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Bull's Eye: Will Aspen withstand the test of time?

Opinion

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If there’s one thing to be said of Stephen Saad, it’s that he’s determined. Having overseen the building of Aspen into the world’s sixth-largest generic pharmaceuticals group, he’s now targeting another decade of super growth.

The past three years have been marked by feverish activity, with Aspen spending more than R20bn acquiring off-patent therapeutic anticoagulant and thrombolytic drug brands, as well as their intellectual property rights. Active pharmaceutical ingredient plants in France and the Netherlands were also brought on board. "It is part of Aspen’s strategy to own the entire value chain," says Alec Abraham, of Sasfin Securities.

Saad doesn’t downplay the challenges Aspen has faced. "It has been an incredibly difficult period for us," he says. He stresses, though, that it has been worth it. "We have built a very strong manufacturing, distribution and technology platform across the world that can support a business twice the size we are now."

And Aspen is still building. It snapped up exclusive rights to AstraZeneca’s anaesthetics portfolio in June in a US$770m deal, and followed this up in September with the acquisition of GlaxoSmithKline’s (GSK) £280m anaesthetics portfolio.

The deals will boost Aspen’s anaesthetics market share outside the US to more than 20%. They will also further cut the relevance of the SA market, which in the past financial year contributed R6.2bn (22%) of group pharmaceutical sales of R27.7bn.

Aspen has a clear strategy when it comes to buying products that have come off patent. "We go for complex drugs which are hard to copy," says Saad. This is crucial to success in the generic s game, in which a drug that comes off patent — usually after 20 years — is fair game to any generics producer.

"Aspen is in a space where there are no more than four other players," says Dhersan Chetty, an analyst at First Avenue Investment Management.

The rewards appear set to come in the form of solid earnings growth, which will more than justify Aspen’s heady 32 p:e. "You can expect very strong earnings growth this [financial] year, especially in the second half," says Saad. "It will continue into 2018."

The consensus of 12 analysts polled by Thomson Reuters is that earnings will jump 121% in total in the current and 2018 financial years.

GSK’s recent sale of the final 6.2% of its 18.6% stake in Aspen has helped to clear the way to expand further into its generics. "GSK was the big elephant in the room," says Saad. "At [its] near 20% stake it was hard to do deals with other multinational pharma companies."

Aspen’s share price has come back sharply since June, reflecting what Abraham terms the "make or break" position it is now in.

12-month target price: R378.32
Price on October 18: R307.70
Analysts’ consensus: Buy