Ascendis Health is the JSE’s newest pharmaceutical listing, and it is certainly a company that has burst onto the scene in a dramatic way. Under the leadership of Karsten Wellner, the company has built up a market cap of around R2.5bn, and has nailed down plenty of funding, financing, and interesting deals. The latest of these is the acquisition of Pharma Natura, maker of beloved san brands like Vitaforce and Bettaway. With the R121m acquisition, Ascendis will gain access to the stable of popular brands that the family-owned Pharma Natura has nurtured since it began business in 1959, as well as to the company’s top-notch factory. The factory is especially exciting for Ascendis, which has thus far relied entirely on contract manufacturing to produce its own brands.
The acquisition also sends a clear message that Ascendis is ready to rumble, to make its mark on the South African pharmaceutical scene, which has traditionally been rather staid and low-key. Definitely one to watch. – FD
KARSTEN WELLNER: We’re quite happy to announce that the Competition Commission is happy with our acquisition, which we think it announced probably mid-February already, that we are acquiring the business of Pharma Natura, its property, and its brands.
ALEC HOGG: R121m. How do you come to a number like that?
KARSTEN WELLNER: Yes, it’s a mix of contract manufacturing (because we have a good GMP – a good manufacturing practices accredited plant), so the MCC is pretty happy with that plant, which is actually based in Winburg near Marburg in Johannesburg. The other business is the other strong brands: brands like Vitaforce, Junglevites, Herbaforce, Homeoforce, and Bettaway. Some of these brands were already in the market since the end of the 70’s and the 80’s, so therefore, the R121m is actually a mix for selling business of good brand as well as some contract manufacturing of the plant.
ALEC HOGG: Is it Guy Wertheim Aymes? How do you pronounce his name?
KARSTEN WELLNER: I think it’s Guy. It’s a family trust owning the properties and the business, and we’re buying it from the family trust.
ALEC HOGG: Did he start it in 1959? Is that the history of this business?
KARSTEN WELLNER: Yes, the business actually goes back to 1959 and the biggest brand – Vitaforce – was launched in 1976. That’s when they actually moved into their present factory in Winburg in Northern Johannesburg.
ALEC HOGG: So it’s pretty much a family-run business, and I suppose on that basis, it must be hard to value because family-run businesses don’t always show the maximum profit.
KARSTEN WELLNER: Yes, it has been around for quite some time for the family. It went through different managerial leaderships and we are actually very happy that we could get the present leader of the business, Greg Anderson, to stay with us and drive the business forward with us. From the brand point of view yes, I think some of the brands are a little bit under-utilised. Some of the brands have fantastic names. I remember presenting the project to a potential investor. The guy looked at me and said when he was a student, he used Vitaforce to help him with his studies and focus etcetera. These are brands, which have long been in the market, have very good potential, and we actually hope that with our Soleil range of products, we can give this product a good spin forward in getting these brands more traction, going forward. The other thing that we like about this acquisition is so far, we never had any own manufacturing concerns. We only invested in strong brands, so all our brands are outsourced from a manufacturing point of view. Now, getting a GMP accredited manufacturing side, we can better integrate our own manufacturing, bring it in-house, and prove the profitability of our existing brands, which we outsource as I said, by bring it in-house into Pharma Natura. It’s actually quite exciting, too.
ALEC HOGG: It gives you the opportunity to vertically integrate.
KARSTEN WELLNER: Yes, exactly. That’s the point. Some of our brands with Soleil, went outside, found all the GMP accredited manufacturing concerns to actually do their product, but of course, you leave some margin on the table. Now, we can do it in-house, as Pharma Natura is GMP accredited, which is actually a nice upside coming with this acquisition.
ALEC HOGG: How busy is their plant? What kind of capacity do they have at Pharma Natura?
KARSTEN WELLNER: We are actually currently checking a project to bring in some sports nutrition production into that plant, so we will have to buy some additional machinery and extend the production area. They are currently not working under full capacity, but you know, with the pharmaceutical plant there’s always the question: do you go in the first shift or the second shift, because the margin for error with the third shift is always quite high and are the systems robust enough to justify going into a second or (sometimes) third shift? In addition is the matter of whether it’s five days per week or seven days per week. In a pharmaceutical environment, that’s always the question. With some of the products we want to bring in, we have to buy new equipment. With some of the products we bring in, we can actually immediately produce, in the equipment, what Pharma Natura set up already for the existing business.
ALEC HOGG: R121m in terms of your market cap is not a big number, with a R2.5bn market cap today. How are you paying for this?
