly more favorable demand for our capsules from the South American markets. And the new demand more than offset the delay in the U.K. and even more favorable pricing.

So now moving to the nonoperating side. In Q3, like I mentioned earlier, the company suffered a ForEx loss, mostly unrealized of approximately TWD 100 million. So compared with the ForEx gain of TWD 200 million last year, this represented a swing of more than TWD 300 million, driven mainly by the U.S. dollar versus the Taiwanese dollar exchange dip in August. The U.S. dollars later recovered gradually against the Taiwanese dollars. However, it's important to mention that year-to-date, on the first 9 months, the company still recorded a favorable ForEx gain of approximately TWD 244 million. So the net financing expenses were TWD 115 million, which is very much in line with the previous quarter, but slightly favorable compared with the same period last year. And the company's effective tax rate was 17.5% this quarter, which is more favorable, thanks to a number of tax refund achieved in Korea.

So I mean, of course, this source of favorability was ad hoc in nature. So on average, we're still benchmark towards about 21% effective income tax rate on a full year basis. So all in all, the third quarter was very profitable for the company, and the company delivered a net earnings of TWD 1.56 billion with a net margin of almost 30%. So this means TWD 5.98 EPS for the quarter and TWD 15.03 for the 9 months. And of course, the quarter could have been more profitable if they were not for this EPS loss to the FX fluctuation, but 30% net margin will definitely qualify Lotus as one of the most profitable companies in the industry today.

Okay. Now moving to more market-by-market dynamics. So in Asia, our domestic revenue grew about 3% year-on-year this quarter. Now our turnover as a company in Taiwan is the third largest among the locally owned pharmaceutical companies, trading very closely the traditional local giants like CCPC and TTY. And in Korea, our Korean revenue was 4% less this quarter compared to the same period last year. And this variance was mainly driven by absence of the income from a royalty buyout that we recognized in July of last year. So other than that, Petar mentioned as well our product sales in Korea actually grew very healthy. So Qsymia grew 21%, Mercilon grew 45% and so the business is in relatively good shape.

So rest of Asia revenue grew approximately 12% this quarter. In Thailand, the revenue grew almost 200% in Q3 due to the consolidation of Teva's business since August of this year. And [Audio Gap]

offset by decrease of revenue from the Vietnam market this quarter because of the timing of product shipments compared with prior year. So in the export market, the revenue from the U.S. increased about 26% to about TWD 2.5 billion [indiscernible]. And the revenue from [ Lena ] sales increased 109% year-on-year this quarter. However, the generic of Suboxone and Buprenorphine/Naloxone revenue actually decreased by approximately 40% versus the same period last year. For the first 9 months ending in September, Lenalidomide revenue increased about 34%, but generic Suboxone decreased about the same magnitude compared to the same period last year.

So we talked about several times before during previous calls, generics are a lot less profitable in terms of gross margin compared with Lena. So actually, this change of the revenue mix contributed to the average gross margin increase from 58% to 63% year-on-year. So outside of the U.S., the export revenue also increased more than 100% versus the same period last year. So higher Lena sales to South America and Europe as well as the emergence of Enzalutamide as a new major product were among the major drivers of revenue growth for this period.

So for the first 9 months, Lenalidomide remained the largest product to export to markets outside of the U.S., which shows 70% higher revenue compared with last year. And then the second largest product today is Vinorelbine, which also grew about 37% during the first 9 months. And then the third largest product today -- became Enzalutamide, which doubled up year-on-year. So in summary, the overall revenue from export markets outside the U.S. increased about 50% during the 9-month period. So the company will basically remain an outlook of revenue growth of 9% to 10% on a full year basis with at least 50% gross margin and at least 30% operating margin. So that is to say we do not think there will be any problem to deliver this original guideline that we gave in the beginning of the year. And we are very confident to deliver the 2024 numbers on a full year basis, especially a noticeable double-digit growth of net earnings.

So here, on the next slide, you can see the diversity of Lotus' revenue remains largely consistent with the prior quarters. That is to say about 53% of the revenue this quarter came from exports and about 47% from Asia. And in terms of type of products, about 53% from generics, export of generics, to be specific, and then about 28 or 1/3 of revenue currently coming from brands, brand products as well as innovative portfolio of the company. So about 19% of the revenue remains to be generic sales in Asia.

