Aspen CEO Says Dealmaking to Resume as Spending Eases Off

  • Billionaire co-founder anticipates acquisitions over next year
  • South African drugmaker to change the way it reports earnings

Aspen Pharmacare Holdings Ltd. sees further acquisitions in the next 12 months as strong revenue and lower capital expenditure restore its firepower after the purchase of two anesthetics portfolios last year.

The potential deals will probably be made in the South African company’s existing pharmaceutical markets, with womens’ health a possible area of expansion, Chief Executive Officer Stephen Saad, 53, said in an interview at Aspen’s headquarters in Durban on Friday. The drugmaker, which has operations in more than 150 countries, will focus on emerging rather than developed markets, the billionaire said.

Stephen Saad

Photographer: Waldo Swiegers/Bloomberg

“We’re in a great space to make further acquisitions because we have our teams in the right place and we’re generating cash,” the CEO said. “The more we can build on emerging market platforms, the more excited we are. To perform in Asia Pacific is going to be important for Aspen. Latin America and Africa are important for Aspen.”

The CEO’s comments reaffirm his commitment to the dealmaking that’s propelled the business he co-founded as a generic drugs specialist 20 years ago into South Africa’s ninth-largest listed company with a market value of 130 billion rand ($9.9 billion). The 2016 purchases of anesthetics portfolios from U.K. giants GlaxoSmithKline Plc and AstraZeneca Plc for at least $885 million trebled the group’s borrowings to 35.7 billion rand as of end December, according to Aspen’s most recent financial results.

Organic growth across the company should bring that down, the CEO said. Sales are expected to have risen 19 percent to 42.3 billion rand in the year through June, according to analysts polled by Bloomberg.

Specialty Pharma

Purchases in categories such as anticoagulants would help Aspen increase its ability to offer different types of existing medicines without incurring the cost of research and development for new drugs in areas such as cancer, Saad said. That differentiates the company from other generic drugmakers, which simply copy products after their patents have expired.

“What we’ve done over the last three to five years is we’ve moved out of commodity products,” Saad said. “We’re not in research, but we’re in that middle band where we’ve got a big chunk of speciality pharma products.”

The shares slid 0.8 percent to 284.85 rand by 2:56 p.m. in Johannesburg, paring the stock’s gain for the year to date to 0.5 percent. Saad owns about 12 percent of the drugmaker, with his stake valued at about 15.5 billion rand.

Regulator Probes

Saad was defiant when addressing a 5.2-million euro ($5.9 million) fine imposed on Aspen by Italian regulators for raising the price of cancer drugs by as much as 1,500 percent, saying that the extent of the increase overshadowed the low price of the treatment in question, which had not been raised for more than half a century.

Ramping up prices to unreasonable levels “isn’t in our DNA -- it’s not what Aspen stands for,” the CEO said. “We’ve clearly got some regulators very comfortable with our pricing.”

He said he couldn’t comment on a similar investigation by European Union regulators because it’s still in progress.

Aspen Faces EU Antitrust Probe Over Pricing of Cancer Drugs

One change Aspen is making to the way it does business is to alter how the company reports financials, Saad said. As of full-year earnings to be released in September, the drugmaker will categorize performance based on type of pharmaceutical - such as anticoagulants -- as well as geography. This followed criticism from the analyst community, who he conceded were justified in their complaints about a lack of transparency.

“They are right, you can’t understand the Aspen business in the way it was shown,” Saad said. “It has been a massive task and will take another year or two to get to the level we want. But at least we’ve got the base numbers now.”

— With assistance by John Bowker, and Gordon Bell

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