The Investment Case – Aspen Pharmacare Holdings Ltd What’s behind one of the JSE’s stand-out SHARES over the past two years?
Patrick Cairns | 12 January 2011 01:54
Aspen Holdings, Investing 101
ORAPA – Despite the pressures of intense competition and restrictive legislation, the South African pharmaceutical industry finds itself in strong health. Over the past two years, all of the three largest pharmaceutical shares listed on the JSE have been amongst the bourse‘s most robust performers.
The SHARE prices of Adcock Ingram (JSE:AIP), CiplaMedpro and Aspen Pharmacare (JSE:APN) have been on a sustained and significant upward trend since the start of 2009, all gaining at least 50% in this time. While this is impressive enough for the first two, it’s particularly noteworthy in the case of Aspen, which has a market capitalisation nearly four times that of Adcock and more than ten times that of Cipla.
Aspen’s success has been based on an aggressive growth strategy, made possible by the demand for generic pharmaceuticals. Having established itself in South Africa, thanks to the local demand for generic antiretrovirals (ARVs) and tuberculosis (TB) treatments, the group has been able to expand through a focus on emerging markets, where demand for more affordable medicines is most prevalent.
“Aspen identified the opportunity within the local market as it moved towards higher generic penetration,” says Investec Asset Management’s Neil Stuart-Findlay. “That shift occurred over the past
Instead of keep on compete with similar product on the market, Eli Lilly should look for new opportunities. Eli Lilly should ask their customers what their value for the
As an investment manager from Sierra Capital Partners, Rodney Chu is interested in purchasing a 60% equity interest of Arcadian Microarray Technologies, Inc., a biotechnology firm. The bid is currently at $40 million. The Arcadian’s managers have optimistic projections for their firms’ performance over the next 11 years.
Those target markets who rely on Johnson & Johnson health and medical needs are mostly patients, doctors, nurses and civilians. Therefore, the company need to sustain their products and services over all these years to ensure that lower income people and underprivileged patients are able to access on their medicines. This however requires the company to balance patient’s access and competitive dynamics in line with their need as the company need to have enough resources to keep on being innovating, creating new and better medicines and at the same time making sure there will be a fair return to the shareholder as well. Johnson & Johnson also work closely with the governments, physicians, non-government organizations and the international donors all around the world to provide its products within an affordable prices to its
Eli Lilly had the right strategy finding Ranbaxy when moving into the Indian market. In 1992, India had loosened restrictions on foreign direct investment to 51%. Both companies had good previous experience and were each considered to be strong players in the industry. Eli Lilly benefitted from the relationship immediately by accessing Ranbaxy’s distribution network including access to difficult international markets such as Russia, getting government approvals, licenses, and low cost supplies. Ranbaxy gained the branding of a foreign name, which suggested ‘good quality’.
U.S. based companies hold rights to most of the world’s rights on new medicines and holds thousands of new products currently being developed. As of 2012, the industry helps support almost 3.4 million jobs in the U.S. economy. It is also one of the most heavily R&D based industries in the world. In the United States, the environment for pharmaceuticals is much friendlier than other countries around the world in terms of pricing ability and regulations. Both the Pharmaceutical and Biotechnology industries have experienced significant growth in the past year with year-over-year increases of 13.02% and 34.69% respectively. It is an even more striking when looking at the past five years considering both have beat out the S&P 500 with pharmaceuticals increasing an additional 31.44% and the biotechnology sector besting an astonishing 269.3% more return than the
CVS Caremark is a pharmaceutical company that is considered one of the largest suppliers of both over-the-counter and prescription medicine in the world. They’ve been named best in their industry over the past few years by Forbes magazine and continue to own one of the highest revenue marks in the country in the healthcare industry. On top of all these accolades that they have been receiving in recent years, the company is still growing at an exponential rate. On New Year’s Day in 2011, the closing stock price for CVS was $33.31. As of April 19th, 2015, the closing price according to the NYSE was at an astounding $100.39. That is over a 200% growth in
The company is so large that no one drug can lift it from its current sales doldrums. In addition, the company was once highly attractive to investors, but its recent stock price fell to 1997 lows. This may put pressure on the company to attempt acquisitions at a time when the company is ill-equipped to integrate a new company into its organization, and it is engaged in a cost-cutting program at a time when it may need to invest even more in research and development (McTigue Pierce, 2005).
These changes in prices imply the power of growth rate’s assumption over stock price because “It was growth that drew attention to the brand. It was growth that propelled the stock offering. It was growth that drove the stock price to ever greater heights.” When the growth rate is expected to increase significantly, value of the firm is increased tremendously and so is its stock price. Both the enterprise value of the firm and its stock price change in the same direction with the change in growth rate estimates.
The company has had a steady increase in operating income and sells many different drugs. If you want to limit some of your exposure, this is the company to choose.
It is an Opportunity for a pharmaceutical companies at this stage: (1) company can compare
The Pfizer case provides an introduction to external analysis. The case highlights the pharmaceutical industry, which has enjoyed extraordinary long-run profitability. The case also demonstrates how broad changes in broad environmental factors (i.e. demographics, technology, culture, etc.) have an impact on industry competition. The case is not especially complex, so it is not overwhelming as a first case.
Eli Lilly was approached by a leading pharmaceutical firm in India to consider building a joint venture together. Ranbaxy Laboratories began as a family business in the 1960’s, but with strong entrepreneurial skills the company grew to become one of the largest manufacturers for bulk drugs and generic drugs. The two companies considered pursuing a joint venture that would support on another’s products by supplying one other with ingredients to complete company products without having to trade with other companies internationally. The JV would potentially lead both companies, together to become a dominant force in the Indian market.
Further, our strategy involved paying attention to current events and attempting to use them to generate a return. For example, Horizon Pharmaceuticals’ stock price took a nosedive after an October 19th New York Times article suggested that Horizon was attempting to thwart Express Scripts’ attempts to lower the price of prescription drugs. The decision was made to buy 100 shares of stock in Horizon when its price spiraled down to a measly $14.62 per share, as we expected Horizon would do something to stop the bleeding, and historically has been a pretty volatile stock. Horizon came back with a scorching rebuttal in an open letter later that day, spiking its stock price more than 30% on October 23rd, and by October 28th, this move landed us our greatest return of any stock that we purchased and held until the end of the period: 18% (see appendix).
This report provides an analytical strategic review of the global pharmaceutical industry; its origin, evolution,
The London Stock Exchange lists the FTSE 100 which is a share index of stocks of 100 companies showing the highest market capitalisation. This will be completed by discussing the movement of the company’s share during the time period. The companies will also be compared to the movement of the shares against each other, against FTSE 100 and against its industry sector. The records and comparisons will be all in context of Stock Market Efficiency. Stock Market allows a company to be aware of the trade with shares and finance which is at an agreeable price. Two of the companies chosen to