Aspen gains after R7.7bn deal

Aspen Pharmacare’s shares gained more than 9% on Thursday after it announced it had bought the commercial rights to UK’s AstraZeneca’s global anaesthetics portfolio.

Johannesburg - Aspen Pharmacare’s shares gained more than 9 percent yesterday after it announced it had bought the commercial rights to UK-based AstraZeneca’s global anaesthetics portfolio in a $520 million (R8 billion) deal, which increased its global footprint and provided a rand hedge.

Read also: Aspen in R7.7bn UK deal

Aspen, through its wholly-owned subsidiary Aspen Global Incorporated (AGI), will make product sales-related payments of up to $250m to AstraZeneca based on sales in the 24 months following completion of the deal, as well as double-digit percentage trademark royalties.

Chief executive Stephen Saad said: “These products are synergistic to our anticoagulant portfolio as both are primarily targeted at anaesthetists. It is also a geographical fit as key markets are in Asia Pacific.”

Companies locally have been buying European acquisitions to gain exposure to foreign currencies in the face of the weak rand and contracting South African growth.

Ascendis Health said last month that it planned to acquire two major European health-care businesses, Remedica Holdings and Scitec International, for a combined R7.3bn.

Aspen will gain AstraZeneca’s anaesthetics portfolio, which comprises seven medicines sold in more than 100 countries, including China, Japan, Australia and Brazil.

Last year the medicines generated revenue of $592m.

Anaesthetics

The medicines are: Diprivan (general anaesthesia), EMLA (topical anaesthetic) and five local anaesthetics (Xylocaine/Xylocard/Xyloproct, Marcaine, Naropin, Carbocaine and Citanest).

The deal is a significant one for the company and puts it on a good standing for future acquisitions.

“It is very large (the deal), but will not preclude future opportunities. Aspen debt facilities have been enhanced,” Saad said.

The agreement will see Aspen making further inroads into the Asia Pacific market, and selling the portfolio globally, excluding the US market. The supply agreement is for an initial period of ten years.

AstraZeneca had divested the US rights of the products to Abraxis, now part of Fresenius Kabi, in 2006, Aspen said.

The group said AGI’s upfront investment would be funded from new debt facilities, which had been secured. The deal comes a day after Aspen said it had secured e3bn (R50bn) in funding, attracting support from 27 banks.

Aspen said if the agreement was secured earlier the portfolio would have generated a contribution to profit before tax of $100m last year.

In March, Aspen announced it had made around a quarter of its sales in South Africa, reporting a profit after tax that grew by 35 percent to R3.3bn for the six months to December.

The nature of the deal now allows the group to have more exposure internationally and to increase its foreign revenue.

Greater exposure

Shmuel Simpson, an analyst at 36ONE Asset Management, said: “Aspen has previously been focused on developing and optimising their manufacturing capabilities of the anticoagulant portfolio.

“The AstraZeneca deal gives them exposure to anaesthetics, a market they were not previously exposed to,” he said.

Simpson said Aspen could use its existing distribution network and sales force to sell these drugs to its existing customer base.

He said: “The anaesthetics portfolio generated close to $600m in 2015, which is about 25 percent of Aspen’s 2015 annual revenue. As Aspen grows internationally the contribution of the South African segment to overall revenue will be reduced.”

The stock is up 8.3 percent this year, with a market capitalisation of R160bn.

The drugmaker is South Africa’s seventh-largest company by market capitalisation.

Aspen shares were up 9.21 percent yesterday on the JSE to close at R350.50.

BUSINESS REPORT