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Last year must have been the one South Africa’s pharmaceutical sector was on steroids while everyone else seemed to be gasping for air.
It was easily one of only a handful of sectors where every share returned more than double in JSE valuation.
The sector had to rely heavily on international expansions to either get decent returns or protect the individual company returns in a hostile environment.
The three largest companies in the sector – Aspen, Adcock Ingram and Cipla Medpro – doubled or almost doubled their earnings over the period.
In the year to June 2009, Aspen recorded 80% revenue growth, which resulted in a 68% growth in headline earnings per share, while Adcock saw a 21% revenue increase to record 16% HEPS growth.
The smallest of the three – Cipla Medpro – came in with a 19.8% revenue growth, making 29% HEPS growth.
Recession reality
Some of those numbers would seem pedestrian in economic conditions such as we had over the years to early 2008, but post that the numbers seemed like manna from heaven.
The thing that stands out about pharmaceuticals is the market share valuations follow earnings in their upward movements – they’re trading not just on hope but on fundamentals.
The SA companies all did through the heavy regulation they had to work in, such as the single exit pricing (SEP) mechanism, which heavily affect margins.
The companies didn’t only rely on the annuity income derived from the provision of anti-retroviral drugs in the fight against Aids, but clever corporate manoeuvring also carried them through.
Aspen pushed organic volume growth by introducing no less than four products during the year in SA: Truvada, Viread, Vectoryl and Aspen Efavirenz.
Formula for success
On the retail side, the optimisation of the distribution system for baby formula S26 and the launch of Melegi (a new infant milk formulation exported to selected African countries) propelled SA’s largest producer to a league of its own.
The £170m Aspen spent buying four companies from GlaxoSmithKline mid-2008 helped increase its international operation’s contribution to operating profit to 47% (from 15% previously).
“Aspen products are now distributed to more than 100 countries across the world,” said Aspen CE Stephen Saad.
Adcock Ingram increased its SA sales 29% in the pharmaceutical over the counter generics and branded items “on the back of a sterling performance from ARVs and branded prescription products, augmented by the SEP price increase”.
The 13.2% SEP increase by Government was the best since the regulation was introduced by the Health Department.
Adcock Ingram seems to have pitched in a good amount of work to rid itself of the stigma of being caught fixing prices of Critical Care items in its hospital products division, for which it paid a R53.5m settlement fine.
Adcock Ingram, Aspen and Cipla Medpro also had to tap offshore to bulk and boost their earnings’ potentials.
Adcock’s export division increased sales 30% and the company credited its relationship with multinational Baxter Healthcare.
“AICC also sources some product lines from other world-leading principals,” said the company.
While Aspen has mainly concerned itself with the Americas, Adcock Ingram`s growth strategy is focused on SA, the rest of Africa “and other emerging markets”.
But there can be no doubt it’s in Africa where the group sees potential.
African dream
Its Kenya operations were opened in March 2009.
“Kenya will serve as the hub for Adcock Ingram`s expansion into East Africa.”
Adcock acquired another business in that country before moving on to acquire Ayrton in Ghana, West Africa.
India represents a big part of the “other emerging markets” in Adcock’s plans.
A manufacturing facility in Bangalore was approved by the Medicines Control Council (MCC) and went fully operational.
Ironically, it was also in India where rival and once takeover target Cipla Medpro pinned its hopes.
Drama drama drama
The SA company was also forced to move closer to the Indian giant of the same name when it faced a potential hostile takeover bid from Adcock Ingram, which turned nasty and personal early last year.
Cipla India closed the matter of its unwelcome attention by declaring it would only work with the company in which it already had a 20-year exclusive supply agreement.
“Cipla India continues to deliver on their promise of being the best partner possible,” said Cipla Medpro CE Jerome Smith of the relationship. “Our exclusive access to Cipla India’s strong pipeline of products and dossiers has resulted in more than 400 dossiers being made available to SA since 1996.”
Cipla Medpro said it had another 167 dossiers awaiting MCC registration, with a further 63 due for submission to the MCC.
And Cipla India would be delivering to SA an additional 39 dossiers over the next 12 months. It said it had also embarked on an expansion programme into Africa and Europe.
