Poppy grower TPI Enterprises signs 3-year codeine phosphate supply deal

TPI Enterprises ASX TPE poppy grower codeine phosphate supply deal
TPI Enterprises will generate revenues in excess of A$9 million over the three-year term, with A$3.5 million to be made in the first 12 months starting August 2018.

The near-term future is looking rather rosy for poppy processing company TPI Enterprises (ASX: TPE) after the company entered into a significant multi-year supply agreement with one of Europe’s leading pharmaceutical contract manufacturing organisations.

Earlier today, TPI announced an agreement with an unnamed entity that will buy its “narcotic raw material”, shipped from its plant in Melbourne to its new customer’s Norwegian operations where it will be processed into codeine phosphate active pharmaceutical ingredient (API).

TPI has remained tight-lipped about the identity of its European manufacturer and did not elaborate further on the counterparty to the deal when contacted by Small Caps for comment.

However, this time last year TPI bought Vistin Pharma ASA’s opiates and tabletting division for A$25 million as part of a strategic move to widen the company’s horizons beyond its narcotic raw materials business.

At the time, TPI said that the acquisition would see it take full possession of Vistin’s facility in Kragero, Norway with the facilities specialised to create APIs including codeine phosphate and its finished dosage forms.

Today’s deal is, therefore, a planned continuation of its ongoing aim to combine its “downstream” production unit with its narcotic raw material business – and could likely signal future outperformance.

After being treated and processed into codeine phosphate API, TPI said the product will then be delivered to “one of the new customers’ several European formulation manufacturing sites” for conversion into finished dosage tablets.

Manufacturing codeine phosphate APIs

According to TPI, it is currently one of only three companies globally that is vertically integrated from poppy growing through to tabletting production. The poppy grower says it has developed an innovative, efficient and environmentally-sustainable extraction and purification manufacturing process which allows it to deliver what it calls a “highly competitive pricing platform”.

The company’s strategy is to secure access to regulated downstream narcotics markets to leverage its cost-competitive upstream raw material capability.

Deal highlights

The terms of the deal state that TPI will supply its produce for a minimum of 3 years and with a minimum supply of 6 tonnes per year.

The news means that TPI can further supplement its operational streamlining, already in motion over the past 12 months. Its recent developments include the completion of development of multiple supply sources for opium poppy straw with its Victorian facility processing straw from Tasmania, New South Wales, Victoria, Hungary and France over the last 12 months.

TPI’s chairman says that these multiple sources “appear capable of ensuring supply in line with the projected ramping up of the narcotic raw material business to our medium-term production target of 100 metric tonnes.”

With respect to its TPI unit, TPI said that it continues to see pleasing growth of its API business which in the first 6 months of this year has delivered sales equivalent to the average annual sales of the previous owner, over the last three years.

“This agreement illustrates TPI’s ability to effectively compete in this key segment of the opiate-based API market, post the acquisition of the Vistin opiates business in October 2018,” said TPI Enterprises CEO Mr Jarrod Ritchie.

Mr Ritchie added that “the strong customer demand we have experienced since the close of the acquisition has reinforced our belief that we are the most competitive producer of morphine and codeine-based API products in the market today and we are in the process of adding capacity at our Kragerø facility in Norway to increase codeine phosphate production to meet this demand.”

Following today’s news, TPI also said that it expects to “meet or modestly exceed” revenue guidance for the first six of months of 2018, currently estimated at around A$20 million, according to TMI’s annual general meeting held on 31 May 2018.

The announcement of today’s deal put helped the company’s shares add 5% by mid-afternoon trade, currently trading at around $1.36 per share.

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