FM’s Nine Questions to Stephen Saad

24/02/11:

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Nine questions – Stephen Saad
Group Chief Executive, Aspen Pharmacare Holdings Limited

Xolile Bhengu
Thursday, 24 Feb 2011

2011 started off with finalising the Sigma Pharmaceuticals deal for R6,1bn. What does the acquisition mean for Aspen?
The Sigma acquisition presents synergies for the extension of our existing branded products in Australia, with the addition of Sigma’s current consumer portfolios. We are already seeing savings around procurement costs and creating a foundation for further development of Aspen’s business in the Asia Pacific region.

Do you plan to make a bid for the total Sigma business?
Initially we did, but we decided against buying the wholesale business in the end. It is imperative to have a relationship with an existing and established supplier for the distribution of generic products in Australia. We decided to buy only the pharmaceutical business and focus on our level of expertise.

Why is the Asia Pacific market key to your expansion plans?
Our growth strategy focuses on realising opportunities in emerging markets, and Asia Pacific is a growing economy with demand for good quality products. Once our own sales teams have been established in Australia, with its proximity to Southeast Asia making it an ideal base, we’ll be able to leverage our product pipeline into Southeast Asia.

Are you planning any further partnerships or acquisitions in Asia Pacific?
We have spoken to some companies in the region as part of our partnering model and strategy. Our primary aim though is to take control and develop our marketing and sales functions.

Aspen Australia has achieved double- digit growth since its 2001 inception. What has driven this success?
We have an excellent management team, which is the same team that started the business in 2001, supported by experienced sales representatives. We also focus on niche market opportunities, and never compete in areas where we don’t show strength. The team also employs strategies like hiring retired experienced staff who already know the business and the market.

Your company and some of your competitors took a knock from the withdrawal of painkillers containing dextropropoxyphene. Are you concerned about future drug withdrawals as a result of foreign legislation?
The impact of the withdrawal on Aspen’s business was only R4m/year revenue. We had similar experiences with the withdrawal of phenolphthalein in our laxatives that have been reformulated and the rescheduling of pseudoephedrine in Sinuclear a few years ago. Most of the products that are at risk of being withdrawn have already been addressed and our regulatory team monitors legislation. The risk is the potential abuse of medicines, such as the SA experience of ARVs being used as a narcotic.

Aspen is a significant stakeholder in government’s ARV tender, with a 40,6% stake. Will Aspen pass down the 300% reduction in ARV input costs to consumers?
The biggest decrease for ARVs came from the reduced costs of active pharmaceutical ingredients (APIs), and the inclusion of generics on the tender further reduced pricing. However, for other Aspen products APIs are only a small component of costs. Consumers will benefit more from the launch of more affordable generic medicines. In addition, pricing in the private sector is regulated via the single exit price (SEP) mechanism and we are able to supply at that price. We don’t foresee an SEP increase this year.

As a supplier of branded and generic pharmaceuticals in 100 countries, where do you predict the strongest growth this year?
Apart from the Asia Pacific region we want to increase our footprint in Latin America. SA and Australia have the most settled businesses with a solid base turnover and opportunities for growth.

Why should investors invest in your company?
For 12 years we have delivered compound annual revenue growth of 52%, operating profit of 56% and headline EPS of 49%, and we still have fantastic growth drivers . It’s a company that has performed for its shareholders.