New research shows that SME growth provides the best prospect for economic recovery in the UK. But, as private equity firm ECI notes, finding the cash to reach out to global partners and markets can be a critical hurdle.

With continued pressure on governments across the Western world to reduce their expenditure, together with sustained macro-economic uncertainty and a tightening of bank funding, times are not necessarily easy for the average healthcare company – which often relies on the public purse for reimbursement and debt funding for growth. One might therefore expect the short-term outlook for growth to be somewhat muted, despite the backdrop of positive longer-term demographic drivers of demand.

Hence it is interesting that a recent survey of UK SME businesses by ECI Partners, a UK-based midmarket private equity firm, has found executives to be generally positive about growth prospects over the next 12 months, with 74% of respondents anticipating headcount growth and 60% expecting double-digit turnover growth.

The results met with a warm response from the Government, with Mark Prisk, Minister of State for Business and Enterprise, saying: “It’s good news that despite a tough few months, nearly three-quarters of the SMEs surveyed by ECI are looking to recruit over the next year and half expect to see substantial profit growth in that period. Up and down the country, it is Britain’s SMEs that are driving our economic recovery.”

Reaching out

This year, the survey conducted each summer by ECI Partners gained responses from a total of 246 chief executives from UK growth companies from a range of sectors with turnover between £10m and £200m. The results paint a positive picture against the gloomy economic backdrop of the Eurozone crisis and sluggish UK economy, and suggest that there remains growth potential amongst SME businesses – which account for around a third of UK private sector employment.

Steve Tudge, a Managing Director of ECI, commented: “Despite the barriers to growth, which are principally cited as a weaker macro-environment and funding constraints, we continue to be optimistic about the prospects for good mid-market companies.”

Executives see the key growth drivers to be increasing international sales – with Europe and the USA remaining the dominant international markets, though India and China are becoming more important – and organic growth through investment in sales and marketing and new product development. Over 40% of companies are also planning to increase their use of overseas suppliers to improve their margins.

Internal cash flows are viewed as the most likely source of funding for this growth, though around half of respondents say they are likely to seek bank debt within the next 12 months (despite continued complaints about its cost and due diligence requirements) and around 40% are also likely to look at private equity backing. Fewer than 10% of companies see the public markets as accessible, perhaps reflecting the recent volatility and liquidity issues associated with the AIM market.

Healthcare respondents are less bullish about high growth than their peers in other sectors, and are noticeably less positive about growth than they were last year. This no doubt reflects, in part, the political uncertainty surrounding the current UK healthcare reforms and the public sector spending constraints that are impacting on the health and social care sectors.

Despite this, companies remain more confident of raising growth financing – and of raising it from private equity firms, with over 50% saying that was a likely consideration over the next year.

Financing growth

What does all this mean for SME healthcare businesses in the UK? The sector certainly faces challenges in responding to Government spending cuts, which are tending to put pressure on margins if not always on volumes.

However, opportunities for growth remain amidst these challenges, particularly for companies who are able and willing to venture beyond the UK in order to seek new customers and cheaper suppliers.

Of course, this internationalisation can put a strain on smaller businesses, which may lack the scale to fully support an international infrastructure. Private equity groups with experience and expertise in this process can potentially offer support to management teams in this position – whether by making introductions, sharing best practice or simply financing the required infrastructure.

There are significant sums of capital available for investment from the UK private equity industry, and there remains an appetite to invest in market-leading healthcare businesses. Thus private equity should be considered seriously as an option by management teams in the healthcare industry who are looking to fund growth to help their companies succeed in the current economic environment.

ECI is a private equity group that has been investing in mid-market growth businesses for over 35 years. It invests across sectors, with a focus on UK and Irish companies. Healthcare companies in its current portfolio include a primary care provider (Harmoni), assisted living specialists (Premier Bathrooms, DLP) and medical software companies (Clinisys, Ascribe).

West Midlands home care specialist Salts Healthcare has acquired Healthlink, a Dispensing Appliance Contractor (DAC) covering Sussex, Hampshire, Kent and Surrey.

The acquisition will enable Salts to make its UK customer service network fully national, increasing its number of care centres to 17.

Sussex-based Healthlink has been run for 30 years by its founder and owner Liz Box, who is due to retire.

Family-owned Salts Healthcare, established over 300 years ago, specialises in stoma and continence care products.

The company’s home delivery service, Salts Medilink, provides specialist nurses and rapid prescription delivery via a network of customer care centres.

According to Peter Salt, Salts Healthcare’s Managing Director, the company “provides a vital service to ostomy and continence patients throughout the UK”. He added: “That passion to provide the very best service is found across the Healthlink team, and it’s that same quality of care and professional principles that attracted us.”

