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).

Eli Lilly and Amylin Pharmaceuticals have mutually terminated their decade-long diabetes partnership for exenatide.

As part of the global agreement, Amylin will gain full responsibility for the drug and make an upfront payment of $250 million, plus 15% of future global net sales to Lilly, up to the combined total of $1.2 billion.

Enrique Conterno, President of Lilly Diabetes, said: “This marks an amicable end to a very productive 10-year collaboration that will continue to benefit many people worldwide. Lilly and Amylin are proud of the important accomplishments we achieved together.”

The partnership between Amylin and Lilly provided various innovations to the diabetes market, including Byetta and Bydureon.

Byetta was the first glucagon-like peptide-1 (GLP-1) receptor agonist to be approved by the FDA in April 2005. It is an injectable prescription that improves glucose control in adults with type 2 diabetes mellitus, when used in conjunction with a diet and exercise programme.

Investigational Bydureon received marketing authorisation in the EU in June 2011 for type 2 diabetes, and is currently under review in the US.

Daniel M. Bradbury, President and CEO of Amylin, said: “We anticipate working with one or more partners outside the US in order to maximise the global potential of this innovative molecule and achieve greater operational flexibility and efficiency.”

The mutual agreement confirms that Amylin will resume worldwide drug development and commercialisation, starting in the US and progressing to all markets by the end of 2013.

Revenue was up 10% in Q3 at Lundbeck to DKK 4.9 billion but profit from operations fell nearly a quarter (22%) after restructuring its R&D department.

Growth was driven by an increase in revenue from a number of its key products and milestone payments following the launch of escitalopram in Japan.

Ulf Wiinberg, Lundbeck’s President and CEO, says the company is “very pleased with yet another strong quarter” after its branded products delivered “solid results”.

Sales of Sabril increased by nearly half (47%) to DKK 77 million, compared to the third quarter in 2010, with revenue also up for Xenazine in the US by a fifth, compared with the same period, to DKK 191 million.

Lundbeck’s key products, Cipralex, Ebixa and Azilect, which grew 5%, 18% and 20% respectively, compared to the period last year, helped boost revenue from International Markets up 20% to DKK 901 million.

“We are now entering a new era with many new product launches,” said Ulf Wiinberg. “With the launch of Lexapro in Japan, the continued roll out of Sycrest and the forthcoming launch of OnfiTM in the US, we have expanded on our product diversification and strengthened our long term growth prospects substantially.”

Sales increased more than 10% at Sanofi in the third quarter to €8.7 billion, despite the loss of €471 million due to generic competition compared to the same period a year ago.

Total sales grew 10.1% along with an 11% increase in growth platforms after strong performances in its diabetes, vaccines and consumer health divisions.

Christopher A. Viehbacher, Sanofi CEO, says the return to growth in sales and earnings is an “important milestone as the company progressively puts the patent cliff behind it”.

Growth platforms and Genzyme accounted for 68.5% of total sales after the recently acquired business recorded sales up 6.9% to €768 million.

Pharmaceutical net sales were up a tenth to €6.9 billion and helped year-to-date net sales rise 5.5% to €20 billion, despite generic competition to Lovenox, Ambien CR and Taxotere in the US and Plavix (pictured) and Taxotere in the EU plus the impact of US healthcare reform and EU austerity measures.

Its diabetes division was driven by a strong US and Emerging Markets performance which resulted in a 12.4% increase in sales after Lantus recorded growth of 14.6% and 23.4%, in respective markets. Growth in Sanofi’s vaccine division also increased 16.7% after a solid demand for seasonal flu medication in the US.

The Sanofi Group now expects 2011 business net income to be between 2%-5% lower than last year’s total. “We continue to make strong progress in R&D with the submission of five new products and also in the tight control of our costs,” said Mr Viehbacher.

It was reported this week that Sanofi is set to overtake Pfizer as the world’s biggest pharmaceutical company by 2016.

Submissions have been recently filed for Lyxumia (lixisenatide) in the EU, Aubagio (teriflunomide) and Zaltrap (aflibercept) in the US; Visamerin/Mulsevo (semuloparin) in the US and EU; plus Kynamro (mipomersen) in the EU.

The company released its Q3 performance on the day it announced it was cutting jobs in its US R&D and sales divisions.

Sanofi plans to cut hundreds of jobs in its sales and R&D departments in the US over the coming months.

The job losses come as the company prepares to lose patent exclusivity on key products and fully absorbs Genzyme following its acquisition in February 2011.

The sales jobs cuts would be focused on Sanofi’s cardiovascular and oncology groups, aiming for cost savings of $2.9 billion per year, said CEO Christopher Viehbacher.

More than 9,000 jobs have been cut at the company over the last several years, including approximately 3,800 sales employees in the US.

The staff reductions in mature markets have been similar at many other pharmaceutical companies, adding vacancies in emerging markets.

According to Mr Viehbacher, Sanofi has added more than 3,700 pharmaceutical jobs in emerging markets since 2008.

The FDA has approved Accuray’s Dose Control System (DCS), a new feature of the company’s TomoTherapy System.

The equipment is the first dose servo-controlled helical delivery system of its kind, providing accuracy in dose stability through complex rotational treatments.

Dr Euan S. Thomson, President and CEO of Accuray, said that the device’s clearance by the FDA “is a positive step toward improving TomoTherapy System performance and customer satisfaction.”

The system introduces helical delivery to radiation therapy, providing accurate dose applications whilst sparing healthy tissue. Static delivery through the TomoDirect option provides a consistent dose rate at any angle. 

The DCS technology ensures a stable output over longer duration treatments, offering improved patient experience and overall system performance.

Based in Sunnyvale, California, is a radiation oncology company that develops, manufactures and markets personalised treatment solutions.