Now, so finally let's delve into EBITDA, cash and debt. So for the last 12 months, Lotus delivered an adjusted EBITDA of approximately TWD 6.9 billion, representing an increase of about 7% compared with the year before with the LTM or last 12 months EBITDA margin of approximately 39%. In the following slide, we will show a little bit later, you can see Lotus is among one of the most profitable companies in the industry in terms of EBITDA margin. If we benchmark our business to the largest industry giants in the world, Lotus is equally more profitable, even though we're very tiny in terms of revenue still.

So moving to cash and debt. So during the quarter, the company reported a cash inflow from operating activities in the amount of TWD 2.4 billion before the payment of tax and interest. And this was about TWD 1 billion higher cash inflow compared with the previous quarter. And then about TWD 880 million higher than the same quarter last year. And after the payments of tax and interest, we still netted about TWD 1.9 billion of cash inflow this quarter, which is significantly higher than the prior year and prior quarter.

So additionally, as you know, that the company closed out the acquisition of Teva Thailand with a payment of net TWD 1.2 billion or approximately USD 37 million to the seller during this quarter, and that was reflected in the investment section of the cash flow statement. So considering the interest differentiate between the U.S. dollars and Taiwanese dollars, we actually choose to draw on the cheaper Taiwanese denominated loan to finance the acquisition and hold on to the cash, which pays a higher interest in U.S. dollars, even though the company had quite sufficient cash on hand, if we were to finance this completely with equity.

So during the quarter, the net cash on hand increased about TWD 830 million despite the company also paid out TWD 1.2 billion for the previously approved dividend of the year, of prior year. So at the end of the quarter, Lotus had a cash on hand of more than TWD 3.6 billion. And due to the acquisition, our total net debt increased about TWD 1 billion from the previous quarter to approximately TWD 8.5 billion. However, the leverage remained very much the same. So it is still about 1.23 versus 1.24 from the quarter before.

So with that, I'm going to turn back to Petar. Sorry, I actually forgot to show you this beautiful chart benchmarking us to the industry leaders. As you can see, the last reported quarter of EBITDA margin reached over 40% with Lotus and short of the most profitable company in the world, which no one noticed with their GLP-1 products, but similar to the giants such as Lilly, Pfizer and actually quite profitable as compared to a similar generic company like Viatris.

So now I want to turn back the floor to Petar to talk about the business outlook.

[Petar Vazharov, executive]

Okay. Thank you, Bjartur. Thanks to our dedicated efforts and, of course, investment in both R&D as well as business development, we have been building a robust pipeline for the next 5 years. So basically, you can see here we have already 63 molecules for launch, ready for launch, of course, based on patent expiry in different geographies to be launched from 2024, 2029. The peak year of launches based on this 5 years period is 2026, where we will be -- where we are targeting to launch 22 products. This is of course a combination between again R&D and business development. Business development is contributing more than the launches overall during this period. But of course R&D has big, big contribution as a number and significant contribution as a value, bigger because, obviously, R&D scope is worldwide in many circumstances, whereas BD scope of the deal is mainly Asia Pacific.

So if you look at on the right side, the addressable market size for the products that we are -- we have been developing internally is $23 billion within this period 2024-2025. This is extremely, extremely high, extreme potential. And these are mainly 90%, 95% oncology drugs. Like I demonstrated in the R&D pipeline slide, a lot has to do with first to file, also there's a 505b2 as well as first-to-market generic products on patent expiry. 2029 number is relatively low. You can see only 3 products, but this number will increase considerably, I'm pretty sure, based on ongoing activities that we have. I'm sure the number will change significantly, both from R&D as well as on the business development side. So basically, the message that we want to deliver here is that we have been working very hard in the last few years. And as a result, we have a significant number of launches, which are already basically real to be executed in the next 5 years. Again, 63 molecules, it's a lot, right?

