In Vivo: strategic insights for life sciences decision-maker...
By Deanna Kamienski 06 May 2021
During Q1, biopharma merger and acquisition value reached $34.8bn and drew in $35bn in potential deal value (PDV) from alliances...
CONSORT HAS MANY WHEELS IN MOTION AS IT EXPANDS THE BUSINESS TO BE FIT FOR PURPOSE IN TODAY'S MARKET
In respiratory drug delivery devices, Consort Medical is a global market leader in valve technologies and is building on decades of experience to remain at the head of the field.
Cautiously acquisitive by nature, the company has entered the pharma CDMO market via the purchase of Aesica. Consort’s CEO Jonathan Glenn has convinced shareholders that adding pharma capabilities to its technology expertise is the next logical growth step.
So what? With customers increasingly outsourcing development and manufacturing processes, as well as consolidating supply chains and dealing with fewer, broader partners, expansion into adjacencies makes sense. It is likely to continue at Consort, with nasal and auto-injectable techs already on the agenda, and potential US M&A on the watch list.
Bespak Europe Ltd., the UK-based drug delivery device specialist, changed its name to Consort Medical PLC in 2007, and Bespak is now one of two divisions of the group, following the 2014 purchase of Aesica, a contract development and manufacturing organization (CDMO) serving pharmaceutical companies. The move to acquire a pharma CMDO was carefully executed, even though Consort CEO Jonathan Glenn was convinced early on that it was the next stage in ensuring a competitive future in a segment where Bespak has dominated for five decades.
"All our major customers are trying to consolidate their supply chains, so being able to offer a service all the way from APIs, through development, to finished manufacture, together with the device, is pretty compelling offer to our customers," Glenn toldIn Vivo in an interview about Consort's expansion into the drug delivery sector. What the company had in mind played into what was happening in the market. But the management team proceeded with caution, looking at six candidates before settling on Aesica Pharmaceuticals Ltd., a business built on sites formally run by a big pharma.
Consort CEO Jonathan Glenn
Four years on, two separate managing directors head twin managements teams at different sites, but integration has been happening: the first combined Bespak/Aesica deal was with Oxular Ltd, in February 2016.
Aesica was the beginnings of building of a drug and device capability business, but it did not happen without due deliberation: the strategic course had been laid down in 2012/2013, and the resulting acquisition was taking Consort into new territory, and this had to be carefully managed and communicated. "We couldn't go out and buy a CDMO that had all the capability we wanted, as we were limited. The £230 million ($304 million) Aesica deal was about as big as the shareholders could live with,” Glenn says.
The preparation had been done in good time, Bespak having obtained the necessary drug handling license in 2013 prior to entering the pharma CDMO world. For Glenn, it was a fairly obvious step to look at doing the drug side, given the company's familiarity with similar regulatory environments and standards in devices. "We'd spent 50 years getting others to do the drug part, but then we thought we should look at doing that ourselves." Aesica covers oral delivery, and when a delivery device is needed, Consort can cover most of the field – with transdermal being the exception. It has positions in auto Injectors, assisted prefilled syringes, bolus injections, pressurized Metered Dose Inhalers (pMDI), valves and actuators, dose counting actuators, and intranasal technologies.
Stepping into the pharma world is indicative of the new horizons that Glenn is looking towards for a company that was founded almost 60 years ago as a developer of pumpsfor the cosmetics industry. In 1968, GlaxoSmithKline PLC asked Bespak to put a valve on its inhaled asthma rescue therapy,Ventolin, which proved to the beginnings of health care and the end of cosmetics for the company, which operated then, as now, at facilities in King's Lynn (Norfolk, UK).
Bespak/Consort is one of three companies globally to have developed pMDI valves, along with Aptar Pharma and 3M: Aptar and Consort roughly equally share 80% of the market, with Consort holding 35-40%, while 3M's share has declined in recent times. PMDI has driven Bespak's growth over the years, the company's technology is used in over 90 marketed products – all off the back of the original deal with GSK, for whom it still manufacturesDiskus (with two other companies), and does genericAdvair for Mylan.
