Clinigen offers growth on the cheap

Idis and Link Healthcare, the two companies acquired in 2015, have improved Clinigen's business mix by reducing its reliance on erratic revenues from its clinical trials business - 18 per cent of first-half gross profit. Idis operates in two divisions, managed access and global access, which aim to provide physicians with treatments that are not available in their own country. These two divisions together contributed £19.1m of gross profits in the six months to December 2015, up from just £2.9m in the comparable period of the prior year. Link Healthcare was acquired in October and contributed £2.7m of revenue in just two months. Link provides commercial access to specialist medical technology products, specifically in Asia, Africa and Australasia, which expands both Clinigen's product range and its geographical reach.

While integration costs associated with these acquisitions are likely to persist this year, Idis and Link are already boosting group earnings and brokers are forecasting significant upside in revenue and profits. The acquisitions were largely funded by extended banking facilities, which has stretched net debt to £82m. However, Clinigen is highly cash generative and net debt is forecast to fall to £23m by 2017, according to broker Numis.

Specialist pharmaceuticals (SP) remains the largest contributor and accounted for almost a third of first-half gross profit. The group buys poorly managed drugs from big pharmaceutical companies and "revitalises" them, with the aim of doubling turnover by improving access to supply. The misconduct by Canadian company Valeant may have soured some investors' perception of such businesses, but Clinigen has a strong reputation. Foscavir, for the treatment of diseases associated with HIV, is the group's leading product. When it was acquired in 2010 it made £4.3m sales and in the most recent financial results it contributed £23m of revenue. While an order delay hit first-half performance, prospects remain good and Clinigen has developed a new 250ml bag, which it plans to replace the current glass bottle presentation of the drug. The bag is likely to widen Foscavir margins, enhance Clinigen's market share and, hopefully most notably, hold off generic competition.

The company is trying to reduce its reliance on Foscavir by buying and developing new drugs, and added a sixth treatment, oncology support drug Totect, to its stable in March. In the first half, Clinigen's newer SP drugs increased sales by 74 per cent, taking their contribution to more than two-fifths of the division's total.