“This is a new chapter for both me and the company, and I’m delighted that my work will be continued with the same passion by Salts Healthcare,” said Liz Box. “As a family-owned firm, I know that Salts will look after my company, my staff and most importantly the patients.”

For Salts Healthcare, the last year has seen new product launches, significant export growth and the acquisition of UCI Healthcare.

Philip Salt, CEO, (pictured above with Liz Box and Peter Salt), commented: “Our early history shows we were originally metal workers who progressed to surgical instruments. This adaptation was borne out of our home-made but specialist skills and the desire to innovate. The same principles apply now, especially in a global economy with pressures for cheaper products coming from across the world.”

The Government’s choice of using GSK’s Cervarix to vaccinate against cervical cancer is less cost-effective than Merck’s Gardasil, a new study has found.

Authors of the Health Protection Agency (HPA) study stated that, if equally priced, Merck’s Gardasil was more cost-effective, despite the fact that Cervarix may provide better protection against cervical cancer, but said that “considerable uncertainty” remains about the differential benefits of the two vaccines.

In 2008, the UK Government chose Cervarix for its Human papillomavirus (HPV) vaccination programme, believed to be the cheapest option.

But since then, new evidence has emerged to differentiate the two vaccines.

The HPA has now found that Cervarix would need to be between £19 to £35 cheaper to match Gardasil’s price.

Also, Cervarix has proved to give better protection against cervical cancer caused by HPV types other than 16 and 18. Gardasil has also shown protection against vulvar, vaginal and anal cancer.

A spokesman for the HPA said: “The Department of Health will use the results of this study as part of its decision-making process when reviewing its current vaccine choice.”

The selection of the vaccine will be re-evaluated when the current tender for the vaccination programme expires before the end of 2011.

“Deciding which vaccine to use for national immunisation programmes is a complex task. Many factors, including the cost of the vaccine, must be taken in to account,” added the HPA spokesman.

Both vaccines protect against HPV types 16 and 18, which are responsible for over 70% of cervical cancer cases, as well as other types of cancer. Gardasil also vaccinates against types 6 and 11, which cause the majority of genital warts as well as a rare disease called respiratory papillomatosis.

Human papillomavirus is a common sexually transmitted infection seen most often in young women. There are more than 100 types of HPVs; some cause genital warts, but others cause cancers including cervical cancer.

HPV testing is currently being integrated into England's cervical cancer screening programme, and will be fully incorporated within the year.

Cervarix was found to protect against five of the most common cancer-causing viruses in July 2009.

The NHS wasted £625 million over the last decade on synthetic forms of insulin when recommended alternatives were cheaper and probably just as effective, research has shown.

The findings from publicly available data showed the NHS spent a total of £2.7bn on insulin in the last ten years but could’ve saved millions had human insulin been prescribed instead.

Authors of the research said there had been “no observable clinical benefit to justify” the investment and the “rise of insulin analogues has had a substantial financial impact on the NHS”.

The number of people diagnosed with condition has risen to 2.8 million in the UK, with 90% having type II diabetes. Those diagnosed with type I diabetes are immediately prescribed insulin, however those with type II start later with their treatment.

The NHS has seen the annual cost of insulin increase 130% in the last ten years from £156 million to £359 million. Synthetic insulin now costs £305 million a year – accounting for 85% of the total medicine prescribed.

But, over the same period, the cost of human insulin fell from £131 million to £51 million a year. And, if all patients had been prescribed the cheaper alternative, researchers say the NHS could have saved hundreds of millions of pounds.

“It is likely that there was and is considerable scope for financial savings,” said the research authors.

“Most worryingly, the clinical role and safety of insulin for use in people with type II diabetes is being questioned.”

The finding comes as a UN health summit in New York aims to increase international efforts to stop the rising global burden of non-communicable diseases, such as diabetes.

Joint-working between pharma companies and clinical commissioning groups (CCG) could lead to GPs becoming commercially biased, a new report has warned.

The Quality of GP Prescribing suggests that doctors may favour medicines from pharma companies that offer discounts or preferential deals instead of cheaper generic alternatives.

Despite Government plans to increase joint-working in an attempt to reduce costs, the report by The King’s Fund says the approach “may not be truly cost effective”.

The report highlighted a study from Liverpool University academics in 2003 that found that almost half (49%) of practitioners said the pharmaceutical industry was their main influence on which new medicines they prescribed.

This compared to 17% of GPs who preferred to use academic and professional literature as their main source of information to forge an opinion.

The report also calls for “urgent revision” on the system which causes branded generics to undercut generic prices in the Category M basket of medicines.

Category M was introduced into the Drug Tariff six years ago to adjust the reimbursement prices of more than 500 medicines.

But The King’s Fund report says the current system can encourage a switch back to more expensive brand prescribing which counters years of favouring cheaper generics, and is also confusing for patients.