Big Deal for Growing Player: Aspen Acquires GSK Brands in Emerging Markets

The recent announcement of Aspen Pharmacare Holding Ltd’s acquisition of a slew of GlaxoSmithKline Plc brands outside North America and Europe cast a spotlight on one of the global pharmaceutical market’s fastest-growing emerging market players. Euromonitor International examines the deal and its implications for one of the rising stars of consumer health.

A major coup… and a sign of things to come?

Aspen – South Africa’s leading pharmaceutical company – has been increasing its investment in the consumer health space in recent years. In 2008, the company acquired 60% of African drug maker Shelys, with plans to acquire the remaining 40% in the near future. Shelys’ subsidiary Beta Healthcare International is a leading provider of OTC and VDS products in East and Central Africa, one of Aspen’s most important sales regions. This deal was followed up by one of the largest emerging market consumer health transactions to date: 2010’s US$825 million acquisition of Australia’s Sigma Pharmaceuticals Ltd. The deal brought beneficial exposure to the relatively fast-growing Australian OTC market, as well as a production base for expansion of both OTC and prescription products into Southeast Asia. The company also divested a number of its South African beauty and personal care brands in 2011, in order to better focus on consumer health in the important emerging market.

On April 20, 2012, Aspen announced it had reached an agreement to purchase a number of GSK’s non-core brands outside of North America and Europe. The deal is valued at US$263 million and includes the brands Cartia, Dequadin, Phillips Milk of Magnesia, Solpadeine, Borstol and Zantac. Accounting for combined 2011 sales of US$95 million, the brands represent a serious boon for Aspen’s consumer health division, and are expected to earnings accretive from the May 1, 2012 closure date.

A great fit for an increasingly global view

The geographic footprint of the new products aligns very well with Aspen’s current plans for international expansion. Based in South Africa, Aspen is capitalizing on its status as a leading generic drug producer in emerging markets to increase distribution of consumer products in some of the fastest-growing markets in the world. The company’s highest-priority region is Southeast Asia, where it is investing heavily in building out its highly regarded sales force. According to a company press release, nearly 36% of the 2011 sales from Aspen’s newly acquired OTC brands were generated in the Asia Pacific region. Several of the brands – such as the H2 blocker Zantac – have substantial and even dominant shares of their categories in some of Aspen’s most high-priority Asia Pacific growth markets, including the Philippines, Vietnam, Thailand, and Malaysia. These strong market shares reflect the sterling brand equity that attracted Aspen to the sale in the first place, and will likely serve as a powerful springboard for line and category expansions in the future.

In Latin America, where nearly 30% of the brands’ 2011 sales originated, Aspen has recently restructured its operations. In Brazil, one of Aspen’s highest-priority growth markets, the company recently hired a new CEO of its local subsidiary Aspen Pharma Indústria Farmacêutica Ltda. In its 2011 annual report, the company notes it is actively searching for acquisition targets in Brazil, which could include local OTC producers. The Brazilian OTC market has become much more competitive in recent years with significant merger-driven consolidation in the pharmacy channel and Pfizer Inc’s agreement to acquire all of generic producer Laboratório Teuto Brasileiro by 2014. This may have been a factor in Aspen’s decision to shift focus towards selling more branded products through the public channels in Brazil. The company is also targeting Spanish-speaking Latin America. Having consolidated its regional operations in Mexico, the company hopes to be able to coordinate more centralized expansion plans into fast-growing markets like Colombia and Venezuela. With the US$11.5 billion Latin American OTC market set to grow by nearly 20% through 2016 (in constant value terms), it is no wonder the GSK portfolio had such strong appeal.

However, the brands will also help bolster the company in its home market of South Africa, where sales of Aspen consumer health products faltered in 2011. The deal should immediately benefit Aspen’s consumer division by adding increased scale to its OTC operations, as currently, a significant proportion of Aspen’s South African consumer sales are generated by baby formula. These top brands – including South Africa’s number-two cough remedy Borstol and best-selling H2 blocker Zantac –generated about US$12 million for GSK in 2011, compared to Aspen’s total South Africa consumer division revenue of less than US$150 million.

GSK breathing easier, but alli remains an albatross

The deal with Aspen is the third in a series of recent divestitures of non-core brands by GSK. The British pharmaceutical giant’s goal, originally announced in April 2011, was to streamline its consumer health division, in order to better focus on core brands and emerging markets. Since December, GSK has struck deals in North America with Prestige Brand Holdings and in Europe with Omega NV for a combined US$1.3 billion. However, there has been little interest in the OTC obesity remedy alli, which remains a key divestiture target for GSK. Given global sales of the brand have tumbled since their 2009 highs, and distribution is being disrupted by the closure of the Roche plant in the United States that manufactures the API orlistat, prospects for a sale of the brand are bleak.

As emerging markets continue to set the pace in the consumer health industry, the aspirations of domestic producers from these markets are becoming increasingly global. Euromonitor International will continue to track all pertinent corporate activity with the goal of providing the most actionable business intelligence for the industry.