Aspen embraces China’s babies

Drug maker eyes opportunities in sales of epidurals and anaesthetics after end of one-child policy in 2016

Multinational drug manufacturer Aspen plans to aggressively push its products in China as it expects a baby boom following the end of the country’s one-child policy. China marked the end of its 35-year-old one-child policy, allowing couples to have two children, in January 2016.

Drug maker Aspen Pharmacare plans aggressively to push its products in China as it expects a baby boom following on the abandonment of its one-child policy. China marked the end of the 35-year-old measure in January 2016, allowing couples now to have two children.

On Thursday, Aspen CEO Stephen Saad said the policy change created opportunities for Aspen in the territory, especially for products such as epidurals and anaesthetics that are set to experience higher demand as more people give birth.

Buying into the anaesthetics divisions of AstraZeneca and GlaxoSmithKline in 2016 gave Aspen entry into China.

“It is a high-risk environment,” Saad said. “But, we’ve been encouraged by our early progress there so far.”

Anaesthetics and thrombosis medicines are its biggest products distributed in China.

Aspen’s anaesthetics division posted revenue of R7bn, while its thrombosis division reported R5bn in revenue.

Aspen deputy CEO Gus Attridge said China had always been on Aspen’s radar, although the company had been wary of entering that market because of its high complexity.

Through the acquisition of well-known products in China, Aspen had been able to use the experience as a low-risk opportunity to enter Chinese markets, Attridge said.

Portfolio manager at Gryphon Asset managers Casparus Treurnicht said Aspen was a business built on acquisitions and management and “constantly reminded us that they made supposedly good deals which will benefit the business in the future”.

Aspen’s largest sales force is in China, with more than 600 people employed there.

Aspen said it had acquired the remaining rights of the intellectual property and manufacturing related to AstraZeneca’s anaesthetics portfolio. In exchange for these rights, Aspen will pay $766m in performance payments over the next two years. Treurnicht said this was “a lofty sum of money”.

The market took the resumption in deal making as a strong positive, Nitrogen Fund Managers director Rowan Williams said. “It does appear that the company has made a healthy turnaround from a lacklustre full-year 2016 and is back on its growth path.”

Aspen’s group revenue rose 16%, to R41.2bn.

But Treurnicht pointed out that if anaesthetics revenue was stripped out it would come in at R34.2bn, falling short of the previous year’s figure of R35.6bn.

“Last year, revenue went down by 2%. I am concerned when a business shrinks its revenue by 5.3% over two years and investors pay in excess of a 20 price:earnings ratio for it,” Treurnicht said.

“So far, Aspen seems like a business that is struggling to keep its head above water.”

Normalised headline earnings per share were also up 16%, to R14.63 per share.