Article published in The Financial Times, 15th November 2011
Aesica’s Robert Hardy believes his success proves that British manufacturing can thrive, says Chris Tighe.
Being a big company man seemed to Robert Hardy. He did not even balk when his first employer, Boots, issued strict dress code guidance – grey or blue pinstripes and white shirt – for employees visiting its Nottingham headquarters back in the 1980’s.
Joining Boots after completing his PhD and climbing the management ladder seemed the obvious career path. “I was a chemist, I loved chemistry,” he says. “I wasn’t a tiger in a cage trying to get out”.
Today, Mr Hardy can make his own rules. He is founder and chief executive of Aesica Pharmaceuticals, one of Aethe UK’s fastest growing companies. It is focused on manufacturing and development at a time when the UK is striving to rebalance its economy on such activities. And it is headquartered in north-east England where a shrinking public sector makes private sector growth all the more urgent.
Aesica is not, however, a name the general public would recognise. Its business model, like those of big pharmaceutical companies, is to sell its product to customers who then sell under their own brand names.
‘Any idiot can downsize a site and take out cost. The most difficult thing is actually growing a business’
Its Newcastle headquarters is similarly self-effacing: the third floor of an anonymous office block on a business park on the edge of the city.
Mr Hardy, bespectacled and soberly suited, seems remarkably affable and relaxed for a man spearheading global growth. “It’s the drugs” he laughs.
Back in 1996, when Boots Pharmaceuticals was sold to BASF, the German chemicals group, the big-company man had simply adapted and ended up running BASF’s UK pharmaceutical operations. He moved to Northumberland to restore a lossmaking fine chemicals plant to strong profitability. “That was one of the easiest things I’s done in my career”, he says. “I was expecting a pat on the back from BASF for doing such an excellent job.” Instead, BASF decided to sell the plant. He found himself, at 44 applying for jobs while, at BASF’s request, showing the revitalised site to potential purchasers. One was an American entrepreneur. “He said: “I won’t do it unless your stay,” says Mr Hardy. A thought struck him: “Why don’t I do it myself?”
Today Aesica, the business that resulted, has plants in the UK, Germany and Italy, is hunting for acquisitions in the US and India, employs 1,300 people and exports globally. It aims to become the prime supplier to the global pharmaceutical industry of active pharmaceutical ingredients (APIs)- the active chemicals in drugs – and formulated products. These range from pills and syringes to creams and liquids. Turnover has increased from £25m in 2004 to £90m in 2010. It is targeted to reach £300m in 2014. The business is also highly profitable.
Aesica’s name – taken from a Roman fort on Hadrian’s Wall in Northumberland – both honours local roots and works overseas. The company now supplies most of the world’s top 10 pharma companies with drugs that help treat depression, pain, Aids and arthritis.
Recession does not appear to be an issue for Aesica. People take medication despite economic difficulties, and its customers place long-term contract, giving Aesica clarity for up to seven years ahead.
The group’s global growth ambitions have just been reinforced financially by a new relationship with Silverfleet Capital, a European private equity firm, replacing LDC, its original partner. Silverfleet estimates that global outsourcing of pharmaceutical manufacturing was worth $44bn in 2010 and is forecast to grow at 7 per cent a year. Like LDC before it, Silverfleet owns 60 per cent of Aesica and the management team 40 per cent, half of which is Mr Hardy’s stake.
Astonishingly, all this has been masterminded by a man who, barely eight years ago, had to ring the local authority’s business development manager to ask how to do a management buy-out.
In truth, Mr Hardy, son of a Cumbrian scaffolder, was not an archetypal company man. “I didn’t like bosses,” he recalls. “My ideal boss was always 1,000 miles away”. To reinvent himself as an entrepreneur, he drew on his industry knowledge, international experience and plant turn-round expertise.
But he had no MBO experience. For example, he says, he had no idea how a multimillion-pound deal would be structured. He recalls telling PwC, the
professional services firm, at the outset that he had a big problem: “I can’t even pay you.” BASF however, said, “We don’t do MBOs” Mr Hardy says. But by now he had discovered his inner tiger.
BASF did eventually relent but, Mr Hardy observes wryly, it “did the best deal of anybody I’ve ever bought from “. The sale price of about £25m hinged on a
product that took longer to approve than anticipated. While it took the MBO team, a year to clinch the deal, they realised within six months their strategy of making just generic APIs, was flawed. “At £25m, [annual sales] we were just too small,” says Mr Hardy.
Aesica wanted to move into contract manufacturing for big pharma companies, but winning them over was tough. The solution was to buy sites from potential customers and continue to make their products for them while boosting output with other work. Aesica can sell to everybody. Whereas big pharma competitors rarely sell to each other.
The big pharma trend to out-source manufacturing and, increasingly, development of new products has brought ample opportunities. In 2006, Aesica bought Mercks’s API manufacturing site in London and moved into making formulated products by acquiring a site from Abbott, another big healthcare company. The goal of becoming a full-service provider meant it needed to offer early-stage development and clinical trials expertise, so it acquired R5 in Nottingham. And this year, Aesica made its first overseas acquisition, buying two manufacturing sites in Germany and one in Italy, from UCB, the Belgian group.
Mr Hardy’s acquisition philosophy is clear. “Any idiot can downsize a site and take out cost. The most difficult thing is actually growing a business.” Expansion, he says is key; “I can’t shrink Aesica to greatness.”
Mr Hardy admits it has not all been easy. Aesica closed the former Merck plant in 2010 after volumes dropped. This brought back echoes of his latter years at BASF, which entailed a lot of rationalisation and plant closures. “Sometimes you have to make very difficult decisions for the long-term future of the business,” he says.
But people wrongly assume, he says, that costs are too high to make manufacturing feasible in the UK. “Nobody in Germany says we can’t compete because we are too expensive. We need to start selling ourselves a bit more.”
Four pillars of acquisition
As big pharmaceutical companies outsource manufacturing, it means plenty of potential acquisitions for Aesica. Rob Hardy requires at least two of “four pillars” to be met.
- Strategic partnerships
Acquire not just plants, but also long-term relationships with big pharma customers and thereby contracts. “If you aren’t a strategic partner, you are unlikely to be awarded business”.
- New product technology
Aesica wants to be a full-service provider, so is keen to fill gaps in its offerings.
- Global operations
Aesica is focusing on international growth. It is seeking an Indian site for active pharmaceutical ingredients and a US site for formulated products.
- Organic growth. “I would never buy anything I didn’t think we could run better than the former incumbent”.
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