South African pharma giant feeling the pain

Aspen plunged the most in more than six years after the South African drugmaker disclosed a dispute with a client that may lead to a R770 million charge.

The stock fell as much as 35%, the biggest intraday drop since March 2019, and traded 31% lower at R111.59 by 1:30 p.m. in Johannesburg.

The dispute is around “a manufacturing and technology agreement with a contract-manufacturing customer for mRNA products,” Aspen said, adding the impairment could arise in the current financial year. 

“It really did come from left field,” and management wasn’t aware of the dispute until “just a few weeks back,” Chief Executive Officer Stephen Saad said on an investor call Wednesday.

He added that the dispute relates to the production facility in France, and that it has “a direct impact on the profitability” of the unit. He added that the contract was on take-or-pay terms. 

“This development is clearly a significant disappointment, exacerbated by the loss of the value of our investment we have made to access the mRNA technology,” Saad said.

The possible R770 million write-off was “also subject to the dispute”, Group Chief Financial Officer Sean Capazorio said, adding there is a potential of losing access to the mRNA technology’s intellectual property.

Aspen has assigned some capacity at the French facility toward producing GLP-1 obesity and diabetes drugs, but it still has as much as 120 million units of annual available capacity.

Aspen’s “absolute highest priority” is to get a return on its manufacturing assets, he said. “Until they perform, no one is going to ascribe value to them.” 

The company is already engaging third parties about using the facilities, and a few new contracts on the site “can have a material impact on group profitability,” Saad added. 

While confident Aspen can replace the contract and increase volumes through the facility, he wouldn’t commit to timings for new agreements. 

JPMorgan Chase & Co. slashed its recommendation on the stock to underweight from overweight, cut the target price to R128 and trimmed the forecast for estimated earnings before interest, tax, depreciation and amortisation for the 2026 financial year by about 20%. 

Absa analyst Rendani Magalela said consensus downgrades could continue.

Aspen’s “foundations are all intact and opportunities remain, although not immediate,” Saad said. Recent geopolitical turbulence from US tariffs and aid cuts, while disruptive, “have started galvanizing actions from those who were previously indecisive,” he said.