Next slide. The slide is not moving. Okay. So near-term business highlights. As you may know, we are in a process of launching a second R&D center in India in Hyderabad. Basically, the setup is completed. Also, we have the equipment and the initial team on board. So now we are waiting for the final approvals from different government agencies and local authorities in Hyderabad to start the activities. So we are quite confident that by the end of this year, this will be in place, and we can officialize this R&D center. So this will be a major engine in -- for the Lotus pipeline. Obviously, India, specifically Hyderabad, is known as one of the best locations in terms of resources for pharmaceutical as well as analytical development. Of course, also in India, in general, there's a very strong expertise also in clinical development. So all this is ticking the box based on our pipeline focus, which is not only generic products as well as 505b2. We are very close to execute on a portfolio acquisition deal in Southeast Asia. So these are branded generic floors. So we are in a contractual phase, and we -- our [indiscernible] offer has been accepted by the party divesting the assets. So I think this is something which hopefully we can announce by the end of this year, of course conditional to Board approval.

I already mentioned that we are currently in a process of antitrust filing. We have already submitted the necessary information to Vietnamese authorities. And the expectation is that this will take some months. So we are working with our partner, Sanofi as well as local lawyers to make sure that this approval comes as early as possible. But obviously, there is an element that we don't control. There are a number of opportunities in Southeast Asia, which I already give you a hint earlier. So we have a couple of projects, brand acquisition opportunity as well as 3 M&A projects. One is a pan-Asian company with interesting proprietary product. The other 2 are similar to Teva Taiwan commercial platforms in key targeted markets where we will gain critical mass and also of course have access to a team which is very strong in bringing products to the market, selecting products and of course achieving strong results. So if we are successful, again this will completely change our Southeast Asian business and build it to a similar level to Korea business. I'm counting here of course, Alpha Choay transaction closing next year, early next year. Pomalidomide launch, we are on track for 2025. So we have received actually yesterday good news from European authorities on the DCP progress. And I mean, we are also preparing with -- in terms of supply chain. So this is an important milestone.

We are expecting significant growth further to continue next year on Lenalidomide, of course, mainly driven by U.S., but also similar to this year from rest of the world. We are quite confident that our flagship product, Qsymia, will continue to grow despite of the competition from Novo Nordisk. And the fact that we have achieved 21% for the first month, first 9 months this year compared to '23 is, I think, very strong reference to that. Also, we are expecting a very strong performance to continue from Alimta, Cialis. On Cialis, again we have switched already the supply chain to in-house, which, I would like to repeat, increased the gross margin with 50%. And on Alimta, we are working on that one as well. Of course, this will not be in-house because we are not -- we don't have internal capability to manufacture injectables, but we are validating one of the CMOs from our network, which will also deliver significant reduction in the cost of goods.

Also, we are expecting further growth from our products and existing business as well as product launches in Southeast Asia, Korea and Thailand. Overall, I mean, this is always our objective. We will continue to expand our portfolio, driven by both R&D and business development. So we will remain focused on that. And the fact that we are starting the R&D center in Hyderabad is a strong commitment to that.

We have also hired a very strong individual, this was closed last week, to lead our portfolio management. This is sort of public information. The person has outstanding track record in generic development as well as 505b2 products. So he will be based in one of our European offices. So he will join the company officially from January 2025. And again, demonstrates that as a company, we are committing to drive business growth through investing in the pipeline. And with all these changes and improvements and hiring highly skillful people to lead the portfolio management, we want to make sure that we are taking the right decisions when it comes to which projects to invest both from R&D as well as on the business development side.

Next slide, please. So on the last slide, basically we are looking ahead for the next 5 years. I mean, we are quite confident that the business is well-positioned to continue to deliver double-digit growth on the top line and also EPS. Basically, we are -- for us, the biggest growing driver will be apparently the new launches. And like I demonstrated in the previous slides, we have a significant number already confirmed to launch, 63 molecules in 2024, 2028. As 2026 being the highest, the peak year of launches, where we are, again, planning to launch 22 molecules, including our flagship launch within this period, Nintedanib soft gel.

