Johannesburg – JSE listed Aspen (Apn), Africa’s largest pharmaceutical manufacturer, has recorded positive results for the period ended December 2006.
Stephen Saad, Aspen Group Chief Executive said “the Group’s key business units performed well and the product pipeline is in good shape to support future growth. Despite the absence of a price increase in South Africa during the period, finished dosage form pharmaceuticals grew revenue by 21% in this market, driven by organic growth and recent product launches. The 5.2% pricing increase announced by the Department of Health (DoH”) in January 2007 will only reflect in second half revenue. Aspen has improved its generic market share, despite increased international interest in this sector. ARVs delivered good growth as the government’s roll-out plan gains momentum. The contribution form Offshore Operations, in particular Australia, was also pleasing.”
SOUTH AFRICAN OPERATIONS
Revenue from the South African business grew by 11% to R1,550 billion and earnings before interest, investment income, tax and amortisation (“EBITA”) by 16% to R493 million. These results are distorted by the sale of 50% of the equity in Fine Chemicals Corporation Limited (“FCC”) midway through the prior financial year. Consequently, only half of the results achieved by FCC are consolidated into the results for the current period. Furthermore, the comparative period EBITA has been reduced by a R14 million write down in the fair value of FCC.
The Pharmaceutical Division performed well, growing revenue by 14% despite the inclusion of only 50% of FCC. On a like-for-like basis revenue growth was 21%. Aspen has improved its generic market share over the six months (IMS data reflects at 35% market share for the twelve months to December) despite increased international interest in this business sector. In the second year of a two year tender cycle, the Public Sector business has been flat. Revenue from FDF antiretrovirals (“ARVs”) increased by 66% from R104 million to R173 million.
FCC, the active pharmaceutical ingredient (“API”) manufacturer, matched the strong first half performance delivered in the prior year at both revenue and operating profit. The weaker rand and a strong export order book should assist in maintaining this momentum.
The Consumer Division increased revenue by 6% to R432 million. Revenue performance was influenced by a slowing in growth by the infant nutritional range which consolidated substantial gains made in the prior year. Profit margins have however expanded as costs have been trimmed.
High production levels have been maintained as stock levels have been raised to ensure optimum service levels to the market. Construction of the sterile facility is on track. Initial validation of this facility is planned for the beginning of 2008. The sterile facility is designed to US Food and Drug Administration standards.
Aspen’s international operations increased revenue by 31% and EBITA by 51%. This was achieved despite a poor performance from Co-pharma, but with the benefit of the inclusion of Astrix, the India-based API joint venture which commenced business in January 2006.
Aspen Australia recorded revenue of R259 million, an increase of 24%, whilst improving EBITA by 36% to R37 million. Both Pharmaceutical and Consumer Divisions showed robust growth with the Consumer Division benefiting from new product additions.
Aspen Resources, the UK based intellectual property and sourcing company, produced another positive performance, raising EBITA by 32% to R29 million. Co-pharma returned a small loss despite increased volumes.
Astrix, which specializes in ARV APIs, increased its contribution to gross revenue from R67 million in its first six months of trade to R80 million. The largest portion of this increase was attributable to trade with Aspen.
The South African pipeline remains a rich source of future product launches as a consequence of continuous attention. The DoH has established a mechanism for annual price increases, taking into account changing economic fundamentals to which the industry is exposed. Aspen’s implementation of the 5,2% price increase will assist in relieving the pent up margin pressures caused by cost inflation and exchange rate weakness over the extended period when price increases were barred. The legislative environment for pharmaceuticals does however remain uncertain. The regulator has invited comment on the proposed international benchmarking legislation. Given the proposed structure of this legislation it is not possible for Aspen to evaluate the potential impact until greater clarity has been achieved in respect of originator products. Aspen is confident that the regulator will take due consideration of pertinent factors raised in comment by the industry.
Aspen’s ARV offering continues to expand by product and territory providing scope for further strong growth in this life sustaining treatment category. Viread and Truvada, originator products which are leading second line treatments, will both be launched into African markets by Aspen before the end of the financial year.
Growing capacity utilization in the oral solid dose (“OSD”) production facility will lead to enhanced production efficiencies. Opportunities to provide manufacturing services from the OSD facility for multi-national pharmaceutical companies are presently under consideration. There has also been substantial international interest in the production capabilities offered by the sterile facility due to commence commercial production towards the end of 2008. Aspen has already concluded a long-term agreement for production from the sterile facility with a subsidiary of Prestige Brands Inc., a leading supplier of eye drops in the USA and Canadian market.
As has been previously communicated, the current year is one in which Aspen is focusing on the consolidation of past gains and on establishing the platform for the implementation of growth strategies through to the end of the decade. The benefits of these initiatives should be reflected in the results of the forthcoming financial year.