Wrap Text
Acquisition by Aspen of GlaxoSmithKline plc's Arixtra and Fraxiparine/Fraxodi brands
ASPEN PHARMACARE HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
Registration number 1985/0002935/06
Share code: APN
ISIN: ZAE000066692
("Aspen" or "the Company")
Acquisition by Aspen of GlaxoSmithKline plc’s Arixtra and Fraxiparine/Fraxodi brands
and business worldwide (except China, India and Pakistan) and the Manufacturing
Business located in France
1. Introduction
Shareholders are referred to the cautionary announcement released by Aspen on 18 June
2013 (and subsequent renewals) in which shareholders were advised of discussions
between Aspen and GlaxoSmithKline plc (“GSK”) in respect of a possible transaction with
GSK.
Aspen Global Incorporated (“AGI”), a wholly owned subsidiary of Aspen, will acquire from
GSK the Arixtra and Fraxiparine/Fraxodi brands (“the Brands”) and business worldwide,
except in China, Pakistan and India (“the Excluded Territories”) and Aspen will acquire from
GSK a specialised sterile production site which manufactures the Brands at Notre Dame de
Bondeville, France (“the Site”), collectively (“the Proposed Transaction”).
GSK is granted a put option and AGI is granted a call option in relation to the rights to the
Arixtra and Fraxiparine products in the Excluded Territories. The put option period
commences on 1 January 2018 and ends on 30 June 2018. The call option period
commences on 1 February 2018 and ends on 30 June 2018. The purchase consideration
payable from the resultant sale and purchase following the exercise of either option will be
determined at the time of such exercise. If either option is exercised, the transaction will be
subject to regulatory approvals, including JSE and shareholder approval, where necessary
and as appropriate.
2. Business overview and Rationale
The Business comprises the branded products Fraxiparine/Fraxodi and Arixtra, both
injectable anti-coagulants manufactured at the Site. The Manufacturing Business is located
at the Site which currently has a capacity of 160 million units per annum, marginally in
excess of current demand.
The rationale for the Proposed Transaction is as follows:
• The Brands to be acquired have strong brand equity and established demand in the
markets where they have been promoted;
• GSK acquired the Brands and the Site from Sanofi, which was forced to divest them
globally as a consequence of their merger with Aventis in 2004. The genericisation
of Arixtra in the USA, the margin contraction of Fraxiparine due to rising raw material
costs and the fact that GSK have no natural pipeline in thrombosis related products
created an opportunity for Aspen to acquire the Brands. Consequently, Aspen
approached GSK in relation to the Proposed Transaction;
• The limited focus by GSK on this therapeutic area represents an opportunity. GSK
has not concentrated its promotion of the Brands in many of the emerging markets
targeted by Aspen as future areas of growth. These countries are expected to have
growing demand for thrombosis treatment as access to healthcare improves;
• Aspen will also take over approximately 400 sales and marketing employees who
sell and detail the Brands in Europe and the CIS. This is important for Aspen, as it
will contribute to the retention of existing sales of the Brands and will give an
immediate boost to Aspen’s plans for establishing representation in a number of
developed pharmaceutical markets;
• In conjunction with the successful completion of an announced transaction with
MSD, the opportunity exists to pursue a more vertically integrated supply chain for
heparin based products, leading to benefits such as production/inventory planning
and economies of scale in procurement;
• Arixtra and Fraxiparine/Fraxodi are made in a sterile site and the ability to
manufacture steriles is globally recognised as a specialist activity resulting in limited
possible competition. This is a factor further underlined by the increased complexity
of the manufacturing process of Fraxiparine/Fraxodi due to the biological nature of
the active pharmaceutical ingredients or APIs used in their production;
• The Site has seen significant investment in recent years and it meets global quality
standards; and
• The Site will supplement Aspen’s current sterile capability in South Africa and leave it
well positioned to be a global player in a sector requiring specialist capabilities.
3. Categorisation and related party transaction
The Proposed Transaction is categorised as a Category 2 transaction in terms of the
Listings Requirements of the JSE. GSK is a Material Shareholder, holding approximately
18.59% of Aspen’s issued Share Capital, and is deemed a related party to Aspen in terms of
the JSE Listings Requirements.
BDO Corporate Finance (Pty) Limited (“BDO”) was appointed as independent professional
expert by the Board to determine whether the terms and conditions of the Proposed
Transaction are fair and reasonable to Aspen’s shareholders. For this purpose BDO is
expected to furnish a fairness opinion and an independent expert’s report on the Proposed
Transaction and this report and opinion will be included in the circular to be issued to
shareholders in respect of the Proposed Transaction. Aspen’s shareholders will be
requested to approve the Proposed Transaction by means of an ordinary resolution (i.e. with
50% of the votes cast in favour of the Proposed Transaction), excluding shares held by GSK
and its associates, at a general meeting of shareholders called for this purpose, at a time
and date to be confirmed in the circular.
