As featured in The Manufacturer 06/05/10
Since its formation in 2004, pharmaceutical manufacturer Aesica has more than tripled both sales and employee figures while successfully wooing the industry’s biggest hitters.
As a supplier of active pharmaceutical ingredients, formulations and custom synthesis solutions to the global pharmaceutical and biotechnology industries, Aesica’s product portfolio reads like a roll call of modern medicinal offerings: anti-infectives; cardiovasculars; anaesthetics; haematinics; anti-inflammatories; anti-virals; hormones; and potent drugs, among many others.
It was, however, not always the case. “Created in 2004 by a management buyout of BASF’s Northumberland-based site, what we acquired was a small business which produced three pharmaceutical ingredients, primarily supplying to generic companies,” says Aesica’s CEO, Dr Robert Hardy.
“The first step in our expansion strategy was, therefore, to grow the company’s custom manufacturing business so as to enable contract manufacture for big pharma.”
Acquire to inspire
In seeking to place itself squarely on the radar of global pharmaceutical giants, emerging life science companies and leading generic manufacturers, many of which Aesica now enjoys relationships with, Hardy and his cohorts looked to acquire a range of sites from the very companies whose business they sought. With the purchase of manufacturing facilities from Merck Sharpe Dohme in 2006 — including a six year supply agreement — and Abbott at Queenborough, Kent a year later, the company is now placed to offer both primary and secondary contract manufacturing services with the capabilities to develop products from early-phase clinical stages to commercial supply.
“At the same time, we looked to broaden our offerings into formulated products — away from chemical and into tablet manufacturing and packaging,” says Hardy. Such prescience is reaping continued rewards: in 2004, for example, the company was turning over approximately £25m in sales and employing a workforce of 150. Leaping fourfold in little under six years, Aesica currently boasts a staff of nearly 700, with sales figures totaling £100m.
Unsurprisingly, the company’s startling expansion has not gone unnoticed, both within pharmaceuticals and the wider business community. Recently placing 50th in Deloitte’s Buyout Track 100, a league table — published in The Sunday Times — of the fastest growing, private equity-backed British companies according to EBITDA, the Newcastle-based Aesica was praised for raising profits by 49% year-on-year.
The American dream
And the secret of the company’s considerable success? When Aesica acquires a site, while it may be under capacity the company can sell any excess space to other businesses, thus increasing efficiency across the gamut of facility operations — a modus operandi since the buyout, says Hardy.
Given the global nature of the modern pharmaceutical industry, the majority — i.e. 90-95% — of Aesica’s products find their home in bodies outside the UK. “While our biggest markets are, perhaps understandably, the US, western Europe and Japan, there are very few territories in which we don’t supply,” says Hardy. “That said, to complement the global supply of our products we feel it particularly important to establish manufacturing facilities outside the UK.” As such, he expects to complete two manufacturing acquisitions — in the US and continental Europe, respectively — before the year’s end, together with a contract development organisation to further increase Aesica’s presence in the formulated product space. With an ever-increasing American client roster, “While being based in the UK hasn’t stopped us winning US-based business by any means, it would be fair to say that companies do perhaps feel more comfortable with the knowledge that they can speak to somebody in the same time zone, should it be necessary,” admits Hardy. “Although Aesica operates a sales office on both coasts and in China, it’s not quite the same as making contact with a physical asset, which the acquisition of an American manufacturing facility will seek to address.
With the company’s spending set to continue in the face of perilous economic conditions, does the pharmaceutical sector — and Aesica — perhaps know something the rest of us don’t? “Our industry is generally not as cyclic as some within manufacturing,” explains Hardy, “so we don’t tend to experience inflated booms during the good years and particularly bad times when the rest of industry is struggling.” While a more bankable proposition, undoubtedly, Aesica continues the aggressive growth drive employed since its founding largely through acquisition but, says Hardy, organically too.
“For instance, while we have overseen a number of excellent business wins during the past year, the majority of our expansion remains due to the purchase of like-minded organisations, and we wouldn’t expect that to change in the next two or three years. As such, within three years of an acquisition the company has targeted 25% of our business to come from the nonoriginator, with half of new growth thereafter made up by new business wins compared to the originator.” Furthermore, says Hardy, Aesica is concentrating on maintaining its key strategic partners within the industry.
“While this is clearly not to say that we won’t seek to supply anyone with whom we do not enjoy such a relationship, we believe that for a company growing at the rate Aesica is six partners represents an ideal number at this point in time.” While it amounts to merely a facet of the company’s customer portfolio, however, that the level of business provided by its partners regularly exceeds £20m means Aesica is cementing industry partnerships with those organisations seeking to remain at the forefront of pharmaceutical production. Concentrating — as with every relationship it holds, partner or otherwise — on how to maximise the benefits of such endeavours, moreover, the company looks to integrate its industry-leading manufacturing capabilities into partners’ supply chains, thus ensuring an ever-increasing presence of Aesica-produced formulations in its targeted markets.
All creatures great and small
Indeed, that the company currently holds a number of strategic partnerships with the industry’s leading players reflects, “Very positively on what we have built here, especially so given the relative youth of our business,” says Hardy.
Equally, however, Aesica maintains — and seeks to develop new — relationships with manufacturers regardless of size.
Such is particularly significant going forward, given that more than 50% of new chemical entities come from small pharma; a fact not lost on Hardy. “We must, and do, recognise the importance of the market’s smaller operators,” he says.
“While the pharmaceutical industry is relatively stable, general lending conditions mean that some of the smaller companies are not seeing credit lines being extended to them in the current climate; something that the sector’s giants aren’t experiencing so markedly.” As a result, 75% of Aesica’s business results from dealings with those in the upper reaches of its industry — a group which is currently both outsourcing and increasing its formulated product offerings as never before.
Confirms Hardy, “The top ten players in the market are merging at unprecedented rates, the result being that the contract manufacturing space has become very fragmented; a rippledown effect, so to speak”. For example, the largest three manufacturers in pharmaceuticals only own 3% market share each, with no other company owning more than a single percentage.
“We expect to see continued compacting both in the wider sector and its supply chains,” he says. “Given Aesica’s history, the company is ideally placed to lead in any consolidation, thus continuing one of the defining aspects of our business well into the twenty-first century. After all, people will not suddenly stop needing their medicine!”