Of course, we are expecting Southeast Asia to be a significant contributor to the growth overall also. This will be driven by the M&A a lot and the product acquisition. So we have been putting a lot of resources in the last 24 months, and we are harvesting this already with Teva, with Alpha Choay and the pipeline that we have. And the good thing is that we see more and more opportunities coming. And as we are building the critical mass and creating a platform, I think it's easier to execute on these deals because, obviously, we have major synergies.

And last but not least, we are expecting to see a growth from the existing products, like I said, products like Qsymia, like Alimta, like Cialis, Lenalidomide. Even Vinorelbine, Enzalutamide we will for sure continue to grow because we are launching the products globally. And I mean, we are expecting further growth to come from many of the markets. So with that, we conclude the presentation for today. Again, I would like to thank Lotus team for the great results in this third quarter, really, really well done.

[Yu-ying Yang, executive]

Okay. Thank you, Petar. Thank you, Bjartur. Now we're collecting the questions, and then I'll read it out to the management. Just give us a second. Okay. So investors are asking what's the CapEx expansion plan in the next 2 years? And if yes, what is the funding source and what's the impact to the dividend policy? I think we'll have Bjartur to answer this.

[Bjartur Shen, executive]

Okay. Thank you. So I think I'm not sure whether the question is about CapEx in terms of the PP&E or CapEx in terms of acquisition. But anyway, I will answer both ways. So the CapEx in terms of PP&E will be mainly focused for the investment of improving and expanding the capabilities and capacity of our Nantou site in Taiwan, right? So basically, next year, the main focus will be actually to equip and expand our soft gel manufacturing capability. And given that we have a number of large quantity, the volume, large volume launches such [indiscernible] expected starting from late next year, we do need to expand our capability there. So that's the CapEx mainly for the PP&E for the next year. And so in terms of acquisitions, so to be clear, the number of deals that we're looking at, the 5 assets that we're looking at now, they -- most of them range in terms of the consideration of $20 million to up to USD 60 million. And so those can either be covered by our cash on hand, as you may have noticed that cash on hand is increasing quarter-on-quarter or we can cover this with at least to close the deal from debt. So currently, the group has a committed debt capacity -- debt facilities up to USD 630 million. And we have utilized approximately half of that. And so we still have a quite sizable debt capacity that we can dig into. And so all in all, we are able to finance up to $400 million, $450 million of CapEx expenditure without actually doing another round of refi or debt. Of course, if we go beyond that, if you're looking at a $1 billion deal, and then this will call for some other alternatives, so to speak.

[Yu-ying Yang, executive]

Okay. The next question, I think it's for Petar. It's more about strategy, like why we choose Southeast Asia as the next market we're going to expand? And what's the criteria for us to pick the [ MMA ] target. And also the criteria for us to pick the licensing products and the R&D pipeline? And also, what is the near-term challenge for Lotus? And will the result of the U.S. election has any impact on Lotus? Petar, please.

[Petar Vazharov, executive]

