Pharma ingredients have strong role to play in Kerry Group’s expansion

PHARMA ingredients may represent just 4% of Kerry Group’s business, but they can play a useful role in the company’s global expansion strategy, according to an equity report by Davy stockbrokers.

Kerry Group’s recent acquisition of Lactose India, a producer of pharma-grade lactose, will enhance its foothold in the rapidly evolving Asia Pacific marketplace. Since its acquisition of Quest in 2004, Kerry has made steady progress in marrying its food expertise with its interests in developing new outlets for the food ingredients side of its business.

Kerry has enjoyed steady growth for producing excipients, for instance, tabletting systems to carry the active ingredients in medicines. While in its infancy relative to other sides of Kerry’s business, pharma ingredients has the potential to grow significantly, according to the Davy market report.

Davy analyst John O’Reilly said: “What may be the Kerry model in excipients, providing formulation solutions embracing a range of functional and process attributes which embeds these in customer products and processes, may prove as sustainable an advantage as that in food ingredients.

“Could pharma as an end-use market for Kerry ingredients evolve in much the same way that flavours have and become as significant? In 2010, pharma ingredients represented 4% of end-use market sales for Kerry ingredients; flavours represented 14% and will increase when the acquisition of Cargill Flavor Systems is completed. A decade ago, flavours represented a low-single-digit share of ingredients revenues.”

The Davy report notes that in 2010, Kerry’s ingredients revenues were €3.68bn (pharma end-use sales were some €150m). It also notes that the global market for excipients exceeds $4bn, making this area a potential growth target for the group.

Kerry’s corporate affairs director, Frank Hayes, said that pharma ingredients is a small but growing area for the company. He said pharma ingredients has been viewed as being part of Kerry’s “go-to-market” approach since the acquisition in 2004 of Quest, notably bought for its pharma and biotech operation, Sheffield Bio-Science.

Mr Hayes said: “For some time now, we have been supplying excipients to five of the top ten pharma companies in the world. As with any other unit of our business, we view this area as a potential platform for growth. The acquisition of Lactose India will give us a good position in the Asia Pacific market.

“A lot of pharma companies have been moving their operations to Asia, and we have to be in a position to assist in serving their productions in Asia. As with any induced market, we are interested in growing our foothold there.

“There is a growing link between the food and pharma sectors, and we see a growing synergy between health and wellbeing applications, as with pharma technologies and nutrition. Naturally, this area will have a role to play in our business going forward.”

The Davy market report notes that, having acquired Quest, Kerry quickly added a new capability when it invested in a microbiology laboratory located in its Almere (Amsterdam) facility specialising in peptones (nutrient extracts from milk protein, meat, yeast and plants) used for developing culture media formulations for genetic research and molecular biology.

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