Bolt-on acquisition in US
Dechra Pharmaceuticals (LONDON:DECP) has bolstered its US presence by acquiring PSPC, a private veterinary nutraceuticals business, for a total of up to $10m (plus sales royalties). While small, the acquisition signals the commitment to broadening the US product offering to tap into this important market. We have updated our model, leading to an approximate 2% increase in EPS from 2015, but we retain our valuation (based on a DCF model) unchanged at 800p a share.
US companion animal business bought for $10m
Dechra Pharmaceuticals is acquiring Florida-based PSPC for a consideration of up to $10m in cash. $8.5m is payable on completion, with a further $1.5m contingent on the successful registration of a new product in development. Additionally, a royalty of 10% on net sales is payable, which will rise by 2.5% when sales exceed $7.5m pa and a further 2.5% when they pass $12.5m pa.
Phycox, the current main product, has sales of $4.5m
PSPC is centred on Phycox, a patented veterinary nutraceutical that helps with joint problems in older dogs and horses. Phycox is a combination of glucosamine, methylsulphonylmethane (MSM), creatine and phycocyanin and has anti-inflammatory and analgesic properties. It is currently sold through a distributor in some 3,000 of the 26,000 companion animal veterinary clinics in the US, achieving sales of $4.5m pa despite limited marketing support. A new endocrinology product is in the final stages of development, which should be launched early in FY15.
Strengthening US presence and product offering
Phycox, together with the undisclosed new product and a recently launched Vitamin K1 soft chew (for the treatment of rat poison ingestion), will help bolster Dechra Pharmaceuticals’ US presence. The US business is set to benefit over the near term from the launch of Osphos, for lameness in horses, and the re-launch of the Vetropolycin sterile ophthalmic products. The PSPC products will complement these nicely, broadening Dechra Pharmaceuticals’ offering materially.
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