Formula sale aside, Aspen’s still got bottle
CEO frustrated by lack of understanding as share price tumbles
● By the time Aspen Pharmacare presented its annual results on Thursday, the company’s shares had dropped as much as 26% as investors fretted over the sale of its global nutritionals business that specialises in baby milk formula, and concerns over the “quality” of its earnings.
CEO Stephen Saad was dismissive of the plunging share price, saying his focus was on operations and not sentiment.
Shares “go up and down, sometimes it’s so high it is terrifying, to be honest, at a personal level, because you’ve got these huge expectations. It’s much easier when the share price is down. Over the years I’ve had the time when the share is higher than I believe and there are times when I think it is a lot lower than the underlying growth. I can’t drive sentiment, I can only drive the operating performance.”
Saad said when he listed Aspen the share price was 53c “so I don’t sit here and live for a 5% share price [increase] or a 10% share price [increase]”.
Loosely quoting Winston Churchill, the CEO said if they had paid attention to every barking dog in the past 20 years, Aspen would never have reached its destination.
“I can’t listen to an analyst of today or tomorrow, and it’s no disrespect … because my focus is not analysts, my focus is running the business [and] the people at Aspen,” he said.
He added that any analyst who did not understand Aspen’s strategy and the environment it operated in was too lazy to learn more about multinational pharmaceuticals.
Aspen’s nutritionals business, the source of its pain on Thursday, accounts for 4% of the company’s business.
John Thompson, an analyst at Investec Asset Management said Aspen’s results were surprising with H2 profits moving backward, and that the sale of the nutritionals business fetched a good price, but markets were unhappy because of “... the sudden loss of a material contract”.
Aspen’s manufacturing revenue declined by 5%, whole finished dose manufacturing revenue declined 22%, which Aspen largely attributed to a customer losing a tender for the supply of a product in China.
“That will go to the heart of their strategy, which is manufacturing complex therapeutics. But it seems to me that’s the nature of the pharmacy market. It’s very difficult to get approvals, tough to have an end-to-end manufacturing platform, all the while consistently delivering quality at the right price ... so when they talk about complex, it’s complex, it’s also time consuming,” he said.
Saad wouldn’t be drawn into discussing what would happen to the proceeds of the baby formula business sale, save to say that the company had identified opportunities.
Rayhaan Joosub, deputy CEO of investment company Sentio Capital Management, who has previously raised issues with Aspen’s balance sheet, said he believed the proceeds would go towards its debt.
“To me it seems like they probably had to sell that infant milk formula business because of their debt levels, so if the market is expecting them to use the proceeds of that to do deals, I’m sceptical,” he said.
Joosub said he believed Aspen’s share price had less to do with the formula business sale and more to do with operational issues, pricing pressures, the loss of manufacturing contracts and higher input costs on the thrombotics side.
Aspen has had a tough run of late, as the very sentiment Saad was not focusing on drove down the pharmaceutical giant’s shares following speculation that it was a potential target for short seller Viceroy Research, resulting in a slump of 12% in shares.
Aspen shares were down more than 28% for the week and more than 56% off their peak in January 2015.
I can’t listen to an analyst of today or tomorrow, and it’s no disrespect … because my focus is not analysts, my focus is running the business [and] the people at Aspen Stephen Saad
CEO and co-founder of Aspen Pharmacare