The outlook for the pharmaceutical sector is full of contradictions. On one hand, there is every reason to be optimistic: long-term demographic drivers favour the sector, healthcare spending globally is increasing, and new drug approvals have accelerated – not least of high-value biologics that offer a break-out from stifling competition from generics. On the other, these are challenging times, with economic and political uncertainties clouding the horizon, pricing pressure remaining acute and competition for Western pharma businesses from developing nations such as China on the increase.
Against this backdrop, it is very often the smaller, privately- owned businesses in the sector that are performing most strongly, leveraging their niche focus and agility to exploit new opportunities. This outperformance is captured in the Alantra Pharma Fast 50, our annual ranking of the UK’s fastest-growing privately owned pharmaceutical companies.
The Pharma Fast 50 comprises those businesses that have increased their revenues at the fastest rate over their past two financial years. In this year’s listing, every single business has delivered annualised revenue growth in double digits – the number one-ranked company, Qualasept Pharmaxo Holdings (QPHL), achieved annualised sales growth of 77% over the period.
Such returns illustrate what is possible for dynamic privately owned pharma businesses with the expertise and experience to target fast-growing areas of the marketplace. These businesses are to be found across all four sub-sectors of the pharma industry that the Pharma Fast 50 spans: consulting; outsourcing; development, wholesale and supply (DWS); and pharmacy chains.
Consolidation in consulting
This year’s Pharma Fast 50 ranking includes 11 consulting businesses, up from eight last year as the space continues to grow rapidly. Pharma companies of all sizes, as well as biotechs, are increasingly recognising the need for specialist advice on how to build the case for their products. Consultants play a crucial role here, helping the industry to articulate a much broader value story, spanning a holistic set of patient outcomes not limited only to treatment of the underlying condition, but also to societal impacts such as the economics of the product. This activity includes work ranging from development to navigating market entry and from support with regulatory affairs to expert medical communications. This is driving consolidation in the sub-sector. Last year alone saw the medical communications group Fishawack buy creative consultant Blue Latitude, while Peloton Advantage snapped up Open Health Communications.
“We have a tremendous opportunity for significant and sustainable growth” remarked Graeme Peterson, founder and chief executive officer of Prime Global, the global medical communications agency that leads the consultant category in this year’s ranking. “The market is expanding rapidly as pharma companies and biotechs come under more and more pressure to communicate clearly about every aspect of their therapeutic products. We are increasingly being recognised as experts in communicating not only on the clinical data and real-world evidence but also on the health economic benefits of medicines as well as patient outcomes.”
For Prime Global, that has meant continually adding new complementary capabilities, people and expertise to their proposition, working through a multi-agency model to provide industry-leading solutions for their clients.
These businesses have plenty of room to expand further, assuming they can continue to scale-up their organisations with talent in a market where the quality of human capital is a key competitive differentiator. Indeed, for many businesses, attracting and retaining the best people is now among the biggest challenges. At Nucleus Global, chairman Stephen Cameron says this is forcing consultants to invest in talent. “We’ve put a huge focus on training, helping our staff to learn and develop, and that will continue,” he says. “People are our main cost, and the growth in that cost is outstripping growth in client rates, it is therefore a worthwhile investment to develop and retain that talent.”
The need to finance growth – both organic and by acquisition – is one reason why medical communications consultants and regulatory affairs agencies are increasingly welcoming private equity backers, who in turn are attracted by the returns the sector is now generating. Fishawack has the backing of LDC, for example, while Peloton’s purchase of Open Health was part of a strategic growth plan adopted when it secured investment from Amulet Capital.
Alex Marshall, a partner at CIL Management Consultants, a strategy consultancy with specialist teams covering this space, says this trend is likely to continue. “Growth is being driven by demand for these services from pharmas, which will only continue to increase because payers are putting them under so much more scrutiny and competition is intense,” he predicts.
Moreover, this is a sector where there is room for many different sizes and shades of business. For example, The Research Partnership, another Pharma Fast 50 business, is growing rapidly through its specialist market research business model, working with pharmas and biotechs at every stage of the product cycle to help them understand trends that may affect the sales of a drug, evaluate the size of the potential market and identify how they can improve performance.
“The outlook is really positive for businesses like ours,” says Mark Jeffery, a founding director of the company. “Our skill is to take the data and provide insightful strategic direction to help clients shape their drug development and product cycle – the demand for that work is really strong, both in the UK and internationally, with emerging markets increasingly offering good growth.”
Digital is another important growth engine, says Richard White, chief operating officer of the HealthScience communications company Oxford PharmaGenesis.
“Consultancies are going to have to recognise that digital is a channel they need to embed throughout their businesses and client offerings, rather than thinking of it as a stand-alone capability,” he argues.
Outsourcers continue to take market share
With nine entrants in this year’s Pharma Fast 50, preclinical and clinical contract research organisations (CROs) and contract manufacturing organisations (CMOs) represent another area continuing to generate strong sales growth. The sub-sector not only boasts the index’s fastest-growing company of all in Qualasept Pharmaxo, but also the second-placed entrant. Clintec International has seen its revenues grow at an annualised rate of 55 per cent over the past two years, with sales of a wide range of CRO services to a global client base.