The very high barrier to market entry means that there are just a few – but very high-quality – competitors. "Many have tried and failed to develop valves – there is a small suite of top competitors and a lot of companies below them that can't really do this technically complex job at scale and at the right quality." The other major route is the dry powder inhaler (DPI) – a valve-less device technology that incorporates a blister. Here, Bespak competes against five other key players: West Pharmaceuticals, Nemera, Nypro, Philips-Medisize and Gerresheimer.
The core of the business is a cash machine. "When we're on a product, we're on it for life, and it's a great business to build around." In respiratory, it takes about two years to get a valve to work with a new formulation to the level that's required, says Glenn. Consort also prepares the DMF (device master file) for the customer.
But Consort should think bigger, according to Glenn, who has been the company's CEO for more than 10 years (appointed in December 2007 after serving 15 months as chief financial officer). Asking the management team early in his tenure to define Consort's business, "respiratory" tended to be dominant answer. But to Glenn, Consort was a business that happened to have a dominant position in respiratory. His view of Consort's core skill set was in developing its own devices, and industrializing customers' devices for high-volume manufacture at FDA- or MHRA-standard certified facilities.
Glenn questioned why the company would focus just on respiratory if there is a core skillset to be manipulated for other growth areas. "Respiratory is very important, but in drug delivery, there are lot of other areas we could look at." For instance, the vast majority of biologicals need to be delivered by injection. Glenn observed that a lot are delivered by auto injectors, and that became the next drug delivery device space Consort looked to enter, after respiratory.
So, it made a "small" acquisition, of The Medical House, for £16.5 million in autumn 2009. This UK company specialized in the development and supply of delivery systems for injectable drugs. At the time of the purchase, Glenn said the expanding range of biological drugs should ensure strong sustainable growth for this segment of the market. It was really an intellectual property play, Glenn toldIn Vivo, but the company did bring with it two products for the clinic: the migraine treatment Dr Reddy’s sumatriptan, using Bespak’s Auto-Safety Injector technology; and UCB’s Cimzia AutoClicks prefilled pen (developed by Bespak).
Around the same time, Consort opened an innovation center in Cambridge, UK, costing £4-5 million a year, which had a brief of looking at drug delivery and how to do things differently. It was more or less a blank sheet of paper, and its output has been key for Consort. The R&D challenge with autoinjectors is that they were not developed to deliver viscous biological drugs through very fine-gauge needles with the normal spring mechanism.
The answer from Cambridge was a gas-powered autoinjector (with no spring) that delivers a consistent pocket of gas. It overcame the autoinjectors problems, and has attracted a lot of interest, including, in spring 2017, the first contract with a global biopharma company. But this too was another case of patiently watching the progress. "It addresses an unmet need, but we've been working for some five and half years on it with the customer." The point is that Glenn sees the injectables franchise for Consort as becoming "very material" in time. At some point, it will match Consort's respiratory business, given the market's medium-to long-term growth.
‘We've really spent the past five years broadening the drug delivery capability at Bespak’ – Jonathan Glenn, Consort Medical CEO
The company already had legacy nasal IP, and nasal delivery is now back in vogue. Consort's technology focuses on single-use, single-shot controlled doses. Nasal projects in Bespak’s pipeline include NAS 020, with a global generics company; and NAS 030, an agreement with a pharmaceutical company to develop a nasal device, which is currently at an early stage.
A lot is happening in delivery technology. "We've really spent the past five years broadening the drug delivery capability at Bespak," said Glenn.
But it has also diversified in a small way. In 2011, it made a foray into point of care (POC) diagnostics, taking a 16% equity stake in STD diagnostic developer Atlas Genetics. Consort manufactures the cartridge for this POC test. The technology is currently going through the final phases of development and should be on the EU and US markets in the next 12 to 24 months, as a combined chlamydia and gonorrhoea test. Hospital acquired infection diagnosis is next on the list of tests.
