Aspen aims to put factories to work
Aspen Pharmacare expected to finalise deals within the next six months to help use idle capacity at its loss-making factories, it said on Monday.
Africa’s biggest pharmaceutical manufacturer invested more than R10bn in its sterile manufacturing facilities in France and SA, which make injectable products. These facilities were knocked by the lack of anticipated demand for Covid-19 vaccines, which Aspen had hoped to sell under its own brand in Africa.
“We are making over R1bn losses on those factories. It’s very important we get contracts in to reverse that,” Aspen CEO Stephen Saad said in an interview shortly after the company released its results for the six months to December 31 2023.
Aspen hoped to secure deals to close all the outstanding capacity, he said.
Aspen announced in December 2022 that it had signed a 10year agreement with the Serum Institute of India to make childhood vaccines for Africa at its sterile manufacturing plant in Gqeberha.
In August it said it had secured sterile manufacturing agreements with three multinational pharmaceutical companies for production at its French plant and was negotiating a deal for its Gqeberha facility.
Aspen could boost revenue by R8bn if it filled all its spare capacity, starting with R500m flowing from the initiation of sterile contracts in the second half of its financial year, he said.
REVENUE
The company was confident it would see the growing use of its sterile manufacturing facilities contribute at least R3bn in revenue in 2025, rising to at least R4bn the following year.
Group revenue rose 10% to R21.1bn for the period under review, while headline earnings per share fell 6% to 620.7c. Normalised earnings before interest, tax, depreciation and amortisation, a profit measure used in SA that strips out certain one-off items, rose 2% to R5.2bn.
Elevated transaction costs, primarily relating to acquisitions, together with increased intangible asset impairments due to the impact of China’s move to volume-based procurement, resulted in a decline in operating profit, which fell 10% to R3.5bn.
Aspen said its sterile manufacturing contract for mRNA platform products had reached commercialisation stage and it was changing the manufacturing agreements for its supply of heparin-based syringes to a “toll manufacturing” arrangement.
The new arrangement will see customers owning the active pharmaceutical ingredient, reducing Aspen’s investment in heparin inventory and increasing operating cash flows. Aspen’s investment in heparin inventory decreased by R1bn in the period under review, with a further R2bn reduction expected by the end of June 2024.
Its performance was buoyed by its manufacturing segment, which increased revenue by 33%, compared with a modest 3% growth in revenue in its commercial pharmaceuticals division. Revenue growth in the commercial pharmaceuticals division was driven by growth in its over-the-counter and prescription medicine units, amid a decline in its injectables unit.
SUPPLY CHAIN
Unlike drugmaker Adcock Ingram, which said last month that profits had been knocked by supply chain problems caused by port congestion, Aspen did not suffer a material effect from SA’s power and logistics challenges in the six months under review. “If I wrote a list of the top 10 problems facing Aspen around the world, port congestion and load-shedding would not be on it,” said Saad.
Aspen shares ended 3.6% ahead at R203.78 on Monday.