All right. I'll start first with the first question, why we have chosen to expand into Southeast Asia. I think we have been discussing on the previous meetings that Southeast Asia represent significant opportunity markets like Vietnam, Thailand, Philippines, Indonesia, Malaysia. With the aging of the population, with increasing the GDP, increasing of the health care spend and shift of the pharmaceutical market from emergency medicine, anti-infective towards chronic disease treatments like oncology, like cardiovascular CNS, diabetes, women health care, osteoporosis, et cetera, clearly the opportunity is tremendous. I mean these markets are very fragmented as an industry. So there are a number of local -- high number of local players. And our advantage compared to the local industry is that we have very strong quality standards, which matters. And in the industry and in these markets, I mean, there's clearly a recognition for high quality in the markets from regulators, also from customers. Second thing, which local industry is suffering is product development capability where we have obviously clear advantage, which we can bring products which are difficult to develop, difficult to manufacture like our oncology, like soft gel oncology products. And for example, in Vietnam, there is no oncology facility even now, right? The same applies in Thailand, and of course in Philippines. So this is just an example. Also these companies, they don't have a strong capability in sourcing, in licensing products from overseas, what we do. They do deals, but mainly with Indian companies or some other companies in Southeast Asia. But they don't have really the network and high -- good reputation to convince, I mean, players from U.S. or some interesting high-potential companies from Europe, other geographies, to license other products to them. So this is, again, clearly, we have an advantage there. On the criteria for M&A targets, criteria obviously for M&A targets, we are looking for companies which are -- which has a strong position in the markets, not necessarily leading company, but to be basically in top 20 with a proven track record in market access, which is very important in these markets. By market access, I mean, not only registering products, but also launching products and of course achieving meaningful results with the products. We like companies which are more into chronic disease treatments like oncology, like cardiovascular. We don't like companies, for example, which are in the anti-infectives old generation treatment because this is, again, highly competitive, low margin, and this really -- it's overcrowded and the market is shifting towards other therapeutic areas, right? But of course, another thing which is very important for us is compliance and the reputation of these companies. This is equally important, yes. In terms of in-licensing products for Southeast Asia, typically we are trying to club with Korea and Taiwan. I mean, for example, when you're talking with a U.S. company, they don't want to -- usually, they want to have a single partner for a cluster of markets. They do, for example, stand-alone typically deal for China, stand-alone deal for Japan, and then they do Korea, Taiwan, Southeast Asia in a cluster. And this is where we can definitely have advantage over a local company in Taiwan -- sorry, in Vietnam, local company in -- also in Taiwan, local company in Korea, local in Thailand. And our criteria, obviously, for selecting the products are unmet need, the market potential. And of course, we are looking into -- especially for the proprietary products, we are looking for the clinical data, the value add of the product to customers, to doctors as well as patients. These are very important factors. How we decide on our R&D pipeline, I mean, we have a basically dedicated team, portfolio team, which is allocated to R&D and business development. So there's basically stand-alone portfolio persons, which are overseeing portfolio BD and R&D. And we are looking again at the products when it comes to first to market. We are looking at the market size. We're looking at the time lines. We are looking at the opportunity to be first on the market because if you're not first on the market, basically there is no business case for us. So definitely, we will -- we are targeting such products. Of course our preference and focus is oral oncology because oral oncology is high unmet need in terms of access because these are extremely expensive drugs and the access is limited even in developed markets. And especially in the soft gel, the competition is limited. So clearly, these are the top priorities for us. And what we have seen in the previous slides, the addressable market size for our R&D pipeline is USD 23 billion, which is huge. And these are mainly oral oncology products. Of course, this is the top for us, the top priority because it fits also with our capability, internal capability. However, we are also chasing other products, which are outside of our capability as manufacturing and development. And that -- this is the reason we have decided to start doing co-developments or contract developments involving API partners as well as CDMOs, which can -- which has a track record in specific technologies that we don't have. On the elections in the U.S., we don't see impact on the election in the U.S. Basically, I think I don't see an issue with the pharma in general and going forward for Lotus. In terms of near-term challenges, I think for us, the key focus is now, if you look at the next steps, is we have to start as soon as possible, the R&D center in Hyderabad because we will gain much more efficiency and access to highly skillful resources. This is absolutely critical to execute on the R&D pipeline. We have to deliver on the key launches. This is the baseline, and we are working as we speak on that. I already mentioned Nintedanib, Midostaurin. We have to also close as soon as possible Alpha Choay transaction because it has significant impact. It will have significant impact on our financials because, like I said, this is a product with more than $20 million sales and more than 50% EBITDA margin for us based on our business case. And we have everything set in terms of commercial sales and marketing arrangements. So the sooner we close the transaction, the better for us, right? And again, we have to hopefully execute on majority of the M&A pipeline that we have on the brand acquisitions. Again, this will have significant positive impact on our Asian business, but also overall on the company in terms of revenue earnings as well as long-term growth. I think I covered all the questions.

[Yu-ying Yang, executive]

Okay. All right. Thank you, Petar, and thank you, Bjartur. I think this concludes our third quarter earnings call. If you have any questions, I think there's any questions we haven't answered during the call, please reach out to us. Thank you, everyone.

[Petar Vazharov, executive]

Thank you. Bye-bye.

[Bjartur Shen, executive]

Thank you very much. Thank you. Bye-bye.