Aspen had acquired 25 pharmaceutical products from British drug manufacturer GlaxoSmithKline (GSK) for a consideration of £172 million (R2.2 billion), it said yesterday.
The products – which include older GSK brands such as herpes drug Valtrex, epilepsy treatment Lamictal and antidepressant Aropax – would be distributed by the JSE-listed company in Australia.
These drugs generated total sales of £83m in 2011 and about £31m in the first half of 2012. However, revenues from the drugs have gradually declined over recent years.
Valtrex came off patent just last year and now faces generic competition. Some of the products have also been subject to the Australian government’s mandatory annual price cuts based on competitive discounting to pharmacies. These price reductions were likely to continue resulting in the revenue expected to be generated by the products declining even further over time.
“There’s been strong decline (of prices) in Australia since April, but we expect the rate of that reduction to decrease over time. We’ve factored all those issues into the price we agreed on,” Aspen chief executive Stephen Saad said yesterday.
GSK, which owns an 18.6 percent stake in Aspen, has been disposing of low-growth and non-core brands since the beginning of this year and said that the Aspen transaction was an extension of that plan. The group said it wanted to focus on priority brands, products and pipeline opportunities that had long-term growth potential.
But Aspen said it was confident that it would be able to reinvigorate these products.
“GlaxoSmithKline has a very big portfolio so what’s not core for them is big to us. And we have a very big team that’s very good in brand and commercial marketing to put these products out there,” Saad said.
He added that the Australian business was an important market as it was responsible for one in every seven scripts generated. With this acquisition, the company expected revenue in the Asia-Pacific region to catch up with South Africa.
The two companies expected the acquisition to be completed on October 31 and Aspen said they had agreed to a minor cut in price should completion be delayed beyond this date.
The transaction was subject to the approval of the Australian competition authorities as well as the approval of the Australian Foreign Investment Review Board.
Quinton Ivan, a portfolio manager at Coronation Fund Managers, said this deal was consistent with the other deals that Aspen had concluded with GSK in the past.
Ivan said Aspen had in the past done well to re-invigorate products and because these drugs were already open to competition, there was a low risk of a significant decline in revenue. He added that after the acquisition of the Australian pharmaceutical firm Sigma, it made sense for Aspen to increase its products pipeline in that region and leverage off its existing footprint.
Jean Pierre Verster, an analyst at 36One Asset Management, said the acquisition was positive for Aspen and should contribute significantly in boosting its Australian subsidiary’s earnings.
The fact that revenue from these products had been declining was a reflection that GSK was not paying attention.
If Aspen marketed them well, they could generate the kind of revenue they should have, Verster said.
“The fact that Aspen disclosed the pro forma impact on normalised headline earnings a share as an increase of 8.5 percent shows the transaction will have a positive impact on profitability,” Verster said.
Aspen closed 0.36 percent lower at R139.50 yesterday.