Cyprotex Duo Map Out Ambitous Growth Plans

Conventional is not a word you'd use to describe Cyprotex (LON:CRX), the drug screening firm.

A case in point is its headquarters, a former Volvo garage in the centre of Macclesfield.

Even the way it operates doesn’t exactly conform to the norm.

Take the recent acquisition of American rival Apredica. Cyprotex paid a headline £2.68 million for the business, of which £1 million was in cash.

But a loan deal with the vendors meant the group paid a little over £500,000 for control of the US business.

What’s more, the advisory fees ran to a princely sum of £60,000.

This is peanuts when you compare it with the costs associated with the big deals and a fraction of what even a small outfit such as Cyprotex might be expected to pay for financial and legal counsel.

Cyprotex specialises in ADME screening, which looks at how drugs are absorbed, distributed and metabolised by the body, and is moving into toxicology with the Apredica acquisition.

It is a crucial part of safety screening, but a function that is increasingly outsourced by big pharma.

Under chief executive Tony Baxter and finance director John Dootson, Cyprotex is profitable, has a well defined strategy and the confidence to make crucial investments in its products, people and facilities.

It is a testament to the characters involved that it has taken such a short space of time to turn things around. Baxter was recruited in 2008 by the company’s biggest shareholder, the ICAP founder Michael Spencer, after his predecessors failed to make the business work.

‘I got a call two years and two months ago asking whether I wanted the hardest job in biotech,’ the Cyprotex chief executive recalls.

‘I was intrigued and was led in great secrecy to meet Michael Spencer.

‘He painted a picture that he wanted change. He hadn’t given up hope, he just wanted some impetus.’

Rather than being scared off, Baxter took the challenge on.

The company signed a transformational contract just as he was coming on board, which was a game changer, the chief executive admits.

With the help of a small fund-raising shortly after Baxter’s arrival the company was able to make the crucial investment needed to improve the product offering and to shake the US sales staff up.

And while this helped Cyprotex’s revenues base expand, three setbacks convinced Baxter the company needed to diversify.

The first came in 2009 when a key customer cut its contract in half, while January’s snow storms and February's volcanic ash cloud hit the business equally hard.

The Apredica deal gives that vital geographic spread – and a crucial entre to the US - the world’s largest drugs market.

The American firm, based in a small town close to Boston, the scientific heart of US, is startlingly similar in characteristics and ambition to Cyprotex.

This, it transpired later, is because Apredica’s founders Katya Tsaioun Doug Bates copied the early Cyprotex business model.

‘He built a business that was very, very similar to Cyprotex in the early days, which had a desire to be a high content screening business,’ Baxter says.

However there is very little overlap between the two. They share five customers out of total of more than 400.

As part of the Apredica takeover Cyprotex also gained control of the assets of a firm called Cellumen, which has developed a new nine point drug test.

‘We do single point tox assays,’ Baxter explains.

‘Cellumen does a nine point, multi-placed series of data points.

‘So it is looking at whole cells, damage to the nucleus, damage to the cell membrane – the whole range of end points.

‘All of these are biomarkers that determine the potential toxicity of a compound.

‘The company also brings a database of a 1,000 known toxic compounds with all their characteristics.

‘So when we test against an unknown compound we can say 'well it’s very similar to one Pharma Company X made a decade ago which had problems with liver toxicity'”.

‘It is revolutionary technology. And Cellumen is the only company that sells it.’

More than that, Cellumen forms one prong of Baxter's three-pronged expansion plan unveiled more than a year ago.

The company has moved into the Medchem arena after forging an alliance with Sygnature, which leaves the Cyprotex chief executive on the hunt for opportunities in the computer simulation market.

If we were going to get the perfect company we would acquire a simulation business that was profitable and one that we could integrate with what we do,’ Baxter says.

‘The beauty of simulation companies is they generate a lot of money with very few people and costs.’

The Cyprotex boss says there are acquisition opportunities out there, and you sense he’s itching to follow up the Apredica takeover with similar, value enhancing deals.

It might be easier to do this if the company had a broader investor base.

Currently the stock is tightly held by a small group of backers including Spencer’s Intercapital and Apredica’s Bates, while there’s also a large base of small shareholders.

What are missing from the register are the blue-chip City investors.

Those who know Cyprotex will agree it has what is best described as a rather colourful history.
 
And while this has no bearing on the company as it exists today, it seems the institutions remain wary of the company.

I ask Baxter whether a rebranding might finally erase this unhelpful legacy.

But he rejects this option and says the Cyprotex name is recognised and respected by customers.

‘Cyprotex is now profitable, making money... so we have dramatically changed the business,’ he adds.

‘I’m not inclined to change the name just to appease a few people in the City with long memories.’