GlaxoSmithKline Plc (GSK), one of the world's leading research-based pharmaceutical and healthcare companies, is planning to take more than 20 per cent stake in South African generic drug maker Aspen Pharmacare.
However, Aspen cautioned its shareholders to stay calm as the news spread that GSK is swapping assets for Aspen shares and buying additional Aspen stock in the market or from the company.
"Shareholders are advised to continue exercising caution when dealing in Aspen's securities until a further announcement is made," the company said in a brief statement that did not offer further detail on the nature of the negotiations.
At Aspen's market cap of $1.8 billion as on Thursday, the deal would be worth some $180 million to $450 million. The transaction is expected to be completed in the coming weeks.
While GSK will have to make an open offer to Aspen's minority shareholders if the stake exceeds 35 per cent, marketmen do not expect the acquisition to top 20 per cent of Aspen's equity capital.
Aspen, however, is a strategic acquisition for GSK as it would give it a business that is growing quickly and an entry into the emerging markets in Africa.
The move also marks an intensification of the restructuring of the generic medicines sector for GSK, which has been traditionally focused on patented medicines.
GSK has already signed agreements to acquire Bristol-Myers Squibb's operations in Pakistan and Bristol's Egyptian drugs portfolio. Early this year, Glaxo also bought UCB's product portfolio in parts of Africa, the Middle East, Asia and Latin America.
In January GSK said it is preparing to launch its smoking-cessation products in as many as 20 new emerging markets - including China, India and Russia - in another sign of the British drugmaker's desire to build sales in the developing world.
Last year, Aspen paid £170 million for the intellectual property (IP) rights of four drugs - Eltroxin, Imuran, Lanoxin and Zyloric - for all major markets except the US and Japan.
The deal would allow Aspen to license IP and supply finished dosage from pharmaceuticals to the multinational through its group of companies, including Onco Therapies, and give it a presence in more than 100 countries.
The deal comes at a time when a growing number of generic companies have been put up for sale - including Actavis of Iceland and Ratiopharm of Germany - but are struggling to find buyers against a backdrop of falling valuations, pricing pressure and heavy debt burdens.
Generic drugs offer a way to broaden the range of products and provide insights into efficient manufacturing. Some, such as Teva of Israel, the largest generics company, are expanding into the lucrative niche of biological generic drugs as European and US regulators begin authorising the launch of equivalent products.
GSK already has linked up with Aspen in a marketing alliance last year.