Core business demand is typically stable, predictable and often recurring, thereby providing relatively high visibility of future revenues.
Consort Medical is a leading global contract development and manufacturing organisation (CDMO), providing advanced delivery technologies, formulation and manufacturing solutions for drugs. The Group's customers include some of the world's largest pharmaceutical companies.
The Group comprises two integrated operating divisions:
Bespak (Devices) – a global market leader in the development and manufacture of drug delivery devices, serving pharmaceutical companies with inhaler, auto-injector, nasal and ocular technologies and development and manufacturing services.
Aesica (Drugs) – a leading pharmaceutical CDMO serving pharmaceutical companies with Active Pharmaceutical Ingredient (API) and finished dose formulation development and manufacturing services.
Optimising world-class drug delivery device development and manufacture, together with drug API and finished dose formulation and manufacture, within the Group, streamlines and accelerates our pharmaceutical customers' drug route to market.
Here are some of the key motivations for investment in Consort Medical plc:
1 Long-term Contracts
Consort Medical serves pharmaceutical and Life Sciences customers with drug/device development, formulation and manufacturing services, all of which, typically, have long life cycles. Devices and drug manufacturing sites are defined and licensed as part of the drug master file and, hence, sourcing is protected. Pharmaceutical customers invest significant resources in launching, marketing and building the treatment franchises which often have high rates of repeat prescription. Accordingly, Consort Medical is typically heavily embedded in our customers' supply chains and our core business demand is typically stable, predictable and often recurring. This provides relatively high visibility of future revenues.
2 Premium Quality and Regulatory Expertise
Consort Medical operates in a highly regulated environment and the quality standards required are world class. Aesica has made significant investments in facilities and technology with the aim of ensuring "best in class" quality and reliability. Aesica's manufacturing capabilities include high capacity, high potency and innovative semi-continuous manufacturing. Bespak manufactures over 2.6 billion components, assembled into more than 500 million devices, annually. Furthermore, Bespak is one of only a handful of operators globally who have the process know-how and expertise to consistently deliver Six Sigma quality on such a high volume of medical components and devices.
The Group leverages this significant process and production know-how, operating a dual strategy of the contract manufacturing of customer products and, through Bespak, the supply of its own proprietary delivery device technologies, the IP for which is heavily protected. This value delivery to the customer yields attractive margins, whilst affording protection from potential new market entrants. In many cases, Consort Medical is heavily embedded within the supply chains of its customers.
3 Diversified Pharma Services Offering and Product Development Portfolio Expertise
A key feature of Consort Medical's strategy is the diversification of its pharmaceutical services offering. In Bespak's devices arena, this diversification strategy has taken the business from respiratory into injectables, nasal, ocular and point of care (POC) diagnostics (horizontal). The acquisition of Aesica in 2014 extended the Group's pharmaceutical services offering into the highly complementary areas of drug formulation, manufacture, handling and packaging (vertical). This deeper, integrated, single source pharmaceutical services offering allows the Group to capture greater value from the supply chain in a market where customers are increasing their level of outsourcing. Such an offering is highly differentiated from Consort Medical's competitors.
Bespak and Aesica's commercial teams work closely together, enhancing each other's capabilities and strengths. They have the joint mission to support their core divisional activities, to facilitate introductions for their sister division's commercial teams to access their core customer relationships, and to work together jointly to secure combined formulation and device contracts.
4 High Level of Innovation
The Group remains at the leading edge of innovation and is committed to investing in patient and customer driven innovation with the potential to create new treatments, new markets and new opportunities.
Bespak's Innovation team in Cambridge continues to develop novel drug delivery device offerings which are expected to evolve into specific commercial opportunities. Following on from the launch of the first liquid gas powered auto-injector (Syrina®) and the first dual product injector (Lila®) in 2013, a new bolus injector platform (Lapas®) in 2014, and the new Syrina® 2.25, this financial year saw the unveiling of the new Syrina® AR 2.25 auto-injector, suitable for delivering volumes of up to 2.0ml using a standard 2.25ml pre-filled syringe. Syrina® AR 2.25 provides patients with a fully-automatic two-step, compact device for the self-administration of viscous drug formulations smoothly and safely in less than 15 seconds. Designed with a hidden needle, Syrina® AR 2.25 offers automatic needle insertion and retraction, as well as drug delivery with a single push-on-skin operation. Syrina® AR 2.25 has been tailored specifically for higher viscosities while still enabling the safe use of glass syringes.
The Innovation Centre's novel IP-protected product offerings are proceeding through commercialisation and present significant organic growth opportunities for the Group. The innovation pipeline contains several other candidates with the potential to create further shareholder value in the future.
During FY2017 Aesica has been routinely supplying commercial product using the first semi-continuous processing line and technology installed at the Queenborough site and we anticipate using this line for additional third party development work in the future.
A changing regulatory requirement within the pharmaceutical industry is for products to be uniquely identifiable at the individual pack level. This process is known in the industry as serialisation. Aesica has been an early provider of serialisation services to the industry including China and Latin America that have adopted this process. It is also well advanced in developing the service for the next wave of territories adopting serialisation including the EU. We believe Aesica is in a strong position relative to the sector in general and we have been actively promoting this offering with marketing and industry events such as a recent webinar series. Further capital expenditure is being committed to enhance our capabilities in this area.
5 Inorganic Growth Opportunities
Following the acquisition and successful integration of Aesica, the Group is a leading global CDMO, providing advanced delivery technologies, formulation development and manufacturing solutions for drugs. Consort Medical has a clear strategy for growth and whilst this will be mostly organic in focus, the Group can also develop in its chosen strategy through further selective, relevant and value-enhancing acquisitions.
The management team regularly evaluates acquisition and investment opportunities in complementary adjacent markets and technologies which have the potential to leverage the Group's core competencies in drug formulation, manufacturing and delivery and capture additional value in the drug/device supply chain.
The acquisition of Aesica, and its successful integration, has increased the scale of the Group, expanding its capabilities and providing further opportunities to facilitate growth, both organically and through further acquisitions, in the future. With a conservative capital structure, the Group has financial resources available to realise this.
6 Strong Management Team
Consort Medical's management team has executed successfully the chosen strategy of sustained/diversified organic growth, selective investments and acquisitions, and operating leverage. Consort Medical has been transformed under this strategy, with the Group strengthening its base of core competencies and leveraging them in strategic growth initiatives.
The management team has significant M&A experience, acquiring (in 2014) and successfully integrating Aesica into the Group; realising 19.0x EBITDA for the King Systems disposal in 2013; making key equity investments into Atlas Genetics and Oxular; and acquiring, and subsequently commercialising, injectables technology through the acquisition of The Medical House.