Glenn explains that many patients presenting for tests at STD clinics fail to return for the results, which can take five days to come back from external labs. It is a system not without faults: the risk of patients re-infecting during this waiting is obviously high (if they return at all); and the costs of sending out to an external lab are higher than for POC tests done in the clinic. For the latter, patients could wait the 30 minutes or so required to produce the result, and the treatment could start immediately.
The company also addresses "innovation on demand", which is when customers approach Consort to remedy a technology problem, one recent example being the case of a client requesting two drugs to be delivered in one injection device. In these cases, Consort retains the IP and charges the customer appropriate rates.
Bespak was the first real device company to make a move in response to the trends in the industry that is seeing pharma wanting to work more with single customers. "In the CDMO world, our peers would love our device capability; it is seen as a real advantage." Customers coming to Consort for formulation work are now aware that, even if they have a regular device manufacturer, they have the option of using Consort to keep the whole project – both drug and device elements – under one roof.
The strategy now is to build on the acquisitions and expand the geographic footprint. "US customers are very US-centric, and it's very important for us to have a US manufacturer." Consort also wants to add to its capabilities around injectables, either in-house or by acquisition. "Our focus now is on nasal and auto-injectables, with respiratory accounting for around 80% of revenues and injectables and a small share of nasal accounting for the rest."
At maturity, the injectables franchise should be as large as the respiratory franchise. "A quick look at the biologicals landscape and pipeline, one signed customer contract already and potentially others to come, and that seems realistic,” Glenn notes. If a client wants an MDI, the development will be a 12- to 18-month task. "Anything we win will be five to seven years away from being a commercial product," he says; revenues are generated during that period via charges through the clinic, but the real returns come with commercialized products.
GSK remains a very important customer for Consort, which aims to work across big- and medium-sized pharmas. Its long-term partnerships also include Mylan, Johnson & Johnson, Merck KGaA, Boehringer Ingelheim, Teva, Dr Reddy’s, Chiesi and UCB. But as seen in the Aesica M&A initiative, Consort is selective and does not take punts in the dark. Moreover, it has no bad debts, and partners pay on time. "It's all about relationships," says Glenn, a phrase which now echoes around the industry.
Those relationships extend outside the home market. India's Cipla has a 70% share of the local respiratory market and is a very significant customer of Consort's in terms of valves for MDI inhalers. The company also sells valves into China. "We supply to a large pharma at their site, and then they have the product licence for all over the world. For other customer groups, we do the supply globally.” Consort sees itself as very international, albeit most of the 2,200 Consort employees are in the UK.
In the majority of cases, the company actively goes after the business, but in respiratory, the business tends to come to Consort. Nevertheless, it has business development staff placed in the developing markets and is selling hard in India, China, and Latin America, for instance. In China, the challenge is in the regulatory environment, with the local regulator continually "moving the goalposts," says Glenn, who adds that pricing, rather than reimbursement, is the main market access issue in China. Consort also sells into Russia and the Middle East. "If someone wants an MDI inhaler, we will sell it,” he notes. As to Aesica's business, repeat business is vital, although business development staff are on location. "The device capability has given that business a whole new angle for sales."
Consort is deeply involved in regulatory affairs on pharma and device fronts. Drug delivery is a two-reg filing, but the two parts sit hand in hand. Consort does the device filing on behalf of the customer. It does not manage clinical trials, rather provides the device or the drug, and lets the customer/CRO manage them. "Regulation is a key barrier to market entry," Glenn reiterates, "but we have a lot of our own IP. The real protection is 'knowhow' and scale."
