Introducing Catalyst Corporate Finance's ranking of the 50 fastest-growing pharma companies in the UK
In a world where life expectancies are increasing, populations are ageing and the middle classes in emerging markets are growing ever larger, the long-term prospects for the pharmaceutical industry are bright: demand for its products will continue to grow exponentially. To capitalise, however, big pharma will need to overcome a variety of potential obstacles, ranging from policymakers' and government interventions to greater competition. The key to doing so, very often, will be to work with small and medium-sized players specialising in the solutions required.
This is the idea that underpins the Catalyst Pharma Fast 50, a new ranking of the UK's fastest-growing, privately-owned pharmaceutical businesses (see table at the bottom of the page). These businesses, chosen and ranked on the basis of the revenues they've recorded over the past two years, are working closely with big pharma in order to ensure the industry can fulfil its potential, and are growing rapidly as a result.
To qualify for inclusion to the Pharma Fast 50, companies must have had at least £5 million worth of revenues in the first year of assessment and have filed three consecutive years of accounts at Companies House. They must also be pharmaceutical companies registered in the UK as private, independent and unquoted companies.
The companies are classified between four distinct niches: outsourcing (including distribution), development and supply, consulting and pharmacy chains. In each case, the success of these businesses reflects their ability to solve a specific problem posed by the changing nature of the broader industry.
Take outsourcing, which accounts for a large proportion of the businesses in the Pharma Fast 50, including the fastest growing of all the constituents, Qualasept Pharmaxo (see box below), where revenues are up 75 percent a year over the past two years. Big pharma faces increasing regulation that threatens its margins, as well as rising demand for personalised medicines that deliver on policymakers' desire to shift to remuneration mechanisms that are based on outcomes. In this context, the large firms' response has been to focus on their core competency – bringing drugs to market – while identifying partners with which to work in other areas.
One example of this lies in drug development itself, where big pharma is increasingly likely to be found developing medicines and other products in conjunction with smaller, focused research organisations. But outsourcing is also an attractive option in operational areas, which has resulted in impressive growth amongst pharmaceutical service-based companies. Specialists with the knowledge and experience to improve the supply chains of big pharma, adding value and reducing cost, have performed strongly.
In all, outsourcers of different types account for 17 members of the Pharma Fast 50. One of the industry specialists interviewed for the Pharma Fast 50, Richard Grethe, who is one of the founders of Focus Pharmaceuticals and now the chief financial officer of medical animation pioneer Random42, told us that "the parts of the [big pharma] business that would have been historically part of the furniture are now outsourced. Big pharma wants to do what it does best without taking on extra overheads when it doesn't need to."
That has been a boon for businesses such as Durbin, one member of the Pharma Fast 50, which now sources and distributes pharmaceuticals, medical equipment and consumable supplies in more than 180 countries around the world, and has won a string of contracts from big pharma over the past two years. "Marginal improvements can be the difference between regulatory approval and failure" for the pharmaceutical industry, according to Leslie Morgan, the company's managing director.
However, it isn't only outsourcers that the pharmaceutical industry is now working with more closely than ever before; it is also increasingly dependent on specialist consultancies that are able to bring additional expertise and focus to their operations. The Pharma Fast 50 includes six businesses of this nature, including Evaluate Group, a commercial intelligence specialist where revenues have grown by 20 percent a year over the past two years.
Amy Brown, news editor at EP Vantage, which is part of Evaluate Group, explained to us that "the UK has a real strength at the other end of the cycle, that is, coming up with the science; then we tend to sell that to others." The way in which consultancies such as EP Vantage can enable pharma to take a more sophisticated view of the market, through better intelligence and analysis, in order to improve saleability, is one good example of where it is possible to add value.
The success of Nucleus Global, the eighth fastest growing company in the Pharma Fast 50, underlines the value to be found in consultancy. Its revenues have risen 23 percent a year over the past two years, with its medical communications services increasingly in demand amongst big pharma companies seeking to think strategically about communications throughout the entire lifecycles of their products.
While many of the companies in the Pharma Fast 50 have benefited from increased outsourcing by big pharma, others are benefiting from the trends putting pressure on these companies – including the expiry of marketing exclusivity and patents on branded drugs allowing generic competition to enter the market, or carving niches of their own. In this context, the six development and supply companies in the Pharma Fast 50 are crucial members of the ranking.
