N’S BAD TRIP

Price gouging is not in Aspen’s DNA, says founder Stephen Saad, incensed at the thought that his company would exploit the sick. But Aspen’s predicament, and that of all drug firms, boils down to the tension between a drug company’s perceived responsibili

Stephen Saad’s frustration at Aspen being branded a “price gouger” that drove up the cost of life-saving medicine for profit is palpable. In an interview with the Financial Mail, the 53-year-old says Aspen Pharmacare has been the victim of a “perfect storm” that has led to his company being unfairly cast as a villain. “That was probably the most disappointing part: you’ve got a company that loves SA, has created thousands of jobs, loves what it does, provided antiretrovirals that many people rely on and created a huge saving for government — and the media turned on us,” he says. Ripping people off, he says, just isn’t in Aspen’s DNA.

Saad has had perhaps his toughest two months since he and Gus Attridge founded Aspen 20 years ago in a small house in Greyville, Durban, and became the dazzling success story of SA entrepreneurship in the new millennium.

From a company with R123m in revenue, Aspen now clocks up R35bn. It makes pharmaceuticals at 26 facilities on six continents, exports to over 150 countries and produces more than 700 tablets a second.

Investors became fabulously rich. People who put R10,000 into Saad’s company in 1997 would have made R5.6m including dividends.

But now Aspen is facing its most serious skirmish yet.

In April, accusations of price gouging in Europe rocked Aspen, as The Times of London splashed the story “drug giant’s secret plan to destroy cancer medicine” across its pages. The Times said the cost of busulfan, used by leukaemia patients, spiked from £5.20 to £65.22 in 2013, while chlorambucil, a chemotherapy medication, rose from £8.36 to £40.51 a pack.

Then, last week, the competition commission of SA decided to launch its own probe into three oncology drugs, which Aspen bought in 2009 from pharmaceutical giant Glaxosmithkline (GSK).

All the drama has weighed on Aspen’s share

price, which is down 1.3% since the revelations first broke — a loss of R1.7bn in market value — and compounding its slide over the past year, down 22.9%.

But Saad is adamant Aspen has done nothing wrong. In Italy, he says, the €5.2m fine for hiking cancer drug prices by between 300% and 1,500% was particularly iniquitous. Aspen appealed to the Italian courts but lost last week. Saad says the price rises were fully justified as they hadn’t risen for over 40 years. “Is it fair to ask a company to charge you today what they charged in 1950?”

And he is exasperated by the Italians’ approval of a generic version of those drugs, produced by a rival, at more than double Aspen’s price.

“When people think about price gouging, they think about products (in the US) that went to $800 a tablet from $1. From an Aspen perspective we’ve been very clear: we’re talking about a small portfolio in the Aspen world at €2 per tablet. You can’t buy a bottle of water for €2. In absolute terms no-one can call you a gouger at €2 a tablet.”

The SA case is even more curious.

The competition commission’s intention to tackle Aspen felt a bit as if the regulator had simply hitched a ride on Italy’s coat-tails, not wanting to miss out on a potential fine for anti-competitive behaviour.

Saad says what makes it odd is that Aspen is suspected of “excessive pricing” of its cancer drugs, yet drug prices are controlled locally by the single exit pricing (SEP) rules, which means companies don’t have much leeway to rip off customers even if they want to do so.

“Everything is public,” he says. “The whole SEP is on a website. You could easily have looked at that pricing and maybe had a chat to us.”

But this reasoning cuts no ice with the commission, which points to recent alarming hikes in medicine prices.

Hardin Ratshisusu, the deputy commissioner in charge of the probe into Aspen, Roche and Pfizer, says “the onus is on them to explain what informs those steep price increases”.

Just because there’s a medicine regulator doesn’t mean the market is necessarily competitive, he adds. “Port charges, for instance, in SA are regulated but the outcome points to the possibility that there could be overcharging in some segments. In this particular case, there is clear information that there is possible exploitation,” he says.

To some extent, the commission seems to be looking for a magic potion to deal with the nasty consequences of a globalised free market.

The commission laments the fact that Aspen “appears to be the only supplier of a generic version of busulfan in tablet form. No other products containing the same active ingredient appear to have been registered by the Medicines Control Council (MCC).”

But this is because the weakening rand, as well as regulations, hardly encourage multinational drug companies to enter SA. ➦