Quantum Pharma Plc (LON:QP) the growing service-led niche pharmaceutical manufacturer, developer and supplier to the health and care sectors, has today announced the acquisition of 100% of the share capital of NuPharm Group Limited and its wholly owned trading subsidiary, NuPharm Laboratories Limited for £9.34 million paid in cash on completion and a maximum of £4 million potentially payable under earn-out arrangements.
Quantum Pharma plc has also announced that it has secured new banking facilities with Royal Bank of Scotland and Lloyds Bank plc comprising a term loan of £25 million and a revolving credit facility of £10 million. This facility replaces the existing £15 million term loan. Following the acquisition of NuPharm the term loan is now fully drawn. The new facilities provide the Company with improved commercial terms for its current borrowings and additional headroom to fund further product development and other working capital requirements and future in-licensing of products and further acquisitions.
The acquisition of NuPharm completes Quantum’s UK based infrastructure plan in a time-frame significantly shorter than that anticipated at Admission. Quantum identified NuPharm as a business that uniquely complements the Group and has taken the opportunity to complete this second acquisition since it joined the AIM market in December 2014. The acquisitions of Colonis (at the time of flotation), Lamda and NuPharm position the Group strongly for future growth and Quantum will focus on investing in and developing these opportunities in the current year.
NuPharm is a UK-based, outsourced manufacturer for solid and liquid dose small batch-made specials and niche licensed pharmaceutical products. In addition, it has product development expertise and is a clinical trials product manufacturer. NuPharm operates from facilities in North Wales and currently holds MHRA licences for Specials Manufacturing, Full Manufacturing and IMP (Clinical Trials).
NuPharm batch manufactures 90+ of the most commonly prescribed (non-sterile) specials and contract manufactures niche licensed products or specials for a number of customers. NuPharm also has a number of products in co-development with customers. NuPharm has three UK patents and one Canadian patent in relation to foam formulations or sprays and pending UK and US patents in relation to liquid dosage forms and delivery systems.
NuPharm generated revenues of £3.85 million and adjusted EBITDA of £1.09 million in the year to 31 December 2014. The initial consideration due in respect of the acquisition of NuPharm totals £9.34 million, and will be financed by partial drawdown of the new £35 million debt facility noted above. In addition, the sale and purchase agreement contains earn out provisions under which a maximum of £4 million may become payable, dependent on the achievement of certain incremental product and service profitability levels in the two year period post completion. The Group will also fund settlement of £0.6 million of debt held by NuPharm.
The acquisition of NuPharm provides Quantum Pharma plc with a platform to greatly extend its manufacturing capabilities which have, until now, been limited to the production of single, bespoke formulations that are made-to-order. The Acquisition will introduce batch manufacturing and licensed product manufacturing capability to the Group, and provide a number of opportunities for synergistic benefits to be realised:
· NuPharm has strong capability in manufacturing batch-made specials
o Higher volume specials from the Group’s existing specials product portfolio can be batch manufactured by NuPharm, utilising available capacity at NuPharm and providing margin enhancement for Quantum
o Quantum will be able to replace existing products currently purchased from third party suppliers with products manufactured at NuPharm providing surety of supply and additional margin for the Group
· The Acquisition also provides access to NuPharm’s customer base, including new geographical markets and provides the possibility of proactively promoting the Group’s products and services to the new customer base. To date NuPharm has been reactive to customers’ orders and has not pro-actively targeted sales from its existing customer base or new customers
· The Acquisition will enable Quantum to bring in-house the manufacture of some licensed products developed by Colonis, resulting in potential margin enhancement on these products as well as a greater degree of control over manufacturing
· Quantum is a customer of NuPharm, and therefore the Acquisition enables the Group to capture manufacturing margin that was previously generated outside the Group
· The Board believes there are opportunities to introduce operational and manufacturing efficiencies to the NuPharm business by implementing Quantum’s processes and systems
In April 2014 NuPharm reduced their manufacturing activities to a smaller range of lines, with resulting loss of revenues, following the result of a routine MHRA inspection. Quantum will work with the MHRA, following completion, to overhaul NuPharm’s systems, to invest in new equipment and resources and to implement the Group’s high standards and procedures with a view to increasing production levels. In 2015 Quantum will be making a net investment in NuPharm in order to enhance its capabilities to support the wider group into the future. As a consequence of this investment, it is expected that NuPharm will be earnings enhancing from early 2016.
Andrew Scaife, Chief Executive Officer of Quantum Pharma Plc, said: “Building upon the successful acquisition of Lamda earlier this year, the acquisition of NuPharm represents a further important and exciting milestone for the Group as it significantly accelerates its strategic growth plan, further strengthening the business for the medium and long term. The addition of NuPharm to the Group will be earnings enhancing from early 2016 after a period of integration, operational and quality process improvements and system investment in the second half of this year.
“NuPharm adds further vertical integration to Quantum Pharma, provides the Group with a ready base of additional customers and as well as additional capabilities extending from research and development through to bespoke and batch manufacture of both unlicensed and licensed medicines. This acquisition will further enhance our product offering and broaden our product range. In addition, the new debt facilities put Quantum in a strong position to accelerate the growth of the Group over and above the NuPharm acquisition.”