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Regional Brands

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Regional Brands comprise a broad portfolio of branded consumer, prescription and OTC products across three main territories namely South Africa, Australasia and Latin America. The products, which are recognised domestic brands as well as globally identified brands, are promoted through the experienced regional marketing and sales teams. The organic performance of this business segment is supplemented with new product launches as well as bolt-on acquisitions and in-licensing of products strengthening each country’s portfolio.

2020
R’million
2019 (CER)
R’million
Change
%
Revenue
Developed markets 5 660 5 828 (3)
Emerging markets 11 221 10 515 7
Total 16 881 16 343 3
Gross profit percentage 53,5% 57,5%

Key brands

Brand Type of anaesthetic
Circadin Sleeping aid
Foxair Respiratory
Maltofer Iron supplement
Mybulen Analgesic
Zyloric Uric acid production inhibitor

44%

of total Group revenue

business-segment

Performance

Regional Brands revenue increased 3% to R16 881 million, negatively impacted by volatile demand trends due to changes in consumer and patient behaviour as a result of COVID-19. Early during the first wave, demand for certain brands spiked most notably in South Africa, Australia and Mexico. The stockpiling of everyday healthcare products and advanced filling of prescriptions by consumers led to overstocking in supply channels and in households, resulting in a drop in demand as stock levels normalised. Even after lockdown regulations eased, continued social distancing measures negatively impacted the demand for medicines used for non-COVID-19 related communicable diseases.

Developed markets

Revenue in developed markets declined 3% to R5 660 million. Pleasing growth of 2% in Australasia was supported by the positive performance of the OTC division despite significant COVID-19-related disruptions as well as the global recall of Zantac. Key domestic brands such as Maltofer (iron supplement) and Dymadon (Paracetamol syrup) supported growth in Australasia.

Australasian performance was offset by the remaining developed markets namely Developed Europe and USA & Canada which contracted 6% to R1 784 million and 28% to R270 million respectively. Developed Europe’s performance was negatively impacted by the divestment of Fludrocortisone1 and the impact of generic pricing pressure across our Europe & CIS oncology portfolio. Excluding these events, the performance of the Developed Europe territory would have increased 3%.

Emerging markets

Emerging markets revenue increased 7% to R11 221 million. The stockpiling of everyday healthcare products and advanced filling of prescriptions by consumers positively impacted performance during the early and peak periods of COVID-19 infections across
several territories. These positive trends were offset by a decrease in demand during the different lockdown periods as stock levels normalised.

Sub-Saharan Africa, Latin America and MENA all delivered excellent growth of 6%, 10% and 8% respectively, despite challenging circumstances. The South African business has been split into two portfolios to achieve a heightened customer focus namely, Aspen’s branded portfolio and Ethicare (a commoditised portfolio).

Prospects

In South Africa, COVID-19 has created pockets of market instability specifically in OTC and consumer health portfolios, however, prescription and chronic portfolios have remained resilient. Restrictive lockdown measures instituted in March 2020 in South Africa resulted in panic buying of everyday healthcare products and pre-filling of prescriptions, however, this was followed by a period of destocking resulting in lower demand.

1 Disposal of Fludrocortisone in the UK in March 2020 in line with commitments proposed to and accepted by the UK Competition Markets Authority.

While schools were partially reopened in early June 2020 and the government has reduced restrictive measures, continued social distancing practices and workfrom-home policies have impacted consumer behaviour. The persistence of the pandemic will likely result in continued demand volatility across parts of the South African portfolio. In the past financial year, we entered into an agreement with Laurus, a leading Indian producer of ARV APIs, to toll manufacture public sector ARVs thus ensuring the
South African government retains access to competitive prices for these critical medicines. Aspen will continue to sell ARVs in the South African private sector.

The risk-off sentiment across global markets has negatively impacted emerging market currencies which depreciated relative to hard currencies in the second half of the financial year. The Rand has been one of the worst performing currencies during the second half of the financial year and depreciated 10% against the US Dollar (at average exchange rates) over FY2020. This depreciation suggests an inflationary impact on the cost of goods for pharmaceutical products in South Africa and other emerging markets given that many raw materials used in pharmaceutical production are US dollar denominated. The single exit price agreement (regulated price increase mechanism in South Africa) should alleviate some inflationary pressure on the cost of goods when prices are revised next, scheduled for early 2021.

Australia’s response to COVID-19, while negatively impacting the economy, resulted in a well-controlled first wave with strict lockdown measures and border closures reducing the spread of the virus as compared to certain other developed markets. These necessary social distancing measures have negatively impacted therapeutic areas which treat person-to-person transmitted diseases. While a broad range of products has allowed the Australian business to manage the risk in certain therapies, restrictions remain in place and consumer behaviour continues to be difficult to predict.

The Latin American operations, which largely comprise Mexico and Brazil, experienced increased demand across the broad portfolio of local and global brands, specifically OTC. Latin American currencies have depreciated, which impacts the cost of goods.

In May 2017, the European Commission opened an investigation of Aspen’s oncology portfolio (see page 100 of the Annual Financial Statements for additional information). In July 2020, the European Commission adopted a preliminary assessment and, in response, Aspen have proposed commitments. The European Commission has responded positively to the commitments and intends to accept these subject to market testing. Key elements of the commitments include average price reductions, per product of between 27%
and 79% for a period of 10 years, with guaranteed supply for five years. The outcome of market testing is expected before the end of FY2021 and if the commitments are accepted, the price reductions will adversely impact on profitability of the oncology portfolio.

Australia: Prescription insomnia market, Circadin versus peers
(MAT values, AUD‘million)

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Source: IQVIA data as at August 2019

South Africa: Mybulen versus competitors
(MAT values, R’million)

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Source: IQVIA data as at June 2019

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