4. Consideration for the Proposed Transaction
The aggregate purchase consideration payable by Aspen in respect of the Proposed
Transaction is £600 million (equivalent to R9 798 million); being the sum of the value of the
Business of £504.7 million (equivalent to R8 242 million) and the value of the Manufacturing
Business being £95.3 million (equivalent to R1 556 million), plus the value of the
Manufacturing Inventory and Manufacturing Stocks, expected to be of the order of £100
million (equivalent to R1 633 million). The Purchase Consideration will be settled in cash
and will be funded as more fully detailed in Section 5.
5. Financial information and funding
Background
Historically, the Business and the Manufacturing Business have not operated as a single
reporting entity and consequently no stand-alone historical financial information of the
Business and the Manufacturing Business is readily available. Further, Aspen will only be
acquiring the Business and the Manufacturing Business, but not the underlying operations
and support structure. Consequently Aspen will need to substitute this structure with its
own operations and support structure, which may differ substantially from the GSK
structure, making it inappropriate to present the financial results of the Business and the
Manufacturing Business within the GSK structure. Consequently, no pro-forma financial
information is presented.
The following paragraphs set out certain aspects of the unaudited financial information
relating to the financial position of the Business and Manufacturing Business at 30 June
2013 and the results thereof for the 12 months ended 30 June 2013 (“the GSK Financial
Information”). The GSK Financial Information has been extracted from the underlying
accounting records of GSK. In order to obtain comfort on the GSK Financial Information,
an exercise was performed to check the accurate extraction of the information from the
underlying financial records of GSK. In addition, the GSK Financial Information was
compared to amounts reviewed during the due diligence of the Business and
Manufacturing Business. This exercise did not include an audit or involve the scope of
work required for the purposes of issuing a Reporting Accountant’s report.
The GSK Financial Information together with the additional financial information provided
in the following paragraphs has been prepared to assist Aspen Shareholders to assess the
impact of the Proposed Transaction on the results and financial position of Aspen. The
directors of Aspen are responsible for the financial information which has not been
reviewed by the auditors. The GSK Financial Information and the additional financial
information have been prepared for illustrative purposes only and, because of its nature, it
may neither fairly present the financial position of the Business and the Manufacturing
Business at 30 June 2013 and results thereof for the 12 months ended 30 June 2013, nor
the impact of the Business and the Manufacturing Business on the results or financial
position of Aspen.
Financial Information
The values extracted from the underlying accounting records of GSK 1 during the twelve
months ended 30 June 2013, show the Business and the Manufacturing business
generated revenue of £365.5 million (equivalent to R5 969 million) and gross profit of
£156.4 million (equivalent to R2 554 million), representing a gross margin of 43%.
The revenue and gross profit figures set out above are lower than the values achieved by
GSK in previous years. This is primarily due to the genericisation of Arixtra in the United
States of America where a large portion of the revenue of that product was generated.
This is a trend that is expected to continue in the medium term as Arixtra is also exposed
to genericisation in Europe, but the impact is anticipated to be less severe due to the
relative size and dynamics of the market in Europe. Thereafter the revenue of Arixtra is
expected to stabilise. Fraxiparine/Fraxodi has had a more stable revenue stream over the
equivalent period. In future it is anticipated that an increased focus on the Products in
developing markets will enable a portion of the Arixtra revenue lost in recent years to be
recouped.
Historically, Arixtra has generated higher gross margins than Fraxiparine/Fraxodi and
consequently the overall gross margin of the Products is expected to decline as the share
of Arixtra reduces. The success of Aspen’s plans to reduce the cost of goods of
Fraxiparine/Fraxodi should counter this trend in the medium term.
Two factors that will also have an impact on the gross margin going forward are:
1. Currently GSK are making revenue related payments to a third party in respect of
the technical intellectual property underlying Arixtra. Aspen has reached
agreement with the third party around the conclusion of these payments and
consequently the gross margin will benefit; and
2. Given GSK’s greater global footprint and economies of scale, based on past
experience, Aspen expects its “to market” distribution costs to be higher than those
embedded in GSK’s gross margin.
As a result of these two factors and before the impact of the change in product mix and the
future potential cost of goods savings, the gross margin of the Business and the
Manufacturing Business for the 12 months ended 30 June 2013 would have been
approximately 48%.
1
GSK’s financial year end is 31 December – the GSK Financial Information has been presented in order to align
with Aspen’s financial year end of 30 June.
Selling, distribution and administrative costs for the Aspen Group as a whole were 19% of
revenue during the year ended 30 June 2013. It is anticipated that the incremental costs to
supporting the Business will be slightly higher than this level due to new infrastructural
investment required as Aspen expands and enters new territories.
