Austerity measures in Ireland have driven United Drug to expand internationally and beyond its core supply chain business. In 2011 the US contract packaging unit had ‘an exceptional year’, United Drug said, and efforts are underway to replicate this performance in Europe.
“The European contract packaging business continued to integrate and streamline its operations. This supports the increased interest from big pharmaceutical and generic companies looking to enter into strategic packaging relationships”, United Drug said in its preliminary 2011 results.
Demand for outsourced packaging has grown as pharma companies seek “solutions to manage their fixed cost base”, United Drug said. Smaller companies that lack in-house capabilities also contributed to double-digit revenue and operating profit growth at the packaging and specialty unit in 2011.
Performance of the US packaging unit helped United Drug continue to cut its reliance on Ireland. In fiscal 2011 the US accounted for one-fifth of operating profits and in total United Drug generated 65 per cent of its earnings outside Ireland.
This shift helped United Drug increase revenues slightly despite a dip at its core supply chain unit. The supply chain business accounted for 80 per cent of 2011 sales but it faces austerity measures in Ireland and a tough trading environment.
Diversify through acquisitions
United Drug may make acquisitions to accelerate diversification of its business. Stephan Gasteyger, equity analyst at Jefferies, expects United Drug to use its “substantial financial flexibility” to make acquisitions, “either bolt-on or even a larger deal”.
In the second half of 2010 United Drug expanded its sales, marketing and medical division with two acquisitions. United Drug expects the takeovers of InforMed and World Events to help the unit, which posted a 19 per cent sales increase in 2011, to grow in coming years.