GSK in talks over Aspen stake

Release Date: 2009-03-26

GlaxoSmithKline is preparing to take about 10% of the South African drug producer in a move that would intensify the restructuring of the generic medicines sector

The shake-up in the generic drugs market is to take a further step with GlaxoSmithKline preparing to take a significant minority stake in Aspen Pharmacare of South Africa.

GSK is in talks over the likely acquisition of about 10 per cent of the drug producer in a transaction that could be completed in the coming weeks, people with knowledge of the talks said.

The move marks an intensification of the restructuring of the generic medicines sector, as big pharmaceuticals companies such as GSK, traditionally focused on patented medicines, diversify into lower-priced off-patent generic drugs.

It reinforces GSK’s existing commercial partnership with Aspen to sell a range of its drugs in foreign markets and reflects a broader strategy to expand into emerging economies, seen as a source of strong growth while traditional markets in the US and western Europe stagnate.

However, the deal comes at a time when a growing number of generic companies have been put up for sale – including Actavis of Iceland and Ratiopharm of Germany – but are struggling to find buyers against a backdrop of falling valuations, pricing pressure and heavy debt burdens.

It emerged on Wednesday that fewer than five potential purchasers have expressed an interest in second-round bids for Actavis, which has up to €5bn ($6.8bn) in debt, with larger generics companies and sovereign wealth funds more likely buyers than any of the mainstream pharmaceutical groups.

Generic drugs offer a way to broaden the range of products and provide insights into efficient manufacturing. Some, such as Teva of Israel, the largest generics company, are expanding into the lucrative niche of biological generic drugs as European and US regulators begin authorising the launch of equivalent products.

Daiichi Sankyo of Japan last year bought the Indian generics group Ranbaxy, and Sanofi-Aventis of France recently completed the purchase of Zentiva, based in the Czech Republic.

However, the high margins previously earned by generics companies in markets including Germany and the Netherlands have been reduced through more competitive tenders as these countries seek to cut their healthcare bills.

Aspen has a market capitalisation of R17bn ($1.8bn). Aspen’s shares closed down 0.7 per cent on Wednesday.

GSK declined to comment.

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