Consort rerating has further to run

Consort paid £230m for contract development and manufacturing business Aesica Pharmaceuticals. When the deal was announced, the market was spooked by Aesica's relatively low margins of about 8 per cent. Neither were investors thrilled by the £95m five-for-eight rights issue priced at a 34 per cent discount needed to fund the deal. But with the deal complete, investors should now be looking to the future and we think prospects do not seem at all bad.

True, it's early days as far as the integration of Aesica is concerned, but there are already some clear positives. Being a contract business, Aesica will provide better visibility over Consort's revenue stream. There are also cost savings to be made and broker Investec points out that dealing with underutilisation issues could restore the acquired company's margins to around the historic level of 15 per cent. Indeed, the broker reckons the deal could enhance earnings by 10-14 per cent from 2016.

Encouragingly, Aesica - which will still operate as an independent division - will be working in close association with Consort's core drug delivery device business, Bespak. Bespak just reported another six months of solid earnings growth, with revenues up nearly 5 per cent to £53.6m. This was driven by several new product launches and "more profitable development work". Its Chiesi NEXThaler product, a new dry powder inhaler launched in March 2013, is going great guns and is now available in nine countries. So far it is licensed in 14 countries, which implies a number of launches still lie ahead.

But that's not all. Consort has 11 other products under development. The most interesting is Voke, a nicotine replacement therapy or imitation cigarette. It's been labelled a medical device by British regulatory authorities, which gave the product marketing clearance in September, which brings a possible launch date closer. The product works as a traditional inhaler with a canister of nicotine and the user receives a dose of the addictive drug by puffing on a stick which, to all intents and purposes, looks like a traditional cigarette. The packaging even resembles a pack of 20 cigarettes. The product was developed by Kind Consumer, and will be commercialised by British American Tobacco's (BATS) subsidiary company Nicoventures. Consort's Bespak division will manufacture the product.