Acquisition helps Dechra grow in farm animal drugs market

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DECHRA Pharmaceuticals said it sees growing opportunities in the market for farm animal drugs, which it entered with the acquisition of Dutch-owned firm Eurovet.

The group expanded from pet drugs to livestock treatments earlier this year when it bought Eurovet for 135 million euros (£109m), funded by a £60m rights issue and a new £120m bank facility.

Before the acquisition, Dechra was limited to treatments for pets and horses. Through Eurovet it now supplies large animal veterinary practices, mainly treating pigs and poultry.

“We’ve known for some time that we’ve been constrained post-VetXX (bought in 2008),” said chief executive Ian Page. “We were the only substantial animal healthcare company that was entirely companion animal. We could have achieved growth but that growth would have been reasonably modest.”

The growing global population and emerging markets’ expanding middle classes have boosted demand for meat, and Mr Page said Eurovet serves strong markets with premium products.

“Look at British lamb – because a lot of Australian lamb is going to China it’s put British lamb prices up. We do have some of the best quality farms in Europe and therefore the products are premium.”

Eurovet has a strong presence in Germany, which Dechra has traditionally supplied through a distributor, and the deal also boosts the group’s presence in the Netherlands, Belgium and the UK.

Eurovet recently won approval for Methoxasol, an antimicrobial for pigs and poultry, and Myorelax, a muscle-relaxant for horses.

Mr Page said the integration of Eurovet is on track and it should mean opportunities for its Dales manufacturing plant in Skipton, which makes drugs for pets and humans. The acquisition came with a sterile manufacturing plant in the Netherlands, but Dechra said there is almost no product overlap.

“They have a number of products which they did not make themselves,” said Mr Page.

“Not only are we investing in production of our own products at Dales, but from a manufacturing perspective, we’ve increased contract manufacturing.”

About 40 per cent of Dales’ output are human drugs made under contract for other firms. “Originally a few years ago it (contract manufacturing) was to utilise capacity,” said Mr Page. “It’s a nice business in its own right.”

The site secured regulatory approval to make drugs for the United States in November 2011 and employs 209 staff.

Dechra yesterday posted 9.7 per cent revenue growth to £426m in the year to the end of June. Underlying pre-tax profits increased 9.6 per cent to £33m.

Dales helped the group’s European pharmaceuticals arm increase sales 18.5 per cent to £105.8m. Within this, sales of own-branded drugs increased 32.3 per cent and contract manufacturing was up 6.1 per cent.

Mr Page said while the tough economic climate has slowed consumer spending, the market for pet drugs and therapies is still growing.

“People are still treating their pets. They’re not spending the extra money on leisure goods that they don’t need like bags of premium pet food. But if their dog is ill they will still get that injection.”

Dechra also has one of its three laboratories in Yeadon, Leeds, which provides haematology, cytology, clinical chemistry, serology, microbiology and histopathology services to veterinary practices across the UK.

The laboratory business reported 8.1 per cent growth to £5.5m during the year, helping the services business grow revenues 6.6 per cent to £315.7m.

Dechra hiked its final dividend 10.1 per cent to 8.5p.

Investec analyst Sebastien Jantet said Dechra is “bringing home the beef” and is “one of the most attractive re-rating opportunities in our coverage universe”.