Leading Irish generic drug player gets ready for tilt at US

There's no mistaking Michael Burke's Loughrea roots. The vet who has built the largest indigenous pharmaceuticals manufacturing group in Ireland has the buildings at his base in the Galway town painted in the colours of the local hurling club.

But he’s anything but local in his outlook. Nearly 40 years after starting in business with a shop of veterinary products, yesterday he announced plans for a €70 million expansion of his Chanelle business in a move that will, in his own words, represent his “first major assault” on the US market.

And, at 68, he has no intention of quitting any time soon.

“Definitely not,” says Burke. “I get a great kick out of it and I really enjoy what I do. I see loads of opportunities in our business . . . but I just want to stay focused, I don’t want to get diverted.”

The company specialises in generics – drugs that have come off patent. Chanelle has 1,700 licences for animal health products in the European Union – the most of any company, including the multinationals. Outside the EU, it holds a further 500 licences. On the human medicine side, it holds 800 licences worldwide.

Anything up to six years before a drug comes off patent, Burke will have one of his four R&D teams developing products to compete in the market when the time comes.

“We will develop the dossier and submit it to Europe for registration and when we get registration we go to one of the big companies and ask if they’re interested,” says Burke. “We always get take-ups”, whether for one geographic market, or multiple ones.

“In human medicines, they give us a fee for the dossier and we manufacture the product for them at an agreed price, but nobody ever takes the product away and we continue to manufacture it for them.”

On the veterinary side, the process is essentially the same, with one key difference – Chanelle always retains ownership of the dossier.

The youngest of 10 children who grew up a few miles outside the town, he attributes his aptitude for business to his mother, an “amazing woman” who ran multiple businesses from their bar and hardware/ grocer’s store.

A keen hurler as a youth, he played for Galway before college intervened. Study for his veterinary degree saw hurling take a back seat, but he retains a keen interest in the sport.

His years in UCD, where trainer Dermot Weld – with whom he shared an apartment – was a classmate, also sparked a lifelong interest in racing. Burke has been a firm supporter of the Galway Races and still has a number of horses in training with Weld and in the UK and Dubai.

Freshly graduated, he secured a six-week stint in the local vet’s practice in Loughrea. In that short time, he clearly made an impression because, in a scene redolent of early 1970s Ireland, the vet offered him a partnership using the local parish priest as an emissary to make the offer.

A year later, he bought the practice out and his former boss retired. A comfortable if busy life as a country vet beckoned. For many, it would have been a career achievement in itself. But not Burke.

In 1978, on the strength of a £5,000 loan from the local bank manager, he opened what was then the first retail outlet in Ireland focused on animal health, selling antibiotics, hormones and other veterinary goods to local farmers.

He set himself a modest sales target and beat it fivefold. Within a couple of years, he had three or four vans on the road supplying vets and others around the country.

This early venture followed a model to which he has remained true since.

Crawl before you walk

“I’m a great believer that you crawl before you walk. That has been my philosophy from day one,” says Burke. “So I didn’t borrow too much money. I borrowed when I knew I could repay and be comfortable with it, even in the boom years. So we are lucky in that.”

By 1983, he gave up his practice and bought the local cotton factory, a seven- acre site where he established his first manufacturing base employing just two people.

“It was an exciting time because, when you have a wife and five kids and you give up your job, you take a bit of a risk, but I was 100 per cent confident the whole thing would work,” he says.

He had been out to the Middle East earlier in the year with a trade mission, but returned home empty-handed. In October, he returned to the region for three weeks and came back with “a quarter million punts of business. So that was a nice start. It gave me the impetus to go and set up the manufacturing base, which we did”.

“We were lucky and we got a lot of breaks,” says Burke of the early years of the business.

Luck is a theme he returns to time and again as we sit in his spacious office on site, but if the, at times, remarkable story of his business success says anything, it is that luck had precious little to do with most of it.

Burke is a man with a ferocious attention to detail and an insatiable thirst for new opportunities. Recognising the overlap between veterinary and human medicines – often they are the same compounds in different packaging – in 1995 he took the leap into human medicines.

It is a business that now delivers better sales than the veterinary products, and is managed by his daughter Chanelle, who is based in England, where she is married to the recently retired champion jockey AP McCoy.

The company exports to 80 countries worldwide, but Europe accounts for the lion’s share of the business – 80-85 per cent of sales. Outside Europe, Australia, New Zealand, Japan, Canada and South Africa are its main markets.

In over 35 years, the group has never failed to deliver higher sales year-on-year, even as the product mix has evolved.

The balance of sales between human medicines and the original veterinary products is a case in point but, even within animal health, the market has changed dramatically over time.