Crescent Pharmaceuticals has seen its revenues grow 34 percent a year over the past two years, and focuses on the manufacture of generic and branded products; revenues are up by 26 percent a year at Crawford Healthcare, a specialist in dermatology and wound care products. Crescent stands out as a case study of what is possible in the generics segment of the pharmaceutical industry. Scale is one important point, with demand for generics rising steadily, particularly as patents have expired. On a global basis, research shows that generics accounted for 27 percent of medicine spending in 2012, clocking up revenues of $261 billion. This year, revenues from generics are expected to reach $421 billion, accounting for 36 percent of total spending.
The UK is one country where generics have been a particular focus, as the government has sought to manage the cost of the National Health Service. The proportion of UK prescriptions written generically increased from 71 percent in 2000 to 84 percent by 2014; such trends have enabled the NHS to save an estimated £7.1 billion over the past 40 years, writing 450 million additional prescriptions with no cost implications.
Against this backdrop, companies such as Crescent have been able to prosper, applying their local knowledge to create niche markets for generics. It now manufactures around 150 generic and branded products, with export sales in 16 different countries but a primary focus on the UK.
Another area where medium-sized companies are thriving is the unlicensed medicines market – providing access to drugs for unmet needs. Pharmaceutical products approved in certain markets are delivered to markets where they are not yet licensed by the regulatory authorities. An example is Masters Pharmaceuticals, ranked 26 in the Pharma Fast 50 and growing at an impressive 10 percent year-on-year. Masters currently specialises in sourcing and supplying approved products ethically under a robust Quality Management System to over 90 countries in the world. They have expanded rapidly from a small company distributing to the West Indies to a distribution chain covering Central/South America and the Middle East across a wide range of products. This growth is set to continue with the company now starting to register and obtain approvals for its own branded portfolio of medicines in these Emerging Markets. This continues the legacy of enabling patients and their healthcare providers to obtain excellent and safe products locally.
The same trends driving the overall pharmaceutical industry are driving an increased need for dispensing of prescription drugs, and therefore business for community pharmacies. Retail chains represent an important part of the frontline response, offering healthcare advice as well as fulfilling prescriptions. This is a vibrant market, characterised by strong competition and consolidation, but a number of smaller, privately-owned innovative pharmacy groups continue to succeed as they take on the large and high-profile chains in the UK.
Indeed, pharmacy chains account for no fewer than 21 members of the Pharma Fast 50, including Day Lewis, the fastest growing business in this sector, where revenues are up by 15 percent a year over the past two years. The family-owned company has more than 250 pharmacies around the UK and employs more than 2,000 people.
The outlook for pharmacy chains is contentious – prescription dispensing across the country has grown steadily at a rate of five percent over the last ten years, with growth forecast to continue. This is offset by announced government funding cuts for community pharmacy in 2016/17 of around six percent in an aim to make the sector more efficient – government is arguing that pharmacies are too clustered and need to be thinned. It will be those pharmacies that can prove they contribute the most to their local community that will continue to thrive.
The attractions of the pharmacy sector have seen investors take note in recent times, including through M&A activity. The Co-operative Group's pharmacy chain was sold to the US retail giant Bestway in 2015, for example – and more deals are possible in the future.
In fact, deal-making is likely to be on the agenda for many businesses in the Pharma Fast 50, with their rapid growth and attractive market fundamentals likely to attract a range of different types of investors.
Christoph Ruedig, a partner at healthcare focused Albion Ventures, thinks further M&A is certainly possible. He points to the contract research organisation (CRO) sector as one area which is likely to see activity telling us that "traditionally, big pharma likes to play with big CROs, the likes of Quintiles, Covalence, Parexel, Icon and PRA Health Sciences. This is likely to lead to more consolidation in the CRO arena and in the future the smaller players will need to show real differentiation."
If strategic M&A is likely, so too is investment-led activity. Indeed, we are already seeing enthusiasm amongst private equity investors, which have shareholdings in several Pharma Fast 50 companies. Quotient Clinical, for example, is backed by GHO Capital Partners, while LGC Life Sciences is backed by KKR and most recently, HgCapital invested in Evaluate Group.
Private equity, attracted to the strong fundamentals underpinning the healthcare sector such as the rising demands associated with an ageing population, is now a key investor. It is targeting businesses with sustainable and growing revenues and is especially attracted to high growth areas, for example, medical technology, digitisation and wearable devices.
