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Investing in drug discovery can be a hit or miss affair. A picks-and-shovels play may offer more consistency. The unglamorous but vital manufacture of vials and syringes belongs to that category. German pharmaceutical glassware company Schott Pharma should receive a warm reception when it joins the Frankfurt Stock Exchange later this year.
The rarity of initial public offering these days guarantees interest. Frankfurt has only had two this year: German green hydrogen producer Nucera and web hosting services provider Ionos.
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Schott Pharma is a recently carved-out medical glass division of speciality glass manufacture Schott AG, owned by the Carl Zeiss Foundation. The IPO will only involve the sale of existing shares. This raises funds for Schott AG’s green transition and gives Schott Pharma a chance to tap the capital markets if opportunities arise. The size of the offer is undecided. Schott AG will keep a majority stake.
Schott started making glass ampoules a century ago. Sales and profitability has picked up recently, as the drugs industry tilted towards more injectable drugs requiring higher tech packaging. The skinny jabs made by Denmark’s Novo Nordisk and US’s Eli Lilly are rapidly expanding the injectables market. Its growth should outpace the overall pharma market by 1.4 times, growing over 8 per cent a year to 2026, according to GlobalData.
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Making the prefillable syringes for such applications is trickier, but more profitable, than traditional glassware. Schott’s ebitda margin has risen from 23 per cent in 2020 to 28 per cent in the first nine months of the year. It reckons it can push up this margin to the low 30s.
This compares favourably with that of Italy’s Stevanato, which listed on the New York Stock Exchange in 2021. Considering the multiples of the Italian group and other peers, Schott Pharma should merit a €4bn valuation.
Schott is not the only company keen to focus on the sector’s most profitable niches. Having said this, the injectables segment has high barriers to entry. That suggests Schott can navigate a fast-evolving sector.
Lex is the FT’s concise daily investment column. Expert writers in four global financial centres provide informed, timely opinions on capital trends and big businesses. Click to explore