The Knowledge: Cyprotex ready to pounce on rivals

THE somewhat uncertain state of research and development by big pharma companies in the UK may have cost Cyprotex £500,000 through the loss of its biggest customer, but it is leading the Macclesfield-based weigh up more acquisitions.

Chief executive officer Dr Anthony Baxter told TheBusinessDesk.com that although the loss of the unnamed customer – following a merger between two pharma companies – was “a blow”, the company’s transformation over the past two years meant that it is nowhere as devastating as it once might have been.

In recent years, Cyprotex has “moved upmarket” from primarily operating as a contract research organisation (CRO) into providing more upmarket pharmacology tests such as ADME-Tox.

He said that in 2008 the customer was responsible for 35% of Cyprotex’s total sales.

“If that had happened then, we’d have been in real trouble.

“As it is, it’s still a blow but nowhere near as big as it could have been. Had we not had that (customer loss), our results would not just have been good, they’d have been stellar,” he added.

The company reported a 43% increase in revenues to £3.5m during the first half of 2011 and a 57% increase in earnings to £261,000. It also estimates that by the end of this year, its biggest customer will be responsible for just 11% of sales.

“I am delighted with the performance,” said Dr Baxter. “The market is tough out there for CROs and we’ve seen a lot of our competitors really struggling.”

Dr Baxter added that this was creating possible deals for the business, with chariman Steve Harris pointing to a growing trend towards consolidation among the niche players in the market.

“There are a lot of opportunities to acquire assets at a reasonable price,” he said. “We have supportive, long term investors, we have cash in the bank and we’ve shown following the Apredica deal that we know how to integrate businesses successfully.”

Apredica, which was acquired 12 months ago in a £2.8m deal, has been responsible for the significant increase in Cyprotex’s US sales, which stood at around £1.27m at the end of June.

The company has also announced that it is planning to expand its laboratory space in the US in a bid to build capacity and will launch a new range of assays at a US industry conference in October.

Dr Baxter said that the company was confident that the new products, which have been developed on the back of technology acquired at the time of the Apredica deal last year, will be well received.

“We think it will go down very well in the market,” he said.

The firm’s in-house broker Singer Capital Markets, estimates that Cyprotex’s full-year sales would reach £8.3m and that its adjusted pre-tax profits were likely to be around £800,000. 

It maintained its Buy rating on the stock, setting a target price of 12p against yesterday morning’s opening price of 3.25p.

“Our ‘intrinsic value’ of 12p per share represents over 200% upside to its current share price, and expectations of continuing growth, accompanied by an increase in share price, underpins our positive outlook,” the company said.

“We continue to view Cyprotex as a low‐risk potentially high return investment, although clearly the company now needs to reassure investors by restoring operating margins whilst maintaining growth.”