Investment and consolidation are important themes here too, as outsourcers look to scale-up and build global reach. This year already, Simbec-Orion has just put the finishing touches on a fund- raising with CBPE Capital in a deal that chief executive officer Ronald Openshaw says will give the business sufficient firepower to accelerate growth to the benefit of its clients.
Openshaw says that while the firm is keen to remain small enough to continue offering a bespoke, high-touch service to its small and mid-sized pharma clients, expansion into the US would not be possible from organic growth. With the deal completed, “our number one target will be bringing a clinical-stage, patient-centred US business into the fold”, he says.
One firm further down the track of a similar journey is Sygnature Discovery, a preclinical CRO that has also made it into this year’s Pharma Fast 50. Founder and chief executive officer Simon Hirst says the experience of working with private equity backers has been positive since Phoenix Equity Partners bought into the business two years ago. “The transaction not only gave us the financial clout we need to go on to make an acquisition of our own, but also the confidence to do it,” he says.
In combination with Sygnature’s core values, that has made a significant difference. “We keep coming back to our belief that drug discovery really matters; it has to be successful,” Hirst adds. “After all, one day we will all be patients.”
In Sygnature’s case, the deal followed a strategic review prompted by approaches from potential suitors attracted to the very rapid growth in the preclinical market. “Outsourcing has always been the model for the biotechs, but we’re seeing big pharma doing more of it too, and as we’ve grown we’ve moved on to the radar of those customers,” Hirst says.
It helps that CROs across the board are also benefiting from another shift – the reversal of the trend from previous years for Western businesses to outsource their work to Chinese firms offering a lower-cost service.
“That’s definitely been a move we’re seeing more of,” says Sarra Laycock, the chief operating officer of Sequani, another business from this sub-sector to have made it into the Pharma Fast 50. “It’s not just Western pharmas coming back to us, but we’re even seeing Chinese companies coming to us for work – that’s been a surprise, but we’ve now seen several examples.”
That leaves the outsourcing sector in a good place to expand further, argues Gareth Elliott, a manager at commercial due diligence firm PMSI Strategy. He sees growth across the board, but particularly in the preclinical CRO space where around 35% of work is currently outsourced against 50% of clinical work.
“The huge investment that biotechs have been able to attract over the past three years means discovery work has ramped up,” Elliott says. “In addition, we’ve seen the emergence of the ‘virtual biotechs’ that lack in-house research facilities who having raised cash to develop their product, have no option but to outsource their research work.”
Towards higher value in DWS
The develop, wholesale and supply (DWS) sub-sector accounts for 15 members of this year’s Pharma Fast 50 ranking, down markedly from last year’s total of 20.
This area of the market now faces increasingly challenging headwinds. Not least, its exposure to the fall-out from Brexit – and particularly a potential hard Brexit – is high, given the importance of European Union partners both as suppliers and customers. DWS businesses are also coping with the new Falsified Medicines Directive (FMD), which came into effect in February and has required extensive preparation and implementation work. Then there are familiar pressures, including the efforts by payers to reduce costs – the NHS has agreed a deal on branded medicines pricing with the pharma sector that will save it £930m this year.
Nevertheless, many DWS businesses continue to post strong growth. Aspire Pharmaceuticals, the fastest-growing business in this sub-sector, has delivered annualised sales growth of 51% over the past two financial years. “The key is to be disciplined about focusing on the real needs of the market and patients,” says Graham Fraser-Pye, Aspire’s founder and chief executive officer. “Can your innovation and technology generate new ways to meet those needs, and can you provide the service required while offering an economic and sustainable price?”
Those imperatives have seen Aspire make significant new product launches in areas including ophthalmology and respiratory over the past year and the company is excited about its current move into diagnostics with the launch of a disruptive and accurate diagnostic for prostate cancer.
More broadly, Fraser-Pye stresses the importance of expanding out of generic drugs and into speciality pharma as a crucial value driver. “We still have a generics business, but the barriers to entry are lower for our competitors,” he says. “It takes time and resources to develop speciality pharmaceuticals, but those lines, in the long run, are more sustainable and profitable.”
At distributor and wholesaler Beta Pharmaceuticals, another DWS member of the Pharma Fast 50, the directors stress the importance of seeking out new growth opportunities. For Beta, this has meant an expansion into overseas markets, with export sales now accelerating rapidly, particularly in Africa and the Middle East. “Each new market is different, and every new relationship takes time to build, but as trust is established with customers such as hospitals, clinics and distributors, there’s a real opportunity to increase sales,” according to the directors.
Back home, meanwhile, Beta’s focus in recent times has been on ensuring compliance with the FMD, the European legislation that requires new safety features on prescription medicines, such as unique barcodes and anti-tampering devices. That has required significant investment in software, hardware such as scanners capable of reading the barcodes, and additional IT infrastructure.
