Anti-Retroviral Drugs and Public Tenders Raise Aspen's Full-Year Sales by 23%

Despite one-off payment provisions, South Africa's leading pharmaceutical firm, Aspen Pharmacare, posted a 23% rise in revenues boosted primarily by its AIDS treatments; anti-retroviral drugs (ARVs) at the full year ending June 30, 2006. Reuters reports that ARV sales were at 266 million rand, close to 50% of sales coming from exports to neighbouring African nations and the rest from the domestic market of South Africa. Of the one-off provisions, 21.3 million rand went towards costs relating to the company’s unsuccessful bid for acquiring Croatia’s Pliva Ltd and a tax reduction of 31.9 million rand on account of Strategic Investment Project tax allowance relating to Aspen's Oral Solid Dosage facility. Stephen Saad, Group Chief Executive, attributed the rise in sales to the performance of ARV drugs, new product launches and organic volume growth. A one-time charge of 282.4 million rand owing to Black Economic Empowerment has also affected this year’s figures. In terms of capacity expansion, the company's 50-50 joint venture with India's Matrix Laboratories and its 360-million-rand sterile facility in Port Elizabeth have been highlights over the year. Reuters states that Aspen expects operations to commence from 2008 at the sterile facility, which will be manufacturing tuberculosis and malaria drugs, injectibles and freeze-dried vials.

In terms of region-wide sales, the local market dominates the table despite growing concerns over price freezes on medicines, currency pressures (depreciating rand against the U.S. dollar) and the increasing competition. Pharmaceutical revenues were up by 24% to 2054 million rand with finished dosage forms improving by 26%, primarily due to increasing volume growth. Organic volume growth was boosted by the securing of public tender in October last year. The deal, spread over three years, is worth 3.4 billion rand and is designed to provide ARV drugs to the government’s national AIDS programme. Of Aspen's export markets, the United Kingdom suffered with growing competition in the commodity generics market. Aspen’s Co-pharma sector posted a drop in revenues at 23% to 162 million rand. With U.S. operations only just established, revenues were sparse from that region. Aspen Australia enhanced revenues by 28% to 396 million rand. The company's distribution contract with Novartis in Australia is set to be fully reflected in Aspen’s financial results only by 2008.

Outlook and Implications

Although Aspen is optimistic about advancing in its ARV coverage throughout the year ahead, factors such as the depreciating rand, continual price decline in ARV drugs and the changing dynamics of the firm's domestic market will affect revenues. Also to be taken into account are the firm's slow start in U.S. operations and the dipping profits from its U.K. subsidiary, which are expected to warrant greater attention from the South African drug maker in the short-to-medium term. While the numbers dictate that export rise mainly due to ARVs, currency pressures in the short term could be a boon for the company in raising revenues from its overseas operations. However, in order to realise the full potential of these operations, particularly in the United States, Aspen will need to chart out a corporate strategy by braving initial setbacks and widening its product basket. The company has a supply and marketing deal with India's Glenmark Pharmaceuticals for three generic products. Aspen’s ARV strategy is expected to take centre stage since its international profile rose with the firm securing manufacturing licences for patented AIDS treatments and the inclusion of its products in the World Health Organization (WHO)'s prequalification lists. Aspen will look to increase its product portfolio in this segment, taking advantage of the tuberculosis-HIV/AIDS overlap. Other infectious diseases, such as malaria, will also receive focus.

Price Freeze: The price freeze in the South African market is running into its third year and rising manufacturing costs owing to high raw material costs as a result of the depreciating rand are expected to affect operating margins for Aspen significantly over the coming year. Thus far, the company has managed to mitigate the effect of price freezes by increasing volume and pushing its new products portfolio. The company is now lobbying for a 10% increase in prices (source: Business Day) in line with inflation rise.