Life Technologies is to join GlaxoSmithKline (GSK) Biologicals in developing a diagnostic to be used with a GSK cancer immunotherapy.

Life will develop a multi-gene qPCR-based molecular in vitro diagnostic assay for GSK’s MAGE-A3 cancer immunotherapy candidate designed to identify patients likely to benefit from the treatment.

Kim Caple, Head of Molecular Diagnostics at Life Technologies, said: “Life Technologies' platform technologies, such as qPCR, are allowing biological knowledge to be applied in multiple markets, including companion diagnostics.”

MAGE-A3 is currently being evaluated in two clinical trials, MAGRIT and DERMA, evaluating safety for patients with non-small cell lung cancer whose melanoma has invaded lymph nodes.

Under the terms of the agreement, Life Technologies and GSK will develop and commercialise the qPCR-based test to detect MAGE-A3 positive patients most likely to benefit from MAGE-A3 ASCI. 

Based in California, Life Technologies is a global biotechnology company that manufactures both molecular diagnostic and research use only products.

Eli Lilly has withdrawn Xigris (drotrecogin alfa) from all markets due to it showing no gain in 28-day survival of septic shock patients in the PROWESS-SHOCK study.

New results showed that the drug failed to meet its primary endpoint and question the overall benefit-risk balance of Xigris for patients with severe sepsis.

Timothy Garnett, Senior Vice President and Chief Medical Officer of Lilly, said that the results were unexpected to the company. “A contributing factor to these study results could be advances in the standard of care for treating severe sepsis over the past 10 years.”

Xigris was approved in the US by the FDA in November 2001, and in the EU in 2002 under exceptional circumstances for septic shock patients with multiple organ failure, in addition to best standard care.

As a condition for continued market authorisation in Europe, Eli Lilly established the placebo-controlled PROWESS-SHOCK study in March 2008, to assess the benefit-risk profile of the product.

Aside from failing its primary aim, the study also failed its secondary endpoint of reducing mortality in patients with severe protein C deficiency. The small difference in the 28-day mortality of the overall population (26.4% in the Xigris arm versus 24.2% in the placebo arm) was not statistically significant.

Xigris is administered as a continuous intravenous infusion, in one dose for a total duration of 96 hours.

The CHMP will assess the issue during its plenary meeting in November 2011.

Abbott Laboratories has revealed plans to separate into two companies, one focusing on diversified medical products and the other in research-based pharmaceuticals.

The new medical products company will contain the company’s current portfolio and retain the Abbott name with the unnamed research-based business including its current portfolio of proprietary pharmaceuticals and biologics.

Miles D. White, Chairman and CEO, Abbott, says the split is a “significant event” in the history of the company whilst “strengthening our outlook for strong and sustainable growth”.

Abbott says the research-based company, which raised almost $18bn in annual revenue, and the diversified medical products firm, with approximately $22bn in annual revenue, will become global leaders in their respective industries.

The research-based arm will include all branded generic pharmaceutical, devices, diagnostic and nutritional businesses. Abbott says it will have a sustainable portfolio of brands, including Humira, Lupron, Synagis, Kaletra, Creon and Synthroid, as well as a pipeline of innovative R&D assets.

Developed markets are expected to generate the majority of the company’s revenue with a sustained portfolio and advancing pipeline having the potential to deliver “accelerating revenue” in the future, Abbott says.

Its new diversified business will include established brands from its four main divisions: pharmaceuticals, nutritionals, diagnostics and vascular devices, where it says it is now the global leader in interventional cardiology.

Abbott believes it will be one of the “largest and fastest” investment opportunities with nearly 40% of sales coming from high-growth emerging markets.

Miles D White will continue as Chairman and CEO of Abbott with Richard A Gonzalez, currently the Executive Vice President, Global Pharmaceuticals, taking on the positions of Chairman and CEO of the unnamed company.

“The research-based pharmaceutical company will be a leader in its industry with a strong and sustainable portfolio of specialty medicines and a promising pipeline of future products,” said Mr. Gonzalez. “This business has been delivering market-leading performance and is well positioned for future success.”

Roche has posted solid sales performance in the first nine months of 2011 with overall group activity up 2% to 31.5bn Swiss francs.

Sales in the pharmaceutical division grew 1% after growth of key medicines and markets, particularly in the international region where a 6% increase was recorded.

Severin Schwan, Roche CEO, says the Group is “on track to achieve our targets for 2011” after recording results in line with expectations.

The Group confirmed it is expecting low single digit growth this year and is still targeting Core EPS growth of approximately 10% despite a challenging environment and global health reforms.

US pharmaceutical sales were up 1% and driven mainly by demand for Lucentis, Rituxan and Actemra. But the company suffered an expected negative impact in sales of Avastin (pictured) after the uncertainty around the metastatic breast cancer indication in the US.

Sales were down 4% in West Europe, primarily due to government austerity measures, and 2% in Japan after the affects of the earthquake in the country in March, the company said. Although an increasing demand for products in China (+28%), Venezuela (+88%) and Brazil (+16%) helped boost figures internationally.

In the same period, Roche also reported positive data from seven clinical studies, a number of which have already formed the basis for regulatory filings and approval in Q3; including the launch of skin cancer medication Zelboraf and companion diagnostic cobas BRAF Mutation Test following FDA approvals in August and Tarceva (pictured) in the EU for EGFR-mutated non-small cell lung cancer.

“The successful US launch of our new melanoma medicine Zelboraf and the diagnostic cobas BRAF test has strengthened our leading position in personalised healthcare,” said Severin Schwan. “The good results we have achieved with new medicines in seven late-stage clinical trials so far this year further enhance our prospects for future growth.”