Much is at stake. "If a company moves its business from us, they know they must reopen the regulatory file. No one relishes that, and it would take a rival two years to take our place." Glenn claims that Consort has a very strong position, and is quite often able to increase prices in a global environment where downward price pressures prevail. "We get cost pressures too, but we can manage the customer on a volume basis." If it's a technology that nobody else has, the company has a lot of leverage on what it can charge for the device.
Consort has made sure to shift with the fast-changing landscape. The move into injectables – where the major growth is happening – and tracking where drug delivery is heading, including into the nasal delivery space, has kept it ahead of the curve. In fiscal 2018, Glenn was able to point to significant progress on Bespak's innovativeSyrina/VapourSoft auto-injectors, which came out of the Cambridge group, as well as continued growth of the respiratory business.
But keeping competitive has become harder. "When I joined, it was all around quality, and that remains crucially important, but now it's also around reducing stock levels at clients and the constant drive for delivery means we are doing much more for relentless quality. The pressure is on our own customers, and as such we are victims of our own success."
Moving with the landscape also means keeping irons in the M&A fire. Repeating the Aesica success with a candidate in the US, or adding capabilities that it so far lacks, are strategic aims. "We're up for acquisitions, absolutely, but we're pretty cautious,” Glen notes. Between The Medical House and Aesica was a period of five years. Nothing happens with undue haste in Consort's world, and with reason: "We have such a good business and don't intend to just jump in – we don't want to ruin a 60-year legacy."
In fact, Consort can grow "very nicely" without an acquisition, although on May 25, Consort made a bid for Carclo PLC. A deal could create a leading drug-delivery CDMO business with expanded positions in injectables and diagnostics, a manufacturing footprint with a strengthened presence in Europe, and new geographies in Asia and North America. The offer is, at time of print, ongoing.
On the drug side of delivery, Aesica is one of some 630 pharma CDMOs globally. But it is a diverse and consolidating landscape, where quality is not necessarily the common currency. Quality puts a CDMO into the top 10% of the market.
Only one thing comes before quality for Consort, and that is health and safety, says Glenn, "even if it takes profits down." Similarly, "we wouldn't tolerate the non-acceptance of anything below GMP thresholds," he adds, listing the five Consort values: customer focus; results-driven; respect; integrity; and teamwork.
Which leaves the challenges. These are mainly technical, in Consort's world: for example, getting the device to work with the drug. "For us now, it would be unusual to come up against a technical show-stopper, but it's still time-consuming, and bumps in the road can add six months to a timeline."
‘It's a simple model: the better job you do for the customer the more they give you’
Ironically, for a company that takes such pains to be in control of its business – building selectively and taking a conservative approach to M&A – the biggest concern for Glenn is not being in control of products once they are with the customer. "Everything we make goes to customers that have their own sales and marketing machinery – we can't control what happens then. Or if customers 'fall over' in the clinic: we never get a commercial return on that."
But it is the nature of the industry, says Glenn, pointing to good margins. In fiscal 2018 (year ended April 30), Consort reported a 5.8% increase in group revenue to £311.1 million (+4.4% underlying growth) and EBIT before special items of £42.7 million (+6.8%; and +5.3% at constant exchange rates).
"It's a pretty exciting time; business is upbeat at the moment. The Aesica deal was successful, we see huge opportunities in nasal and injectables franchises, and meanwhile the respiratory franchise keeps steaming along." The business is there to be won, has says. "It's a simple model: the better job you do for the customer, the more they give you."
Consort now has to ensure it is continuing to do the job right. The innovation center and moving into injectables look to be providing continuity. Brexit might be a fly in the ointment, but Consort has mainland European sites in Düsseldorf and Zwickau, Germany; and Turin, Italy. In fact, record volumes were manufactured at these facilities in 2017-2018, with investments being made in new production lines to support growth. Without them, Brexit could have led to lost business, but Consort might have that potential complication covered. Thinking ahead is vital, for all operation and strategic elements, and it is a 24/7 job, says Glenn. But he is ready for the challenges. "It's been a really interesting journey so far."
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