KARSTEN WELLNER: It’s a mix between cash and shares. When I go back to what we announced in February already… Of the R121m, R41m paid for the properties, which is a mix of cash and R80m is for the acquisition of the shares, of which R60m is paid in cash and the rest is paid with certain shares of Ascendis at an average price, which has been agreed with the sellers. It’s therefore a mix between cash, and cash and shares.
ALEC HOGG: What price are you placing those shares at?
KARSTEN WELLNER: When we negotiated, we priced the shares at R11.00.
ALEC HOGG: All right.
KARSTEN WELLNER: At the moment, our share price is trading I think, today, at around R10.30 or R10.40.
ALEC HOGG: Yes, it’s bumped up very nicely, very smartly today, so clearly, investors are looking at this and saying they need to have another look at Ascendis. Since listing in November last year, the performance of the share price I’m sure, for you as well, has been disappointing.
KARSTEN WELLNER: Yes, you’re right. It was disappointing in a way that until our half-year results, the share price went down from R11.00 to around R9.70/R9.80. When we presented our half-year results to the market, the share price jumped within a few days again to R11.20/R11.15, so the market actually realised we are keeping our promises that we made at the pre-listing statement. Since the end of February or the first week in March when we presented, the market is probably again for us to confirm our full-year promises with our year-end numbers, which will come out in the first week of September or the financial year-end/end of June. We have seen again, on a low basis of trade, a little bit of deterioration of our shares to R9.70/R9.80 and yes, there isn’t a lot of trading. Sometimes, there are days of only one hundred thousand or two hundred thousand shares traded, so our shares react quite fast actually, on positive news. I think the Pharma Natura news plays along with what I said about our half-year results. We announced it. The market was probably sitting and waiting. Is it really happening? Now, since we had the SENS announcement via the JSE this morning and then sent out a press release, maybe that’s the effect on a low basis of trading that immediately, the share price…
ALEC HOGG: Almost like people… You fall off the radar, there might be some people just selling shares and as a result, the price is falling down. Clearly, it’s good to have good news in the pipeline. Do you have much of that? You did when you came to the market. I remember that we spoke about it. You said that you had your eye on quite a few potential acquisitions.
KARSTEN WELLNER: Yes, Alec. Maybe, just to comment on the first thing you said… It’s probably right that as a young company – and we are still a very young company. We listed in November on the stock market, we made many promises, and people were probably sitting back and saying ‘let the guys first prove that they can really do what they’re actually promising and what they’re saying’. I think we saw the effect at the end of February/beginning of March, when we presented half-year results. That’s probably why people forget a little bit about us, because we don’t have a track record already like Aspen or the other big Pharma players. We are a young company, for sure, but we are also nicely growing and we’re keeping our promises. Now, coming to the second part of the question, Alec…
ALEC HOGG: What does your pipeline of acquisitions look like?
KARSTEN WELLNER: Our acquisitions arm, which are the coast-to-coast guys, are actually working together with us to find acquisitions. We’re working in all the areas of our plant and animal sector – mainly smaller companies that we’re working on at the moment. In the medical devices area, we’re working on a nice target, smaller bolt on’s, and on the consumer brands we’re also still working on several targets, so there is a long view pipeline. You never know when they come, but we are pretty sure that very soon again, we can go to the market and tell about further news in the medical devices and in the Pharma division, to announce something – another acquisition in that area.
ALEC HOGG: So you’re not sitting on your hands.
KARSTEN WELLNER: I’m sorry. Come again.
ALEC HOGG: You’re not sitting on your hands.
KARSTEN WELLNER: No, I’m sitting at my right desk and my hands obviously… No, definitely not. I can’t disclose more on that because I signed a Confidentiality Agreement, and we’re in the last stage of actually negotiating something in that Pharma/medical device area. Probably within the next two weeks, we might be able to give some feedback to the market. The other big thing we’re still working on – and we told the market we’re going to do that – is our bond/raising a bond – a corporate bond, which we are also in the final stages of working on at the moment.
ALEC HOGG: How much is that for, Karsten?
KARSTEN WELLNER: Last year, we got a big bridge-to-bond facility from Standard Bank and Sanlam at that time – a total of R500m – and we had reached an agreed interest with them. However, the target was actually to go within one to maybe one-and-a-half years, onto the market with a corporate bond. The ‘after JSE’ for R2bn facility to raise corporate bonds: we’re currently aiming at a corporate bond plus a revolving credit facility between R900m and R1bn, so we’re still working on finalising that. We had a road show on that in mid-March and the guys are working very hard at the moment to finalise the corporate bond.
