Encorium seeks partner or PE buyer after loss of biz
Net sales at Finland-based Encorium fell each year from 2007 to 2010 as vendor consolidation and research and development budget cuts impacted business. Over this period cash reserves dropped from $9.1m (€6.8m) to $267,000 and Encorium is now taking action to improve the situation.
“The losses during the past two years have created substantial strains on the liquidity of the company. Consequently, the board of directors has decided to seek suitable financial and strategic partners”, Kai Lindevall, CEO of Encorium, said in a press statement.
Speaking to Outsourcing-Pharma Lindevall said a private equity takeover is a possibility. Becoming the latest private equity-backed contract research organisation (CRO) could give Encorium more cash and have other benefits. “It is quite a burden to be a public company”, Lindevall said.
Vaccine demands
Changes to the vaccine clinical trial outsourcing market have added to the burden. In 2010 Encorium ran 11 vaccine trials which generated 20 to 30 per cent of its revenues, Lindevall said, but market shifts have been detrimental to business.
“We have had some setbacks”, Lindevall said. Many large pharmaceutical companies have moved to preferred provider relationships and concentrated outsourcing at fewer, global CROs. Lindevall said Encorium has lost business as a result of this trend, particularly in the prophylactic vaccine market.
Demand for therapeutic vaccine trials has partly offset the loss. “We’ve gained a lot of momentum in therapeutic vaccines, particularly in oncology”, Lindevall said. Compared to prophylactics volumes are lower, but therapeutic vaccines, such as Provenge (sipuleucel-T), are an emerging niche.
Geographic expansion
Growth may also be achieved by partnering with another CRO. “We need to expand into Asia-Pacific”, Lindevall said, and joining with another CRO could add scale in the region.
Encorium accelerated its geographic expansion in July 2010 by acquiring Latin America specialist CRO Progenitor International Research. Following the deal two big contracts were delayed, Lindevall said, but are due to start this year.
Hiring is underway to support the trials and growing biopharm interest. Encorium plans to double staffing in Latin America, bringing its team up to about 14 people, as it adds employees to handle the trials.
Financials
Preliminary results for the first half of 2011 show a reduction in net loss. The improvement is driven by cost saving efforts and comes despite a dip in revenues. Total operating expenses were cut by 19 per cent, more than offsetting a five per cent decline in net sales.
To achieve growth Encorium must convert the $13.1m of new business it won in the first half into revenues. Central nervous system, diabetes and oncology work account for the bulk of business. Backlog at the end of June totalled $16m and average revenue recognition of 18 months is predicted.
Full year 2010 revenues dropped by 28 per cent as the number of active clinical trials and the value of studies fell. Encorium posted a loss from continuing operations of $9.8m, compared to a $3.1m deficit in the prior year.
