How A Mouse Ate An Elephant

Published 10 years ago
How A Mouse  Ate An Elephant

Nestled on a ridge overlooking the sea to the left and Durban’s beachfront to the right, with Moses Mabhida Stadium on the horizon, is the view from the balcony of a multimillionaire. Michael Attridge is one of the guiding spirits of one of the world’s biggest pharmaceutical companies.

His stride is that of a man who knows where he is going in life. The handshake is firm but welcoming and his warm smile reassures you that Durban may be hot, humid and sticky but it’s a fun place to live.

Attridge, who’s been called Gus since his school days, is a charted accountant by training and the deputy group chief executive of Aspen Pharmacare, a R125-billion ($11.8 billion) company as of the beginning of April according to Reuters, listed on Africa’s biggest bourse, the Johannesburg Stock Exchange. If you bought $10,000 worth of shares, valued at R2,36 in 1998, what would it be worth now?


Attridge is one of four founding shareholders who built this business in their backyard in Durban.

It all began in an old Victorian house, converted into offices, near Greyville racecourse in 1997.

“It was in a rather less fashionable part of Durban, at that time this was sugar cane,” says Attridge, referring to their current offices in La Lucia.

Attridge made his debut on FORBES’ list of Africa’s richest in 2013, coming in at number 37, with an estimated net worth of $525 million. A listing he says he didn’t know about and would rather be without.


The debut was down to Aspen’s stock shooting up nearly 75% in 2012/2013 thanks to its booming business in Asia and Australia, says chief executive, Stephen Saad. Attridge is the second biggest individual shareholder, owning a 4% slice, with co-founder, Saad, who is also on the FORBES list with a net worth of $1.5 billion.

How two friends from Durban came to be worth $2 billion is an African story worth telling.

In 1981, Attridge completed a bachelor of commerce degree from the University of Natal [now University of KwaZulu-Natal] in Durban. He added a diploma in accounting, a year later, followed by another in datametrics before his training with Coopers & Lybrand, now PricewaterhouseCoopers. This is where he met Saad. They worked together on assignments; Attridge was Saad’s senior, who was to climb the ladder at Coopers & Lybrand to become a manager in the corporate finance division in London.

“I’d always set my objectives on becoming a partner in one of the firms. That was kind of my pinnacle as a trainee in the accounting profession,” says Attridge.


Just before the end of apartheid, he returned to South Africa to establish a corporate finance division in the Durban office of Coopers & Lybrand.

During that time, Saad left the company, leaving Attridge behind, suffering from the entrepreneurial itch. But Saad returned. Not to the company, but to Attridge, whom he approached with a lucrative business idea.

“The day he [Saad] could first get out of there, he got out of there. I initially had some career ambition there. But I quickly realized that selling time was not very entrepreneurial and it was difficult to get rewarded effectively for your efforts when you were selling time because it did not measure what value you added to things. I was eager to find an opportunity in business,” says Attridge.

Saad and Attridge put their heads and money together.


“And that’s where my business partnership with Saad began, probably 20 odd years ago,” says Attridge.

He left his job at Coopers & Lybrand in 1994, the year South Africa held its first democratic elections. Their first venture was to buy Varsity College, a struggling private tertiary institution, for R1.5 million ($142,000) and to apply a fresh idea.

“We embarked on quite a differentiated, let’s call it, advertising campaign where essentially we guaranteed students who attended all their lectures and did all their assignments that we would give them their tuition fees free the next year if they failed under those circumstances.”

“It was all built around adverts that went into the press which were around the F-word. It was F***, being fail, but it provoked some reaction generally as well because it was a bit provocative I suppose,” he says.


Few students fell foul of the F-word.

“In a student’s DNA, to go to all lectures is foreign. But really, with that diligence required to attend all lectures and to submit all your assignments and so on, you will pass. Unless you chose a course incompatible with your skills set,” Attridge says.

He and Saad also bought a private primary and secondary institution, Crawford College, one of which is opposite their head offices in this suburb of La Lucia in Durban. It worked. The partners turned the losses of Varsity College and sold it in 1996 for R10 million ($948,000).

This paved the way for another adventure.


“We’re not people with 10-year plans. We don’t even have a three-year plan. It’s a good thing we haven’t because we would have never stuck with any of those plans because we move too quickly, things change quickly,” says Attridge.

Three years into the pharmaceuticals business, Aspen took a big risk. It was a highly leveraged hostile takeover of South Africa’s oldest pharmaceutical business, South African Druggist (SAD), for R2.4 billion ($227.5 million).

“That changed our business forever and changed our business model,” says Attridge.

SAD worked in a number of areas, including the development, production and marketing of pharmaceuticals, within South Africa.

Aspen’s initial business plan was to avoid manufacturing. Its plan was to be a small business selling good margin products to build its name.

The takeover wasn’t going to be easy.

At the time, Fedsure owned 34.9% of SAD, but its attempt to buy the remainder of the company and then sell Pharmacare to Adcock Ingram was opposed by the South African Competition Board. Pharmacare was the main pharmaceutical unit of SAD.

