GOOD MEDICINE

Sticking with high quality products and partners while entering emerging markets

Aspen’s global view

Stephen Saad once remarked that one of the reasons Aspen Pharmacare was able to clinch so many deals while its local counterparts struggled was that he took his potential partners to the group’s world-class manufacturing site in Port Elizabeth.

The CEO of the Durban-based maker of generic drugs was addressing analysts about the group’s high corporate activity in recent years. He said even the most sceptical prospective partner usually left the site convinced of Aspen’s ability to run sophisticated operations and generate a return for investors.

This month Saad took Trade and Industry Minister Rob Davies to the Port Elizabeth facility. The group has spent between R2bn and R3bn upgrading the facility. It plans to spend the same amount over the next few years.

Davies, who has been working hard to revive SA’s declining manufacturing, was equally impressed. “What we see in Aspen is a South African-based multinational company, which grew up in the years of our democracy.”

The site consists of four facilities with capacity to produce more than 2-billion tablets a year, liquids, steriles and niche high-potency pharmaceutical products. It’s accredited by the Medicines Control Council, the US Food & Drug Administration and several other authorities across the world. Products produced there are sold to over 100 countries.

Aspen has invested in growing its local facilities as much as it’s been expanding elsewhere in the world. Its offshore expansion has been particularly robust in the past 18 months. In the year to June, the group sealed deals worth R20bn in various countries. Since releasing its 2014 results in September, it has announced three transactions in Japan, the US and New Zealand.

Deputy CEO Gus Attridge says Aspen wants to build a global business. “Our business model involves investing in high quality businesses and products.

“Based on our strategy, we look for opportunities in Latin America, Asia and other emerging markets.”

He says the group rejects more opportunities than it pursues. It has interests in specialised hospital products, hormonal products, central nervous system products and infant formula.

The acquisition this month of a 50% stake in New Zealand New Milk (NZNM), a producer of infant milk formula in Auckland, could help Aspen to enter the desirable Chinese market.

China is one of the big consumers of baby milk, but its authorities have imposed stringent regulations on suppliers following a major scandal in 2008, when thousands of babies suffered kidney problems due to contaminated milk.

NZNM is one of a limited number of companies that hold the required endorsements from the Chinese regulatory authorities to produce infant milk formula for this key territory.

Attridge says infant formula is one of the areas in which Aspen wants to grow. Though it’s not strictly a pharmaceutical product, he says, baby milk has a lot in common with pharmaceutical products. For instance, it has the same complex manufacturing process and similar distribution channels in that baby milk is sold in pharmacies.

Aspen has signed a number of transactions with Nestlé to produce and market infant formula S26 in various countries in southern Africa, Latin America and Asia Pacific.

The group’s infant formula business is currently worth R3.5bn (depending on the exchange rate), a significant jump from just R400m before the transactions with Nestlé.

Cratos Wealth analyst Ron Klipin says infant formula is a growth area, with disposable income growth in emerging markets, better nutrition and health education.

“In addition, this product has become a mature investment for the large multinationals which are moving into higher-margin investments,” he says.

Attridge says the global infant formula market is valued at around US$30bn but rises to $50bn if you include nutritional products for toddlers. The big players in this sector are the likes of Nestlé, Mead Johnson and Danone. Aspen ranks 11th globally, with the inclusion of Chinese producers. Without the Chinese, it is sixth.

“We have an interest in getting into China — we are looking for potential partners there,” says Attridge.

Overall, the group is looking to improve market performance in the territories it’s currently in and get into new markets.

Klipin says despite the size and growth of the company, Aspen remains less of a corporate animal than its peers. “I think Aspen is still entrepreneurial and hungry for deal flow, specifically in emerging markets.”

Picture: THINKSTOCK