- Finweek
It was easily one of only a handful of sectors where every share returned more than double in JSE valuation.
The sector had to rely heavily on international expansions to either get decent returns or protect the individual company returns in a hostile environment.
The three largest companies in the sector – Aspen, Adcock Ingram and Cipla Medpro – doubled or almost doubled their earnings over the period.
In the year to June 2009, Aspen recorded 80% revenue growth, which resulted in a 68% growth in headline earnings per share, while Adcock saw a 21% revenue increase to record 16% HEPS growth.
The smallest of the three – Cipla Medpro – came in with a 19.8% revenue growth, making 29% HEPS growth.
Recession reality
Some of those numbers would seem pedestrian in economic conditions such as we had over the years to early 2008, but post that the numbers seemed like manna from heaven.
The thing that stands out about pharmaceuticals is the market share valuations follow earnings in their upward movements – they’re trading not just on hope but on fundamentals.
The SA companies all did through the heavy regulation they had to work in, such as the single exit pricing (SEP) mechanism, which heavily affect margins.
The companies didn’t only rely on the annuity income derived from the provision of anti-retroviral drugs in the fight against Aids, but clever corporate manoeuvring also carried them through.
Aspen pushed organic volume growth by introducing no less than four products during the year in SA: Truvada, Viread, Vectoryl and Aspen Efavirenz.
Formula for success
On the retail side, the optimisation of the distribution system for baby formula S26 and the launch of Melegi (a new infant milk formulation exported to selected African countries) propelled SA’s largest producer to a league of its own.
The £170m Aspen spent buying four companies from GlaxoSmithKline mid-2008 helped increase its international operation’s contribution to operating profit to 47% (from 15% previously).
“Aspen products are now distributed to more than 100 countries across the world,” said Aspen CE Stephen Saad.
Adcock Ingram increased its SA sales 29% in the pharmaceutical over the counter generics and branded items “on the back of a sterling performance from ARVs and branded prescription products, augmented by the SEP price increase”.
The 13.2% SEP increase by Government was the best since the regulation was introduced by the Health Department.
Adcock Ingram seems to have pitched in a good amount of work to rid itself of the stigma of being caught fixing prices of Critical Care items in its hospital products division, for which it paid a R53.5m settlement fine.
Adcock Ingram, Aspen and Cipla Medpro also had to tap offshore to bulk and boost their earnings’ potentials.
Adcock’s export division increased sales 30% and the company credited its relationship with multinational Baxter Healthcare.
“AICC also sources some product lines from other world-leading principals,” said the company.
While Aspen has mainly concerned itself with the Americas, Adcock Ingram`s growth strategy is focused on SA, the rest of Africa “and other emerging markets”.
But there can be no doubt it’s in Africa where the group sees potential.
African dream
Its Kenya operations were opened in March 2009.
“Kenya will serve as the hub for Adcock Ingram`s expansion into East Africa.”
Adcock acquired another business in that country before moving on to acquire Ayrton in Ghana, West Africa.
India represents a big part of the “other emerging markets” in Adcock’s plans.
A manufacturing facility in Bangalore was approved by the Medicines Control Council (MCC) and went fully operational.
Ironically, it was also in India where rival and once takeover target Cipla Medpro pinned its hopes.
Drama drama drama
The SA company was also forced to move closer to the Indian giant of the same name when it faced a potential hostile takeover bid from Adcock Ingram, which turned nasty and personal early last year.
Cipla India closed the matter of its unwelcome attention by declaring it would only work with the company in which it already had a 20-year exclusive supply agreement.
“Cipla India continues to deliver on their promise of being the best partner possible,” said Cipla Medpro CE Jerome Smith of the relationship. “Our exclusive access to Cipla India’s strong pipeline of products and dossiers has resulted in more than 400 dossiers being made available to SA since 1996.”
Cipla Medpro said it had another 167 dossiers awaiting MCC registration, with a further 63 due for submission to the MCC.
And Cipla India would be delivering to SA an additional 39 dossiers over the next 12 months. It said it had also embarked on an expansion programme into Africa and Europe.
- Finweek