“I remember I was driving from work and I was listening to a business program and I heard this deal had been cancelled or disallowed. I walked in the house, picked up the phone to Steve and I said, ‘you know a lot more about the history of SAD, you know their products well but I’ve just heard that this is cancelled, this deal is not going ahead,’” recalls Attridge.

It got even more complicated.

There were other companies involved in the acquisition. A business called Macmed Health Care initially did the running to buy SAD. They specialized in medical devises rather than pharmaceuticals. They had an agreement with Aspen to divide up SAD in a way that would allow other players, who wanted other parts, to enter into a consortium.

“We had to put up guarantees. It was a hostile arrangement. Management at SAD had their own ideas about acquiring the business for their own benefit. So there were a whole lot of different issues going down. We weren’t allowed to do due diligence,” says Attridge.

Luckily for them, SAD was a public company and Saad had a good knowledge of the product. Financing the deal was a problem but they were helped by property entrepreneur Jonathan Beare, who relished backing small businesses like Aspen. Beare introduced Attridge and Saad to Investec’s chief executive, Stephen Koseff. The two businessmen put up money and Aspen led the deal.

“We didn’t think we were going to buy the whole pharmaceutical business. I don’t know whether its fate or what, but we got it.”

With the deal done, the business grew to a $11.8-billion global corporation with Saad as the chief executive and Attridge the deputy.

The irony of this story was that Aspen were the new kids on the block but survived and prospered. Within 18 months of the transaction, Macmed went bust, about three years later, Fedsure followed.

“So we were the only ones from that consortium that survived and we were the small kids on the block. Those kind of things were instrumental in some of our thinking we try and impart on our staff. We now have a lot of management teams trying to impart on our people that you can never be complacent because you could be succeeding today, because both Fedsure and Macmed were highly rated at the time,” says Attridge.

“You should never be arrogant about your success, because success can be fleeting. You never know how the wheel is going to turn and who’s actually going to need who in the future. I do hope that our people [Aspen staff] understand that. When you’ve lived through and seen what happened to the management team with those businesses and so on, it’s actually very insightful because they all thought they were bulletproof.”

However, a business with a staff of 200 taking over a firm of around 3,000 was no mean feat. One newspaper called it a mouse trying to eat an elephant.

This little company had to get the buy-in from the staff at SAD. They had a small management team that was now going to manage SAD. It all played out at their old Victorian house turned into an office.

“The company which we still own today, Pharmacare Limited, was a company within the SAD label that housed the pharmaceutical business and we invited the chief executive of that business, Kobus Nel, to come to Durban and to meet us and talk about our plans and strategies and get to know him a little better. I think he took one look at that house and the day after he handed in his resignation,” laughs Attridge.

“I think he thought no, look at me sitting in this office park with a view of Johannesburg with a golf course and these guys are sitting here looking into the backyard of someone with a washing line.”

Today, Aspen supplies medicine to more than 150 countries, manufactured in 16 sites in: Kenya; Tanzania; Australia; Mexico; Brazil; Germany; South Africa; the Netherlands and the United States (US), with a French-based site becoming effective in May. It is the largest manufacturer of generic medicines in the southern hemisphere. Aspen is the first company on the continent to launch a generic anti-retroviral for the treatment of HIV and AIDS patients, thus becoming the largest supplier.

On the continent, Aspen has long-term plans for sub-Saharan Africa. Their challenge lies in its fragmented countries but they’re working on it.

“It’s not a big part of our business today but I think the investment in those difficult markets will pay back in time,” says Attridge.

In East Africa, Aspen bought 60% of Shelys, which has businesses in Kenya, Tanzania and Uganda. He says they hope to move away from the tender business into more of a business focused on brands.

They’ve also consolidated some of the manufacturing in East Africa, supported by the South African business, which Attridge hopes will help it to have its best year this year.

The business opened Aspen Nigeria last year. This is a collaboration with GlaxoSmithKline (GSK), a British multinational pharmaceutical company, where they share products and everything else, which has resulted in a strong business in Nigeria that is exceeding expectations.

“We’ve managed to get better market penetration than we thought we’d be able to, early on. It’s very small; it’s not going to influence anyone’s thinking on Aspen today. Everything has to start small. We know that very well at Aspen because we started small,” he says.

And that is how their Australian business grew. They started out with just two employees, but today it is one of their biggest revenue streams. Aspen aims to perform ahead of the market in Australia.

“We’re one of the top players in Australia now. The Australian business is getting to a certain stage of maturity. And the Australian market is challenging at the moment. It has had a series of price cuts which has taken a lot of profits off the table,” says Attridge.

Aspen has an agreement with Nestle that is helping the business ease into Australia. They plan to cut costs of goods through migrating product manufacturers from Australia back to South Africa and Asia.

“There is a big consolidation of manufacturing already well progressed and it continues well into Australia. When we bought the Sigma Pharmaceuticals unit, it had five manufacturing facilities and our target is to end up with one. We’ve got three at the moment,” he adds.

