Business Day

For­eign sales off­set Aspen’s SA trou­bles

- TAMAR KAHN Sci­ence and Health Writer kahnt@bdlive.co.za Business · Investing · Cape Town · Venezuela · Stephen Saad · Commonwealth of Independent States · Commonwealth of Nations · United States of America · North America · AstraZeneca · GlaxoSmithKline · Beijing · Aspen Pharmacare · Strides Arcolab · Adcock Ingram

CAPE TOWN — Africa’s big­gest generic drug maker, Aspen Phar­ma­care, is reap­ing the ben­e­fits of its in­ter­na­tional ex­pan­sion strat­egy, as a strong per­for­mance in its global op­er­a­tions cush­ioned the ef­fect of an un­planned exit from Venezuela and dis­ap­point­ing do­mes­tic sales for the year to June 30.

“We don’t think there is any hope in Venezuela. Of course, it was a blow, but it wasn’t a hugely prof­itable busi­ness,” said Aspen CEO Stephen Saad.

Com­pa­ra­ble nor­malised head­line earn­ings per share, which stripped out a one-off R870m cur­rency loss in Venezuela and two di­vest­ments, were up 15% to R12.22. In the pe­riod un­der re­view Aspen shed a port­fo­lio of prod­ucts dis­trib­uted in SA to Litha Pharma, and sold two port­fo­lios of drugs to Strides Ar­co­lab.

Aspen has a pres­ence in more than 150 coun­tries, and sells generic and branded medicines as well as baby for­mula.

The star per­former in the group was Aspen’s in­ter­na­tional busi­ness, which is dom­i­nated by sales in western Europe and the Com­mon­wealth of In­de­pen­dent States, but also in­cludes Latin Amer­ica and North Amer­ica. It re­ported com­pa­ra­ble rev­enue rose 19% to R18.9bn and com­pa­ra­ble op­er­at­ing profit be­fore amor­ti­sa­tion, ad­justed for spe­cific non­trad­ing items (ebidta), was up 15% to R5.9bn.

By con­trast, the South African busi­ness seg­ment re­ported a 1% de­cline in rev­enue to R8.1bn and a 15% drop in ebita to R1.5bn, as in­creased nu­tri­tional sales failed to off­set prob­lems with the do­mes­tic phar­ma­ceu­ti­cal busi­ness.

The do­mes­tic phar­ma­ceu­ti­cal busi­ness was weighed down by sup­ply chain prob­lems and the weak rand, which raised the cost of im­ports. Com­pa­ra­ble pri­vate sec­tor phar­ma­ceu­ti­cal busi­nesses were down 7%.

“It was ter­ri­ble. I was very dis­ap­pointed with the South African per­for­mance. Pub­lic sec­tor ten­der vol­umes in­creased sub­stan­tially and we just didn’t man­age our sup­ply chain well. We have al­ready made changes and this year, we ex­pect a big re­bound,” said Saad.

Sas­fin se­nior eq­uity an­a­lyst Alec Abra­ham said Aspen’s key strength was the fact that un­like its ri­val Ad­cock In­gram, it had evolved from a purely South African com­pany to one with global ex­po­sure.

It had also suc­cess­fully pur­sued a strat­egy of build­ing scale in emerg­ing mar­kets by es­tab­lish­ing a man­u­fac­tur­ing base from which to ex­port to other coun­tries in each re­gion.

“I’m very im­pressed with their gross mar­gin on a group level, which shows their ver­ti­cal in­te­gra­tion strat­egy is pay­ing off,” said Abra­ham.

Saad said Aspen would con­tinue to ex­pand its busi­ness by ac­quir­ing prod­ucts in spe­cific ther­a­peu­tic classes, but de­clined to be drawn on any ne­go­ti­a­tions that might be un­der way. Aspen has ac­quired two port­fo­lios of anaes­thetic prod­ucts in the past three months, from As­traZeneca and Glax­oSmithK­line, which com­ple­ment its an­ti­co­ag­u­lant medicines and can be mar­keted by the same sales force.

The mar­kets in which Aspen had ac­quired the anaes­thetic prod­ucts dove­tailed with its ex­pan­sion plans, most no­tably in China, said Saad.

Op­por­tu­ni­ties had been iden­ti­fied to build a niche busi­ness based on the sup­ply of ac­tive phar­ma­ceu­ti­cal in­gre­di­ents and fin­ished dose forms to the US.

Aspen said it was likely to ex­ceed the tar­get it an­nounced last year of gen­er­at­ing an ad­di­tional R2.5bn in profit by its 2019 fi­nan­cial year.

It de­clared a div­i­dend of R2.48 per share. Aspen’s share closed up 1.21% at R340.07.

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