Foreign sales offset Aspen’s SA troubles

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.