The compliance burden was increased, the directors say, by the uncertainties around some aspects of the regulation that persisted until the last minute. “More positively, the change is helping us to digitise our operations,” they add. With greater data generated right from the goods-in, goods-out stage, that may create opportunities for improved productivity and market insight.
Pharmacy chains increase their share
FMD costs have also had a significant impact on pharmacy chains, the fourth sub-sector of the Pharma Fast 50. Already coping with the hangover of funding cuts in England, many chains have had to think hard about the additional costs of FMD implementation; rationalisation and consolidation have continued.
Nevertheless, the 14 pharmacy chain businesses in the Pharma Fast 50 – up from 11 last year – show that with the right model, good levels of growth remain achievable. PCT Healthcare, the leading pharmacy chain in the ranking, has achieved annualised revenue growth of 40% over the past two years.
Indeed, the resilience of PCT, which runs a 50-strong chain of pharmacies stretching from the Midlands to the North-West, is another example of how the most agile businesses in the pharmaceuticals sector are able to successfully navigate a path through the undoubted headwinds they face. In doing so, however, they will continue to face stiff competition – 19 of this year’s Pharma Fast 50 are new entrants to the ranking, underlining the fast pace at which the sector moves.
QUALASEPT PHARMAXO HOLDINGS DOES THE HAT-TRICK
Compounding specialist Qualasept Pharmaxo Holdings (QPHL) is the UK’s fastest-growing privately owned pharmaceuticals business for the third year in a row, topping this year’s Pharma Fast 50 with two-year annualised growth of 77%; that’s even higher than last year’s figure of 69%.
QPHL operates two businesses: its Bath ASU unit is the UK’s largest aseptic compounding provider, working with more than 270 hospitals across the country, while its Pharmaxo operation is a leading homecare specialist.
Chief executive Chris Watt sees an increasing opportunity for the two businesses to work together, as specialist homecare players seek to relieve the burden felt by hospitals. “One good example is a new anti-inflammatory treatment for a small cohort of patients suffering certain rare conditions who currently have to receive that treatment in hospital,” he explains. “Bath ASU is doing the technical work to extend the drug shelf life so that it can be administered at home in a setting where the patient has access to the sort of high-quality homecare Pharmaxo offers.”
This endeavour alone is expected to save the NHS £2 million a year as QPHL enables it to move patients back into their homes. Indeed, supporting NHS economy is an important part of QPHL’s business proposition, offering hospitals and clinics an opportunity to source treatments more cost-effectively than they could manage by themselves.
More broadly, the company’s rapid sales growth has been underpinned by a shift in its product mix, with higher-value biologics now accounting for an increasing proportion of its volumes. Less stable and more susceptible to temperature and agitation, these products present operational challenges, but also command higher prices.
Can QPHL make it four years in a row in 2020? Chris Watt says the business is nervous about the potential impact of Brexit on its supply chain, but excited by the prospect of further portfolio expansion, particularly at the higher-value end. He adds: “We’re also keeping a very close eye on the NHS’s review of aseptic provision, thinking hard about the role we can play and how we can assist as the NHS’ priorities and practices develop.”
THE DASH FOR DATA
An increasing focus on data throughout the pharmaceutical sector is already having a significant impact on businesses in a whole range of different ways. Expect to see businesses that are able to successfully harness data and analytics opportunities claim an increasingly prominent role in the Pharma Fast 50.
One fascinating business already in the ranking is Linguamatics, which is pioneering the use of natural language processing technologies to help its pharma clients extract powerful insights from both structured and unstructured data. The business, which was acquired by NYSE-listed IQVIA in January, has strong penetration in the US and the European markets already, including work with 18 out of the 20 biggest pharma businesses, but chief business development officer Phil Hastings says this is just the start.
“What we’ve done so far is the tip of the iceberg,” Hastings says. “The use cases for our technology are increasing all the time as pharma companies realise just how much value is tied up in unstructured data – we’re seeing this insight being used to make decisions at every stage of the value chain, from the earliest science to the commercial application of drugs and therapies.”
Another example of where new skills are required is the growing use of real-world data in drug development. “Our clients are doing more and more of this work, conducting fewer randomised controlled trials and looking to build real-world, patient-centric evidence instead,” says Oxford PharmaGenesis’s Richard White. “It’s a learning experience for them and there’s a real opportunity not only to pioneer this work, but also to help clients understand how to do it more effectively.”
The regulatory arena provides yet another example of how the data revolution will shape the future of pharma. In Europe, the Falsified Medicines Directive is effectively digitalising the tracking of prescription drugs, while in the US, the Food & Drugs Administration is moving towards a digital-only model. “Within a couple of years, I can see the FDA no longer accepting paper- based trial data,” says Simbec-Orion’s Ronald Openshaw.
These are divergent themes but add up to a striking conclusion: a sector that has been relatively slow, in large part, to accept digital transformation, is going to have to raise its game.
Tom Cowap is a director at Alantra, the global investment bank, and is a specialist in the pharmaceutical sector.