“If you looked at the veterinary market 10 to 15 years ago in Ireland, 85 per cent of it was large animals, 15 per cent small animals,” says Burke. “Then we changed our strategy about eight or nine years ago. Now small animals is 55 per cent to 45 per cent [for large animals] and there is great growth in the companion animals business right across the world.

“The growth in small animals in the last decade is absolutely phenomenal, whereas there is very little growth in large animal products.”

Making the move into the pet, or companion animal, market was one of the rare occasions where Chanelle moved by acquisition rather than relying on organic growth. Having got its foot in the door by buying a small pet products business, it has relied on internal product development since to grow the business.

For the group as a whole, sales have jumped 77 per cent over the past five years and by the end of its current financial year, Chanelle expects to break through the €100 million mark, with turnover forecast to be €106 million.

Profit margins are around 10 per cent.

Over the same period, staff numbers have grown by two-thirds to 375.

New products

With his latest investment, Burke is doubling production capacity and plans to launch over 70 new products over the next five years. Just over half the investment will go into buildings and equipment, with €33 million earmarked for R&D.

On the back of that, Burke expects to add 175 jobs to the business, increasing employment to 550, and bring sales north of €170 million, or almost two-thirds up on current numbers.

It is already by some way the largest employer in the area and finding the right staff is a key priority for the business.

"It is a challenge because everyone wants to work in Dublin," says Burke. In the late 1990s, frustrated by his inability to attract talent, particularly for the R&D side of the business, Burke brought people into Loughrea from India, the Philippines and Sri Lanka.

“Most of those people are still with us today. They are all third-level graduates, with fantastic experience. Even in the last two weeks, we took four people in, all for R&D, because you cannot get them in Ireland or Europe. We want to develop 15 to 20 generics a year, where the multinationals are doing probably one product a year, so it is a different ball game.”

India, home to an extensive generics sector, continues to provide the bulk of recruits for Chanelle’s R&D, though Burke says improving standards means he might find talent in Europe to fill some of the new posts.

For the company, while costs may be lower than Dublin, they are still challenging compared with those of operators in low-cost economies they compete with.

“It is more expensive, and you also have the cost of transport to and from Dublin,” he says. “We run a tight ship and we have good efficiencies and we are always looking at lean and how we can become more efficient.”

Backbone

Quality is the other non-negotiable “because at the end of the day, if you do not have your licence from the HPRA [the Health Products Regulatory Authority] you cannot manufacture and you are out of business”.

“The backbone of the whole company is quality,” he says, full of praise for quality director Rachel McNeill. “It is a big responsibility both for her and myself because there are so many people depending on us for jobs.”

Not everything has worked for Burke. An earlier small-scale venture in the US ended when his joint venture partner was taken over; and plans for an R&D and production base in India were frustrated when local planning authorities rezoned a site he had bought as residential.

He still owns the land but, having lost two years, he turned his attention to Jordan, a country with which he was very familiar down the years. Having acquired land there in 2014, Chanelle has established an R&D centre and, he says, will set up an FDA-approved facility, which will be a major advantage to the company, which focuses a lot of energy on products that are launched in markets literally on the day a patent expires.

A recently completed production facility in Loughrea will also seek FDA approval to serve the US market, as will the new facility, which is expected to be completed in January 2017. Apart from the ability to tap the lucrative US market, Burke says it will allow the company deliver some innovative new products it is working using different technology that its current offering.

Burke, who says he spends three-quarters of his working year travelling, retains full control of the business “and that makes it very easy for decisions”, he says, laughing.

Until a decade ago, the fast-growing business was entirely self-funded. Even now, almost all investment – including roughly €8 million a year for R&D and the €70 million required to the latest expansion – comes from the company’s own resources. Borrowings are low – roughly 6 per cent of turnover, Burke says.

In a sector where any company with prospects rapidly finds itself on the radar of a bigger rival in search of M&A opportunities, Chanelle has managed to plough its own furrow.

"We do get approaches but I enjoy the business I'm in," says Burke, with the air of a man who has no interest in pursuing exit strategies for some time yet. CV Name: Michael Burke

Age: 68

Position: Founder, owner and chief executive Chanelle Group

Family: Five adult children “who never gave an ounce of trouble and are my best friends”. Married to Joanne.

Interests: A former Galway hurler, he retains a love of the game. He’s also a well known figure in horse-racing circles.

Something you might expect: As a major employer in Loughrea, he encourages local students to pursue a career in science, putting €25,000 a year into providing third- level scholarships for up to four students between the two schools in the town.

Something that might surprise: He spent an hour with Muhammad Ali on the night of the Bruno v Tyson world title fight. "There were 100 people outside the door and none of them was allowed in, only my wife and I with Ali, his wife and Senator Orrin Hatch of Utah. It was an amazing experience and he said to me: 'Come on down to the ring with me.' I couldn't believe it. There I was walking down side by side with him to the ring and he got a standing ovation obviously the whole way."