Recipharm expects cost synergies from Consort purchase within 18 months

20 Feb 2020

Recipharm expects cost synergies of SEK 125 million (USD 12 million) from its recent acquisition of UK drug delivery firm Consort Medical and should realise them within the next 18 months, the Swedish contract research and development organisation (CDMO) said in an earnings call Thursday.

Reporting its strongest ever quarter with an increase in EBITDA by 31% to SEK 367 million, Recipharm CEO Thomas Eldered said the Consort deal “strengthens our inhalation drug product offering which is a key area of growth for our business following the creation of Recipharm Inhalation Solutions in 2019.”

Recipharm expects cost synergies from Consort purchase within 18 months

Recipharm bought Consort for £505 million (USD 649 million) and will integrate Consort’s Aesica API and finished dose manufacturing division into its CDMO business but will keep the Bespak division as a standalone entity.

Bespak produces delivery devices for respiratory, nasal, injectable and ocular products including the inhaler for the generic version of asthma combination treatment Advair, made by its partner Mylan Laboratories.

Eldered said there had been a negative impact on Consort growth from both weaker sales of generic Advair and the performance of Aesica.

Last year, Consort’s Cramlington API plant was damaged and contaminated by rapid thermal degradation of a chemical.

“We are in the process of understanding the full impact of that and what the corrective measures are,” said Eldered. “We cannot totally exclude that it will require some capex later on to fix the problem, but we haven’t really had time to assess the situation.”

Despite reporting a 29% increase in sales to SEK 271 million in Q4 2019, Recipharm’s Development & Technology segment saw a 17% decrease in EBITDA.

Eldered said that while many parts of D&T are performing very well, a much less favourable product mix had adversely impacted its own products business as well as certain stockouts of important products.

“We believe the negative effect is temporary and something we will see improving later on this year,” he said, adding that lack of supply from the company’s Ashton-under-Lyne solid dose manufacturing facility in the UK – currently in the process of closing down – had also contributed.

Eldered said Recipharm’s operations discontinuation programme was progressing according to plan, but that an additional approval for onerous contract and closing costs at Ashton-under-Lyne had been made.

Recipharm CFO Tobias Hägglöv said the provision relating to the Ashton-under-Lyne onerous contract had been increased by SEK 38 million.

He said that higher capex in Q4 was mainly related to maintenance costs: “This was well aligned with our plan and should not be seen as a structural increase of maintenance capex but rather as some projects which we had to continue to run or to complete.”