Life sciences is the smallest of Croda’s three core business units but current trends suggest that could change in the future. While sales at the personal care and performance technologies units fell in the first half of 2019, revenue at the life science business rose 16% on a reported basis.
A year ago, life science sales were 33% lower than those of Croda’s next smallest unit. In the latest results, the difference was down to 19%.
Steve Foots, group chief executive at Croda, responded to the divergent performance by committing to place “a bigger emphasis on life sciences.”
Talking to investors after the release of the first-half results, Foots said, “We really want to expand life sciences as a priority. That's where Croda is moving to. Investment, incremental investment, acquisitions, people, we want to move there really quickly. Life science is in a really good position, but we want to invest more and we will be investing more.”
Some of the additional investment is already underway. Croda aims to double its US healthcare ingredient manufacturing capacity by next year through ongoing organic investment. In parallel, Croda is seeking to expand the range of drugs it can support — and, by extension, its base of potential customers — by investing in purification technologies.
Croda is also growing inorganically. Around the turn of the year, Croda made its first acquisition in the healthcare space, paying €72 million for Brenntag Biosector and its portfolio of vaccine adjuvants.
Biosector contributed to the growth of the healthcare business in the first quarter, although the unit posted a double-digit increase in sales even excluding the impact of the acquisition.
The activity reflects the fact that healthcare, which along with crop care makes up the life science unit, has emerged as a key growth driver for Croda at a time when other businesses are flat.
Sales at Croda’s healthcare unit rose 24% in the second quarter. Croda attributed the increase to the strengths of its high-purity excipient delivery system business, which it said enabled it to respond “to the more complex demands of the biologic and oncology-driven drug development pipeline.”
The performance benefited from a double-digit price increase. Croda’s ability to generate the extra sales is, in part, a consequence of the willingness of drugmakers to enter into more strategic alliances.
Foots said, “The thing that really excites us about healthcare is you can enter into partnerships with customers. They do accept franchise agreements, profit shares and royalty payments and the like and that's what's attracting us to the space.”
Croda needs such healthcare deals to continue delivering to offset weakness in other parts of its business. Overall sales in the first half fell short of expectations, leading analysts to raise concerns that the problems facing Croda’s business are more than a blip.