Despite pressures, the outlook for the pharmaceutical industry overall is positive. And while issues such as changing government policy, increasing regulation and the drive for efficiency represent headwinds to be overcome, it's also important to stress the sector's defensive qualities, particularly during periods of economic uncertainty. In a period in which the UK is giving notice of its intention to leave the European Union, that may prove very valuable.
In other words, there is every reason to expect the businesses in the Pharma Fast 50 to continue to grow strongly over the year ahead. Not that this will guarantee they retain their places in Catalyst's ranking – for beyond this listing, plenty of other attractive businesses from across the pharmaceutical industry narrowly missed out on the Pharma Fast 50 this time around. Competition for membership will continue to be fierce.
Qualasept named Britain's fastest growing privately-owned pharmaceutical business
As the NHS moves from doing most things in-house to more outsourcing, new opportunities exist for specialist services across the value chain. Qualasept Pharmaxo Holdings is one business that has seized these opportunities with a firm grasp.
Its Bath ASU unit has grown into the largest private aseptic compounding provider in the UK, and has been posting annual growth rates in the region of 75 percent for the past three years. That has been enough for the company to be named as the overall winner in this year's Catalyst Corporate Finance Pharma Fast 50.
Chris Watt, chief executive of the Bath ASU unit, explains that the Wiltshire-based company buys licensed injectable drugs from big pharma and generic pharmaceutical companies and makes them ready for use in hospitals across the UK – some 2,300 items are sent out each day.
Watt notes that while some hospitals may have small numbers of staff working on compounding – where ingredients are mixed to create personalised medications for patients – Bath ASU has more than 150. "We can provide a reliable and safe service and carry all the scientific disciplines you need internally to do a great job – chemistry, pharmacy and microbiology," he says.
The company has an in-house research and development team, whose stability research has resulted in extending the shelf life of some of the biggest-selling biological drugs on the market. Hospitals are buying Bath ASU's ready-to-use products because they are of a higher quality and more convenient and economical than in-house products.
How Quotient helps big pharma keep the lid on clinical trial costs
Big pharma continues to struggle with the spiralling costs of clinical trials that have been getting larger and longer. That has prompted service companies to innovate their business models to improve R&D productivity. Quotient Clinical, a Nottingham-based member of the Catalyst Pharma Fast 50 is a prime example.
The company has pioneered a new way of working, which it calls "translational pharmaceutics", that "challenges conventional thinking, breaking down embedded industry silos, and enhancing the way in which our customers can design and implement their drug development programmes", according to chief executive Mark Egerton.
The idea is that Quotient Clinical can integrate formulation development, real-time manufacturing and clinical testing, taking drugs through early-stage development to proof of concept far more efficiently than the conventional route. At its Nottingham facility, the manufacturing suite sits just one floor above the 85-bed clinical trial unit, which Egerton says "creates the opportunity to modify dose and formulation in 'real-time' in response to emerging clinical trial data."
The advantages for customers are significant, he argues, and include a potential reduction of overall drug development timelines by six months or more, reduced costs and the streamlining of outsourcing processes. "Just as importantly, this approach brings innovative thinking into early development programmes," Egerton adds. This innovative business model is clearly bearing fruit as Quotient has built an international customer base, and by the end of 2015, it had achieved revenue growth of 25 percent a year for the last four years – growth is forecast to continue in the foreseeable future.
