2018: a year of international progress

Alliance Pharma (APH) is continuing with its buy-and-build strategy, having evolved through 35 acquisitions over a period of 20 years into a profitable, cash-generative, specialty pharma business. The company has a mix of international growth brands – Kelo-cote, MacuShield, Vamousse – and a bedrock of solid, local, low-growth products. A fourth international growth brand in the portfolio, Nizoral, was acquired from J&J on 21 June 2018 in the APAC region. The cash consideration of £60m was funded by a Placing and an increased debt facility. Adding also to growth prospects, Diclectin (now registered as Xonvea®) was approved in the UK in July.

• Strategy: Since inauguration, APH has adopted a buy-and-build model, with 35 deals over 20 years assembling a portfolio of more than 90 products and establishing a strong track record. It is accelerating growth through investing in multi-market brands, with infrastructure supported by its bedrock products.
• Trading update: Underlying sales performance for 1H’18 was slightly better than forecast, at 4%, boosted by acquisitions (+8%). Kelo-Cote was exceptional, with CER growth of 88% (est) to £10.9m (£6.2m) offsetting a softer performance from the bedrock portfolio. Net debt at 30 June was also better, at -£86.3m.
• Nizoral: APH acquired the Nizoral brand (medicated anti-dandruff shampoos) from J&J in the APAC region for a cash consideration of £60.0m, increasing sales in this important region 2.6x and adding well-established multi-national distribution partners and new territories (India and Japan).
• Xonvea (Diclectin): Adding to the positivity, APH and its partner, Duchesney Inc, received approval for Xonvea (nausea and vomiting of pregnancy) in the UK after a year of dialogue with the MHRA. Launch will take place in autumn 2018. Plans are underway to submit for EMA approval in APH’s nine European territories.
• Investment summary: Recent acquisitions look set to boost APH into generating underlying CAGR of 17% in sales and 10% in EPS over the next three years. On the back of this strong performance, the company is expected to continue with its progressive dividend policy. The shares are trading on a 2018E P/E of 20.1x, falling to 17.6x in 2019E, and carry a prospective dividend yield of 1.6%.