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UPDATE - Clinigen Group sees opportunities arising from sector consolidation

Published: 06:42 24 Jul 2014 EDT

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Speciality pharmaceutical company Clinigen (LON:CLIN) saw strong profits growth last year, with all three divisions pitching in.

Though it is early days, management is confident of another strong year this time round as it strives to become the leading global clinical trial supply (CTS) and global access programmes (GAP) company.

For the group as a whole, like-for-like (LFL) revenues on a constant currency basis in the year to 30 June are likely to be up by at least 7% year-on-year once the numbers are totted up, with reported revenues set to come in at £126mln or higher.

Gross margins during the year increased to more than 30%, delivering growth in excess of 17% on the previous year, while underlying earnings (EBITDA) were up at least 17% on the previous year.

The CTS division continues to be the main generator of revenue. This is the division that sources and supplies comparator drugs and medicines to the big pharmaceutical and contract research firms when those firms are carrying out their all-important clinical trials.

CTS revenues in fiscal 2014 (FY14) were lower than they were in FY13, as per the previously explained situation with anti-viral studies in FY13 that were not repeated in the fiscal year just finished.

The GAP division provides access to drugs that are still in clinical trials but are showing encouraging signs of efficacy to patients who are very ill and not responding to current treatments.

It continues to be the fastest growing part of the business, and despite the winding down of one large high revenue, lower margin programme in the first half of the financial year, GAP maintained its gross profits, and has a robust new business pipeline.

The third leg of the business is Specialty Pharmaceuticals (SP), where the company has been bedding down the Cardioxane acquisition and integrating the recently acquired Savene unit. SP remains the largest contributor to group profits, Clinigen revealed.

Overall, Clinigen continues to deliver on its objective of building its specialty pharmaceutical portfolio and is on track to have ten products over the next four to five years.

“We have seen good organic growth, especially in GAP. We're particularly pleased with the increased gross margins and, yet again, the excellent growth of EBITDA,” said Clinigen’s chief executive officer, Peter George.

A lot of trading updates from companies recently have grumbled about the strength of sterling, and with just 5% of its revenues derived from the UK, Clinigen is exposed to currency fluctuations, particularly in respect of sterling’s performance against the euro, the US dollar, the Swiss franc and the Japanese yen.

George was sanguine about sterling’s strength, however, saying the effect has not been huge – it’s lopped a couple of million off the top line – and it has not affected EBITDA, he told Proactive Investors.

The group ended the financial year with cash of £5.3mln, plus it has a borrowing facility of £35mln, thus providing plenty of firepower for continued expansion, particularly if the recent wave of consolidation in the pharmaceuticals sector leads to companies pruning their portfolios.

“I love it when big pharma goes into mergers & acquisitions mode,” George revealed. “The merged companies outsource more, they often have duplicate products in their portfolio, or they review what they’ve got.”

Unfortunately, while recent mergers might eventually see some interesting drugs come up for grabs, in George’s experience it won’t be for 12 to 18 months, as the merged companies go into a kind of stasis, with no one quite sure who is responsible for making the decisions.

“Once they work out who is entitled to make the decisions, you get a burst of activity, with the new decision makers determined to make their mark,” George suggested, adding that if the Shire/AbbVie merger goes through, he expects some interesting drugs to become available for purchase.

Shares in Clinigen rose 11.25p to 406p on the trading update before drifting back to 387.48p at midday.

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