Pharmaceuticals wizard knows potion for success

Stephen Saad's announcement this week that Aspen Pharmacare will distribute and subsequently start manufacturing four GlaxoSmithKline branded drugs, harks back to the Aspen CEO's start in the world of pharmaceuticals.

Saad, who trained as an accountant, started in the drugs business in 1989, three years after completing his articles, by driving around the townships of Gauteng and Durban selling medicines to doctors for a company called Quickmed. The latest deal means he'll be doing the same thing, but rather than in two provinces, he'll be doing so in more than 200 countries.

The Glaxo deal, for which Aspen is paying R2,7bn, comes just days after the company won the lion's share of the government's new R3,6bn AIDS-drug tender. The deal will allow Aspen, known in SA for its generic antiretroviral drugs, to push its own drugs worldwide on the back of known and branded medicines that include an immuno-suppressant for transplant patients and a gout treatment.

“It's a very big deal for us,” says Saad. “It adds nearly 40% to our earnings per share.”

Saad's first big deal was tiny by comparison. Having become a half-owner of Quickmed, he merged it with Covan, a family business that manufactured eye drops. He sold the merged business, renamed Zurich, for R75m to Adcock Ingram predecessor Prempharm in 1993. Saad ended up with R20m and was ready to retire.

“I wasn't yet 30 and would never have to work again,” he recalls. “It was more money than I could spend.”

Within a year, however, he was bored. Faced with a restraint-of-trade clause from the Zurich deal, Saad made a short detour. He and partner Gus Attridge bought private tertiary school Varsity College for R1,5m and sold it to Advtech for R100m in 1997.

“I was never operational in that business to the extent I was in pharmaceuticals. I understood pharmaceuticals because of Zurich”.

Quick to sum up a business opportunity

In 1997, Saad and Attridge founded Aspen, along with a third partner who left in 2001, Steve Sturlese.

Attridge, Aspen's deputy CEO, has known Saad since the mid '80s, when they were both trainee accountants at Coopers & Lybrand. Attridge, who also played Durban club rugby against Saad — Attridge for the Crusaders and Saad for the Old Boys — was a couple of years ahead of him.

“I was actually Stephen's boss at that stage, but things have changed around a little,” he laughs.

Attridge says Saad is quick to sum up a business opportunity. “He's got a great capacity to understand value in a business and where the value is. He's able to calculate it into some kind of number quite rapidly as well. He's very quick in being able to put a rand amount to the value he sees in a business.”

This was apparent in the 1999 purchase of South African Druggists (SAD), SA's oldest pharmaceutical business, for R2,5bn. Saad's initial plan was to sell the manufacturing arm of the company, while keeping the brands and sales operations.

“The previous management told me ‘Keep the brand, do not even think of manufacturing in SA given what China and India can do',” he says. “When I went to (see SAD's manufacturing outfit in) Port Elizabeth I realised this was a manufacturing business. I realised it was trying to sell the heart and lungs, even though the face might be appealing. I decided on the first day”.

'Really irritated'

When Saad went back to the banks that had funded the highly leveraged transaction and were counting on the sale of the manufacturing facilities to quickly recoup some of that investment, they were “really irritated”, Saad says. Still, they came around.

“He's a good influencer,” Attridge says. “He's just very convincing in the case he makes for whatever it may be, and I guess he knows that you've got to convince those that need convincing why there's a merit for them.”

There was indeed merit for the banks. Aspen repaid its R1bn debt from the SAD purchase within five years.

Those diplomatic skills came to the fore again in 2001, when Saad negotiated, during a stand off between the South African government and multinational drug companies, the first-ever voluntary licences with Bristol Myers Squibb, GlaxoSmithKline and Boehringer Ingelheim to manufacture generic versions of their antiretroviral drugs to treat HIV.

“The moment came for me not when we signed the initial contract, but once we had the full cocktail,” he recalls.

“When we got the first three multinationals, that was the eureka moment.”

Frustration

The frustration that followed the delay between sealing the agreements and actually producing the drugs was widespread, however. “The frustration was you announce it and people expect you to start producing it tomorrow. Then you get the conspiracy theories — we think you've done this with the multinationals. It was a tricky time. You're pushing development teams and waiting for registration. You've got quite a weight of expectation.”

Aspen, which is now the largest manufacturer of generics in the southern hemisphere, was one of only three selected by the Clinton Foundation to make antiretrovirals for its anti-AIDS programmes.

Last November, in partnership with Indian drugs exporter Strides, Aspen — which now has operations in the UK, Australia, the US, India, Kenya and Tanzania — said it would expand into the giant Latin American market. While selling into those markets is difficult because of their size — Brazil has 192-million people and Mexico 110-million — Saad says they are a more natural target for a South African company than the developed Australian one.

“They have the same disparities between rich and poor. They have the same climate and the demand for quality medicines is there. There is a better fit there”.

That expansion becomes easier as a result of this week's Glaxo deal. Trying to get into large markets that place a strong emphasis on local manufacture would be tough without merit to distinguish Aspen from the rest, Saad says.

”Where's SA?”

“The challenge was how those markets have big demand for local manufacture. The second issue is how we get doctors to listen to us. ‘We're Aspen from SA,' we could say to them. And they say, ‘Really? Where is SA?'”

Being able to ride into those markets on the coattails of the GlaxoSmithKline brand makes the job easier. They will establish a sales force that builds local links on the strength of the Glaxo-branded medicines and then use that force to introduce Aspen's own drugs. The Glaxo association will automatically give those drugs a brand value.

“If you want to sell a handbag and can put ‘Gucci' in front of it, you will sell it for more, even if your handbag is exactly the same quality. When you do a line expansion, if you sell a Gucci handbag, you're not going to sell it for 1c,” he says.

The two announcements over the past week seem to be business as usual for the fourth generation South African Saad, whose family originates from Lebanon. He is one for thinking up deals and leaving it to others to tie them up.

“He is much more of an innovator, an innovative thinker and I have greater attention to detail,” Attridge says. “I make sure things are tied up with a bow on them. If we're doing a deal, Stephen usually takes the deal to handshake and I take it to completion.”

And it is for the details that the Aspen CEO relies on the team around him.

“He doesn't like being weighed down by some of the processes one has to follow,” Attridge says. “He's quite an impulsive guy and sometimes that can be a weakness. “But he generates a million ideas a day. And it's quite difficult to see all those through”.

Source: Business Day

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