Zeus Capital Healthcare Research Director Gary Waanders caught up with DirectorsTalk to discuss Quantum Pharma PLC (LON:QP)
Q1: Now Quantum Pharma today reported its interim results and warned on profit expectations, what’s happened to performance?
A1: Overall the company has continued to perform relatively well particularly the core Specials business which is generating roughly around £10 million of the EBITDA on an annual basis but there have been a couple of issues that have resulted in challenges to group profitability. The first of these was the acquisition of a company called Nupharm, back in July 2015, which was to be integrated into the Specials division of Quantum, this company was bought whilst in special measures which effectively limited the range of products it could manufacturer under regulation from the MHRA. Now regrettably since the acquisition Quantum has uncovered further operational issues at Nupharm resulting in ongoing losses despite having invested time and money in the company since it was acquired. The second issue is the challenge to sales growth in the niche pharmaceutical division which has been caused by high levels of competition in generic plus products and medical devices, the sales of this category product have not met the company’s own expectations which, with hindsight, we think we’re probably set unrealistically high.
Q2: So what corrective measures has the company taken?
A2: So the Board is at a position where it considers that the issues at Nupharm cannot be remedied even with further investment and it has therefore resolved to exit the business as it was continuing to make unacceptable losses, it has therefore begun consultation with a view to closure of the business by the end of December this year. On the niche pharmaceutical side, the generic and generic plus products and medical devices are now going to be deprioritised in favour of the core strategy of that group of obtaining licences for the unlicensed Specials that Quantum Pharma is well known for and this is the so-called unlicensed to licenced product development programme where the company has had some recent quite positive experience.
Q3: So with all this in mind, has your view on Quantum Pharma changed?
A3: We’ve downgraded our profit forecasts for the current year and the coming year so now we expect adjusted EBITDA of £10 million in the current year, to January 31st 2017 that is, and £11.5 million and £13 million in the subsequent 2 years. Now we remain confident that the company can hit these targets based on the revised strategy of focussing on its key operational strengths in the Specials division without Nupharm and the niche pharmaceutical division with more unlicensed to licenced emphasis. So the current share price of around 37p and on the basis of our lower profit forecast the company is very attractively valued at just a little over about 7 times EBITDA multiple which is a significant discount to other companies in its peer group.
