Stick­ing with high qual­ity prod­ucts and part­ners while en­ter­ing emerg­ing mar­kets

Financial Mail - Investors Monthly - - Contents - ANDILE MAKHOLWA

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.”


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