Despite the anticipated initial decline in the revenue of Arixtra, the longer term view for this
revenue together with the anticipated outlook for Fraxiparine/Fraxodi support Aspen’s
preliminary assessment that the significant majority of the intangibles assets being
acquired under the Proposed Transaction will represent technical and trademark related
indefinite life intangible assets or goodwill with the balance being commercial related
intangibles.
Estimated transaction costs of R250million are expected. These should be regarded as
non-recurring in nature and will be expensed as incurred. In addition to the transaction
costs, the transfer of the Business and the Manufacturing Business from GSK to the Aspen
Group will entail certain disentanglement costs. These one-off costs, estimated at R275
million, will comprise both capital and expense items and primarily relate to information
technology.
As at 30 June 2013, the book value of the fixed assets that comprise the Site was
£82.8 million (equivalent to R1 352 million), whilst the combined carrying value of the
Manufacturing Inventory and Manufacturing Stocks was £100.4 million (equivalent to
R1 640 million).
On the assumption that the above book value of the assets that comprise the Site
represents fair value, the balance of the £600 million (equivalent to R9 798 million)
Purchase Consideration not relating to the Manufacturing Inventory and Manufacturing
Stocks and amounting to £517.2 million (equivalent to R8 446 million) would be for the
intangible assets (and possibly goodwill) that comprise the Products. The values of the
assets being acquired in the Proposed Transaction will be determined, for financial
reporting purposes, on the Completion Dates.
In addition to the Manufacturing Inventory and Manufacturing Stocks, as part of the on-
going working capital funding requirements of the Business, in due course Aspen will also
acquire finished goods inventory that resides in GSK’s commercialisation supply chain (“In-
Market Inventory”). Currently this is primarily located at GSK’s local operating companies
(LOCs) in the various territories in which the Products are sold. At 30 June 2013, the book
value of the In-market Inventory amounted to £28 million (equivalent to R457 million)
although the figure was lower than normal due to a temporary supply constraint. The
timing of the acquisition of this In-Market Inventory is uncertain as it will occur on a market-
by-market basis when the distribution responsibilities transfer to Aspen. Aspen will invest
in working capital at a level that is expected to be consistent with Aspen’s existing
businesses and which will include the In-Market Inventory.
Funding
The acquisition of the Business and the Manufacturing Business as well as the transaction
and disentanglement costs in relation to the Proposed Transaction are to be funded as set
out below:
Currency Base rate Term Indicative Indicative
margin over current all in
base rate rate
Business* US$ 3 month LIBOR 3 to 5 years 2.45% 2.7%
Manufacturing Rand 3 month JIBAR 2 years 1.7% to 1.9% 6.8% to 7%
Business*
Note: The Manufacturing Inventory and Manufacturing Stock estimated at £100 million
(R1 633 million) will be funded as follows: 25% of this being from Rand funding, and 75% being
from US$ funding, in accordance with the margins and terms indicated above.
* including disentanglement and transaction costs related to the specific acquisition.
The US$ funding of US$964.1 million (R9 745 million), being the US$ equivalent of £580
million plus disentanglement and transaction costs, is to be raised in offshore markets. The
Rand funding of R2 212 million, being the Rand equivalent of £120 million plus
disentanglement and funding costs, is to be raised in South Africa. Based on the rates set
out in the above table, the estimated annual interest cost, resulting from this funding and
prior to any capital repayments is US$26 million (R263 million) in respect of the US$
funding and R151 million in respect of the Rand funding. Funding for the Proposed
Transaction has been underwritten by The Standard Bank of South Africa Limited and
Bank of America Merrill Lynch (only with regards to the US$ funding) in terms of signed
mandate agreements entered into with the Aspen Group.
The acquisition of the In-Market-Inventory and funding for the investment in additional
working capital will be by way of existing cash resources at the time such inventory is
acquired or when such additional investment in working capital is required.
6. Conditions Precedent
The implementation of the Proposed Transaction is subject to the fulfillment of the following
conditions precedent:
• Aspen obtaining the necessary shareholder approval for the Proposed Transaction;
• required regulatory approvals;
• receipt of any required anti-trust clearances;
• satisfaction of applicable employment law requirements in Belgium, Germany and the
Netherlands; and
• transfer of the Business and the Site to be co-conditional.
7. Withdrawal of cautionary announcement
Following the publication of this announcement, shareholders are advised that caution is no
longer required to be exercised when dealing in Aspen securities.
Durban
30 September 2013
Underwriters
The Standard Bank of South Africa Limited
Bank of America, N.A.
Mandated Lead Arrangers and Bookrunners
The Standard Bank of South Africa Limited
Banc of America Securities Limited
Sponsor
Investec Bank Limited
Date: 30/09/2013 01:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.