Life Healthcare Group’s (LHC) investors had valued the group’s Life Molecular Imaging (LMI) business at zero two years ago, and Monday an agreement was announced to sell it for $760 million (R13.9 billion) to US-based Lantheus Holdings, CEO Peter Wharton-Hood said on Monday.
The agreement is to sell 100% of LHC’s interest in LMI for an upfront payment of $350 million (about R6.48bn and earn-out terms of a potential further $400m, linked to future sales milestones.
“Two years ago our investors valued LMI at zero. Essentially, what we did was take a small company, invest in it, and grow it,” Wharton-Hood said in an online interview. He said LMI had also reached a stage where it was self-funding, as reported in the group’s last financial results, and it had good growth potential.
LMI specialises in molecular imaging agents for use in Positron Emission Tomography (PET) diagnostics. Its lead product, Neuraceq, is a radioactive diagnostic agent used for PET imaging of the brain to help treat patients with cognitive impairment, such as those being evaluated for Alzheimer's Disease.
Estimated proceeds from the upfront payment would be $200m, after settling the management scheme, Piramal Payment, and transaction costs. This amount was expected to be returned to shareholders, once the deal was completed. Further “profit share opportunities” through the earn-out period would also be realised, said Wharton-Hood.
LHC’s share price increased 4.2% in early Monday trade on the JSE to R16.42, a price that was below the R18.61 that it traded at the same time last year.
Last year, LHC also sold its Alliance Medical Group business, a deal that saw shareholders receive a R8.8 billion special dividend from the proceeds. The sale of LMI will leave the group mainly as an operator of private hospital and other healthcare services and facilities.
LHC operates healthcare facilities across South Africa that include 43 acute hospitals, 9 mental health facilities, and rehabilitation centres. It also operates 1 012 private renal dialysis stations and 7 nursing college learning centres.
Wharton-Hood said the transaction was a good opportunity for shareholders to unlock considerable value in LMI, as the deal represented a “highly attractive return on this investment.” Moreover, the disposal also mitigated execution risks associated with LMI’s business plan by partnering with a credible partner.
“Lantheus, with its extensive experience and expertise in nuclear medicine, is well-positioned to realise the full potential of LMI’s research and development capabilities and its product pipeline,” he said.
He said Life Healthcare would continue to participate in the future growth of LMI through the earn-outs. In addition, Life Healthcare would retain the rights to manufacture, commercialise, and distribute LMI products in Africa.
He said LHC would in the future focus on consolidating its position as a leading, diversified healthcare provider in southern Africa, after four years of diversifying from the hospital services businesses, backed by its integrated care model and further profit-sharing opportunities through the LMI earnouts.
Writing in the group’s latest annual report, the chairman Dr Victor Litlhakanyane said: “Our southern Africa business achieved substantial success in 2024, and we have taken steps to grow our non-acute complementary services.”
In the financial year to end-September 2024, headline earnings from continuing operations increased by 58.9% to R2 billion, while headline earnings a share (HEPS) from continuing operations increased by 58.9% to 139 cents.
The healthcare environment in 2024 had been marked by heightened competition in a stagnant market, new regulations, and continually evolving technological and consumer trends. In South Africa, public infrastructure constraints remained along with persistent challenges in training, recruiting, and retaining skilled healthcare professionals.
BUSINESS REPORT