Venture Life seeks a step change in growth with major fundraise and strategic acquisition
The healthcare company is also aiming for at least 10% annual organic sales growth
If you have ever shopped in Boots or Superdrug, you may be familiar with some of international healthcare group Venture Life’s (VLG:AIM) products.
One of its biggest brands is
UltraDEX, an oral healthcare product range that was introduced through the acquisition of Periproducts in 2016.
Venture Life develops, manufactures and commercialises self-care products for companies, including healthcare products acquirer Alliance Pharma (APH:AIM).
The business was founded in 2010 by Jerry Randall and Sharon Collins, who previously worked together at Sinclair
Pharma (SPH:AIM). After merging with Italian contract manufacturer Biokosmes, the company floated on the stock market in 2014 at 109p.
The shares currently trade 59% lower at 45p despite robust revenue growth over the last few years and a profit breakthrough in 2017.
The stock market performance has been disappointing yet the stock is arguably at a turning point, both financially and strategically.
A major fundraise has now been proposed which should strengthen the balance sheet and help pay for the acquisition of Dentyl which comes with mouthwash and breath freshener products.
TAPPING INTO SELF-CARE TRENDS
One of the biggest catalysts for Venture Life is an ageing population, which is expected to increase demand for self-care products as people look to take better care of themselves in old age.
Northland Capital analyst Vadim Alexandre argues the burden of care is shifting to individuals due to pressure on global healthcare systems amid the global obesity epidemic.
In Europe, the self-care market is worth £20bn according to data from the Association of the European Self-Medication Industry.
Venture Life wants to grow its presence in Europe, China and the US. In a bid to tap into high demand, it manufactures food supplements, including
NeuroAge to improve brain function and the Benecol brand to lower cholesterol.
The company also develops medical devices focusing on women’s intimate health through the Vonalei brand and cosmetics such as Chinese skin care range Lubatti.
STRONG REPEAT REVENUES
Venture Life benefits from loyal customers as approximately 90% of its sales are from repeat orders.
Its biggest client, Alliance Pharma, accounts for 24% of sales and recently renewed a contract for the manufacture of oral care and dermatological products until 2025.
The contract covers the manufacturing of Alliance’s eczema treatment Atopiclair and
mouth ulcer medication Aloclair, and offers sales visibility from a key customer.
Other customers include Japanese conglomerate Sunstar, Spanish pharma company Almirall and Swiss pharma group Helsinn, representing under 10% of sales each.
UltraDEX products, including mouthwash and toothpaste, are priced a premium compared to well-known competitor brands such as Listerine and Colgate.
Venture Life manufacturing director Gianluca Braguti says
UltraDEX products should not be compared to these other popular brands as they are medicated.
AMBITIOUS GROWTH ASPIRATIONS
Chief executive officer Jerry Randall says the company is aiming for between 10% and 20% annual organic sales growth, which could be supplemented through acquisitions.
Indeed, Venture Life has proposed the acquisitions of mouthwash product
Dentyl and breath-freshening capsules BB Mints for £4.2m, which are expected to be earnings enhancing in the first financial year.
An oversubscribed fundraising of £18.7m – if approved by shareholders – will be used to fund the acquisitions, explore more M&A and repay convertible bonds and loan notes. The latter will result in its interest expense falling by £0.3m a year.
Future acquisition targets must have a well-known brand in a niche market and be innovative and profitable, with products preferably specialising in oral healthcare.
To achieve higher organic growth, expanded global distribution is being targeted via existing and new businesses, as well as more distribution deals for UltraDEX.
UltraDEX is currently partnered in 14 markets. Venture Life is on track for 30 partnerships by 2020 and new undisclosed products are in the pipeline.
Panmure Gordon analyst Mike Mitchell says the pipeline offers a runway of new product launches in 2018 and 2019 without risks associated with clinical development campaigns for pharma products.
POTENTIAL EXPANSION IN THE WORKS
At the heart of Venture Life’s operations is its manufacturing facility in Italy where 650 products and 21m units were made last year.
The facility could be expanded to meet demand although it currently has 50% spare capacity.
Braguti believes customers are drawn to the company for manufacturing thanks to its flexible mixing capacity. Venture Life can develop products with capacity of at least 8 litres to up to 8,000 litres.
As a precautionary measure should there be any potential delays or production issues, a recovery plan is in place with a backup of approximately 1,200 formulations.
All goods are circulated via partnerships or distributors with retailers such as Amazon,
Tesco (TSCO) and Ocado (OCDO) receiving discounts for selling Venture Life’s products.
If tougher import tariffs on goods from the EU into the UK are enforced post-Brexit, the UltraDEX range would be affected, representing 20% of sales.
In this scenario, the company would move manufacturing of UltraDEX to a second manufacturer in the UK. (LMJ)
Inside Venture Life’s manufacturing facility