Aspen is Australia’s eighth largest pharmaceutical company by scripts generated. Following its October acquisition of the active pharmaceutical ingredient (API) manufacturing sites in the Netherlands and the US.

Aspen is ranked the ninth largest generic pharmaceutical producer out of 60 generic companies in the world by EvaluatePharma in 2013. It employs around 8,200 people.

But their success comes with problems they have no control over. The beginning of the year saw South Africa’s currency weakening steadily against the dollar, straining Aspen’s South African business.

But because Aspen has become diversified, its money comes in different currencies.

“The rand denomination results have a lot of protection against the weakness of the rand as a group,” says Attridge.

In January, Aspen Global, a subsidiary of Aspen Holdings, acquired the brands and business worldwide of Arixtra and FRaxiparine/Fraxodi, except in China, Pakistan and India, from GSK. As of May, Aspen Holdings will have acquired a specialized sterile production site that manufacturers the brands in France, a total consideration for the acquisition made through its subsidiary at an estimated R9.79 billion ($929 million).

Aspen has an expanding presence in Latin America and South East Asia. Their expansion plans will stretch as far as Russia and the former Soviet Republic, as well as to Central and Eastern Europe.

Attridge attests that though it’s going well, they’ve had some tricky times when they started out in Latin America. Their aim is to create a business model structured for success, similar to Varsity College’s plan.

“Varsity College was about getting an overhead base and would be covered by the revenues and we take the same approach in every business that we look at, that we have to make sure it’s a business model that’s sustainable,” he says.

They changed the business from one that relied on tenders to one based on brand equity.

“We restructured the business and got rid of some of the manufacturing which was not core to what we wanted to do… We’ve had a lot of challenges with management in Latin America. But in Brazil, we got that right a couple of years ago. It’s really doing well. It’s got a good foundation there.”

Brazil has been Aspen’s biggest part of the business in Latin America but the Spanish region of Latin America will soon overtake Brazil.

Spanish Latin America is a region where Aspen has struggled because they only had operations in Mexico and Venezuela. However, in the last 12 months or so, Aspen made a transaction with Nestle to acquire the infant milk business they bought from Pfizer; increasing their product portfolio offering. This has helped Aspen make inroads into Columbia, Chile, Argentina, Peru and Costa Rica.

Attridge hopes that the Latin American business will be as big as South Africa’s in the near future. Before that happens, they need to decrease debt from the latest acquisitions in Latin America.

This will be done through their cash flow from the business. Attridge says they’d rather use debt to build their business.

“We don’t see having money in the bank as a productive use of funds. If you’ve got money in the bank, you better have a very good investment plan and or you should give it to your shareholders. You shouldn’t be sitting with it in a government bank account,” says Attridge.

He believes the business model must produce a good return of cash. Aspen has also avoided giving equity as it is the most expensive way of raising funds.

“We’ve developed that model in all our businesses, so the profits from our business flow through to the business and to cash very efficiently. And most years our cash flow per share have exceeded our earnings per share before investments. But that’s a very important fundamental.”

Aspen made its way into Russia in January, with around 80 employees on the ground, promoting products acquired from GSK and Merck Sharp & Dohme (MSD) SA.

“One of the philosophies we have is that the more challenging the market, the greater the opportunities that may exist. So Russia has been on our radar for some time as a potential investment area, a market with good growth fundamentals and evolving health sector. But it’s not the easiest market to operate in. If you can succeed in difficult markets, then you can succeed in any market and sometimes in the difficult markets you don’t actually have as much competition as you do in markets where it’s easy to operate in. People are scared of the circumstances,” says Attridge.

In Russia, Aspen will compete with a lot of local businesses who will defend their space and territory from the South African company. Attridge says Aspen is competing with a lot of products not as regulated as theirs.

“It’s not unique to Russia, but being able to access the distribution networks into the pharmacies is critical, so establishing and building on the relationships with the people (wholesalers) who are taking the products… they dictate a lot of what can be achieved. You can’t reach Russia on your own,” says Attridge.

But he says these are challenges they’re willing to take head on. He believes good leadership in other regions is one of the factors to their success of running Aspen from their modest offices in Durban.

“You’ve got to have the right people leading your businesses. We stumbled on that initially in America. We didn’t have the right leadership in place there. We inherited some that weren’t aligned with what we were trying to achieve.”

Besides challenges, the group hopes to enter into the two biggest markets by population, China and the United States (US), as well as making an entry into the Japanese market.

“That’s not to say we are going to rush in tomorrow. We now have a small portfolio in the US and one or two products in China.”

A family man, this father of two doesn’t take work home. He says with all the traveling, he makes sure that when he is home he spends it with his two sons and his wife. This 53-year-old, who celebrates his birthday this month, is a former rugby player, who played for the Kwa-Zulu Natal provincial under-20 team in 1981. He is also a cyclist, like his partner Saad, having taken part in the Argus and Amashova races.

He’s also an accountant who’s not afraid to take risks and this has made him rich.