Aspen’s pot of gold

Africa’s largest drug company, the JSE-listed Aspen, has sold the rights for its European thrombosis business to US pharmaceutical firm Mylan for R12.6-billion. 

It has, however, retained its thrombosis business in its core emerging markets including South-East Asia and sub-Saharan Africa.

This is likely the last of the major disposals intended to refocus the business and cut debt.

Debt has been a problem for Aspen since it (almost) breached its covenants with its lenders in 2018. A temporary solution was to adjust the debt ceiling upwards — but it was clear urgent action was required.

Anxious shareholders, who had ridden the wave of acquisitive growth to a high of R436 in 2015, started to offload the share in earnest in 2018, causing it to fall from R272 in September 2018 to R91 after interim results were presented in March 2019. 

“By that time we had a plan,” CEO Stephen Saad told Business Maverick. “It was a question of ticking it off block by block.”

The plan involved a reset of strategy. For the better part of a decade (from 2008 to 2016) the company had been expanding at a breakneck pace, moving from its increasingly commoditised generic platform into the manufacture of high-end branded and sterile products (anaesthetics and thrombosis) in both emerging and developed markets.

While the acquisitions looked good on paper (and were funded with shares) they did not deliver the anticipated earnings growth and brought about a massive dilution in shareholder value.

The problems were in Europe in particular.

“To be competitive we needed more scale than we had. So either we had to double down on our investment in Europe, or we had to exit it.” 

At the presentation of the results in March 2019, Saad and deputy CEO Gus Attridge promised shareholders that the plan, already in the making, would see the team tackle the debt and re-examine its European business. 

And so it was that in May 2019 that Aspen was given the green light by the New Zealand regulatory authorities to sell its baby milk formula business to Lactalis for R11.7-billion. And in November of the same year, it sold its Japanese business to Sandoz, a division of Novartis, for R6.58-billion.

These two deals alone reduced the debt to manageable levels. The company’s covenant (contract) with lenders is to keep net debt to earnings at 3.5 times and the two deals saw debt reduce to three times earnings.

By the time the Mylan deal is fully paid for, in June 2021, Saad expects net debt to be at two times earnings or below. A non-issue in other words.

“It was important [for us] to get to this juncture, to learn what you have, what you don’t, where you perform and where you don’t.” 

As a result, the company has reshaped its foundation towards a greater concentration of revenue in emerging markets. It will also start to monetise its investment in complex manufacture — including in Europe where it is dominant in anaesthetics (which require a far smaller sales force) and will manufacture on behalf of Mylan. 

“Manufacturing is what we are good at,” says Saad, “while Mylan has the scale — 2,000 sales reps to our 200 — to operate well on the marketing side. Now we hope they fill up our manufacturing lines.”

He stresses that the deals were not concluded at fire-sale prices.

“We are now comfortable with the shape of our business, we have great fixed assets, and believe we have a good runway for growth.” 

It’s of side interest to note that the Mylan deal was conducted entirely on Zoom (at very odd hours given the US headquarters of the company), rather than in-person which is the way the Aspen executives typically operate.

The company will report results for the year to June on Thursday 10 September and has guided investors to expect growth in its headline earnings per share of between 7-11%. 

The share gained 6% on Tuesday to close at R142.25. DM/BM