Catalyst Pharma Fast 50 ranking
|Ranking||Name||Revenue (£m)||Activity||2-year CAGR||Main category|
|1||Qualasept Pharmaxo||48.7||Makes ready-to-use injectable medicines||75%||Pharma outsourcing|
|2||Crescent Pharmaceuticals||32.4||Manufacturers generic and branded products||34%||Develop and supply|
|3||Sygil Group||11.4||Integrated drug discovery resource and expertise||28%||Pharma outsourcing|
|4||Crawford Healthcare||21.5||Supplies dermatology and woundcare products||26%||Develop and supply|
|5||Lexon (UK)||200.0||Pharmaceutical distributor and retailer||26%||Pharma outsourcing|
|6||Durbin PLC||60.1||Distributes pharmaceuticals, medical equipment and medical supplies||24%||Pharma outsourcing|
|7||Quanticate||16.8||Clinical research provider||24%||Pharma outsourcing|
|8||Nucleus||70.8||Medical communications agencies||23%||Consulting – other|
|9||Quotient Clinical||38.5||Early stage and specialist drug development||22%||Pharma outsourcing|
|10||3VS UK||68.3||Develops and sources pharmaceutical products into the UK for the domestic market and for export||22%||Pharma outsourcing|
|11||Evaluate Group||16.7||Commercial intelligence for the life science industry||20%||Consulting – other|
|12||Chemilines Group||51.6||Import, wholesale and distribution of pharmaceutical products||19%||Pharma outsourcing|
|13||Chemidex Pharma||29.7||Licenses and markets prescription pharmaceuticals||17%||Develop and supply|
|14||Mediwin||38.9||Importing and redistribution of pharmaceutical products||15%||Pharma outsourcing|
|15||Day Lewis||264.5||Pharmacy||15%||Pharmacy chain|
|16||Phlexglobal||20.1||Electronic trial master file systems and services||15%||Pharma outsourcing|
|17||Laxmi BNS||191.1||Supplies pharmaceutical products to pharmacies||15%||Pharma outsourcing|
|18||PillBox Chemists||25.0||Online pharmacy||14%||Pharmacy chain|
|19||R.K. Aggarwal||13.1||Pharmacy||14%||Pharmacy chain|
|21||H2H Pharmacy||31.8||Pharmacy||14%||Pharmacy chain|
|22||Centaur Healthcare||13.5||Manufactures healthcare products||13%||Pharma outsourcing|
|23||PCT Healthcare||74.6||Retail and wholesale pharmacy||13%||Pharmacy chain|
|24||The Research Partnership||21.8||Healthcare market research and consultancy||11%||Consulting – other|
|25||London Pharma & Chemicals||48.2||Distribution of speciality ingredients and pharmaceutical products||11%||Pharma outsourcing|
|26||Masters Pharmaceuticals||26.2||Sourcing and supplying unlicensed medicines||10%||Develop and supply|
|27||K.S.C. 1T||11.5||Pharmacy||10%||Pharmacy chain|
|28||Custom Healthcare||16.5||Manufactures pharmaceutical and healthcare products||10%||Pharma outsourcing|
|30||M & D Green Dispensing Chemist||10.0||Pharmacy||10%||Pharmacy chain|
|31||Clarity Pharma||39.1||Pharmaceutical consultancy||9%||Consulting – other|
|32||J M Mcgill||10.5||Pharmacy||9%||Pharmacy chain|
|33||Aspar Pharmaceuticals||12.0||Supplies analgesics to pharmacies and grocer sector||8%||Develop and supply|
|34||Nova Bio-Pharma||17.6||Supplies specials and clinical trial medicines||8%||Develop and supply|
|35||EMT Healthcare||7.9||Wholesaler to pharmacies||8%||Pharma outsourcing|
|36||Dudley Taylor||63.4||Pharmacy||8%||Pharmacy chain|
|37||Diomed Developments||65.2||Manufacture of pharmaceuticals||7%||Pharma outsourcing|
|38||Borno Chemists||15.0||Pharmacy||6%||Pharmacy chain|
|39||M. Farren||7.7||Pharmacy||5%||Pharmacy chain|
|40||Blacktrace||7.8||Develops and manufactures scientific products||5%||Consulting – other|
|41||Pharmacy2u||17.5||Online and mail order pharmacy||5%||Pharmacy chain|
|42||OBG Pharmaceuticals||60.8||Pharmaceutical products manufacturer||5%||Pharma outsourcing|
|43||Mayberry Pharmacy||11.0||Pharmacy||5%||Pharmacy chain|
|44||H.J. Everett (Chemist)||13.4||Pharmacy||5%||Pharmacy chain|
|45||LGC Science||209.8||Life science measurement and testing||4%||Consulting – other|
|46||Paydens Group||137.8||Wholesale and retail distribution of pharmaceutical goods||4%||Pharmacy chain|
|47||Coopers Chemist Marske||8.9||Pharmacy||4%||Pharmacy chain|
|48||Knights Chemist||13.6||A retail dispensing chemist||4%||Pharmacy chain|
|49||Omnicare Pharmacy||11.8||Pharmacy||4%||Pharmacy chain|
|50||Knight Noise||13.0||Online pharmacy||3%||Pharmacy chain|