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Consort Medical plc Surges After Announcing Deal With British American Tobacco plc

Consort Medical (LSE: CSRT) has jumped by nearly 10% today, after the medical device company said that the Voke nicotine inhaler had received market authorisation from the UK’s Medicines and Healthcare products Regulatory Agency.

This is big news for Consort. The Voke inhaler is a device that was developed by Kind Consumer Ltd, and will be commercialised by none other than a subsidiary of global tobacco behemoth British American Tobacco (LSE: BATS).

Ready to gostock exchange

The authorisation marks an important step for British American as the company tries to develop its offering of new, safer, tobacco related products. Actually, the Voke inhaler has nothing to do with tobacco; the product is a medicinal product, delivering a precise dose of nicotine, which is designed to help smokers quit. 

The production of this device is part of British American’s drive away from traditional tobacco products. Voke represents a further move by one of the world’s big tobacco players to adapt to the rapidly changing tobacco market. 

Consort’s roll is to manufacture the Voke device, which was designed by private company Kind Consumer. Kind’s backers include former Tesco boss, Terry Leahy.

Consort is ready for immediate production and management has stated that production facilities to support the launch of the product are already in place. Additionally, the construction of facilities to support the production of full contracted volumes is well underway. 

Still, there is one more hurdle to clear. The Medicines and Healthcare products Regulatory Agency must approve a modified license of the product before full-scale production is allowed. This license is required for automated manufacture. Approvals should be in place later this year and Voke should be ready for sale during the first half of 2015.

Not an e-cigsmoking

The production of Voke really does show how big tobacco is moving away from its traditional business model. British American is suffering as a growing number of smokers kick the habit worldwide. The company’s cigarette volume sales fell 3.4% during the first half of the year.

Of course, British American’s other non-tobacco initiative is e-cigs, although the regulatory issues currently surrounding these products are worrying.

The value of the e-cig market is estimated to be worth $3.5bn per year, but competition within the sector is rife and profit margins are collapsing. British American already has an e-cig product on sale called Vype, as of yet it’s there’s little in the way of data to assess the success of the brand. 

Rising forecasts

So, how has today’s news affected Consort? Well, as covered above the market reaction has been positive and several brokers have reiterated their “buy” recommendation for the company’s shares. 

Nevertheless, Consort looks relatively expensive at current levels. The company is trading at a forward P/E of 18.9 and only offers a dividend yield of 2.2%. Earnings per share growth of 4% is expected this year, followed by 10% growth during 2016. 

Further, until the final approval is received for the Voke device, Consort’s future is uncertain. However, if British American gets the go-ahead for production, the City could quickly adjust Consort’s earnings forecasts higher. 

A cheaper play

Consort is trading at a growth multiple but the company's earnings growth is nothing to get excited about.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK owns shares in Tesco. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.