Safer smoking could be a step closer after a deal to develop and manufacture licensed nicotine products.
Consort Medical has won a contract with Nicoventures, a stand alone company within British American Tobacco, to produce a nicotine inhalation product "for use as a safer alternative to smoking."
Consort's Bespak division will manufacture the system and assemble the product - Oxette - including "a canister containing the active pharmaceutical ingredient."
The whole project depends of course on regulatory approval, and Consort said the size of any revenues would not be clear until the product was launched.
Even so, news of the deal has lifted Consort shares 13.5p to 772p. Stefan Hamill at Peel Hunt said:
We see potential for tens of millions in sales to Consort, although pending the regulatory approval (which could take one to two years), with a significant amount of capital expenditure necessary in the next two years, albeit... Consort should be protected in the event of regulatory failure.
Sebastien Jantet at Investec was also positive:
We think Oxette is scheduled for launch in 2014, following regulatory approval in 2013, which means that Consort needs to crack on with putting in place the manufacturing capacity. Total capital expenditure on the contract is likely to be in the order of £25m, and will be funded from existing resources. Past experience would suggest that at least some of this is likely to be recoverable in the event that Oxette isn't approved.
The contract is for the UK market and, whilst the company haven't given any guidance on likely revenues, we have previously estimated that this contract could be worth around £20m of revenue per annum (assuming Oxette takes 1% of the UK cigarette market, a relatively low figure given BAT's relatively low UK market share).
