Aspen’s big challenge

Aspen’s Chinese operations and foreign currency losses due to adverse currency movements cost the company dearly.

Aspen is a global speciality and branded multinational pharmaceutical company with a presence in emerging and developed markets.

Stephen Saad and Gus Attridge founded Aspen in 1997. In 1999, it merged with South African Druggists (SAD), the parent company of Lennon Limited.

Aspen has shown exceptional growth over the last three decades. Today, it has a market cap of R85 billion, operates on six continents, and has 9,100 employees.

The Aspen group has two main operating segments – commercial pharmaceuticals and manufacturing.

Its commercial business provides a diverse basket of high-quality, affordable medicines and products.

These medicines and products are supplied to community pharmacies, retail pharmacy chains, corporate pharmacies, hospitals, clinics, and prescription specialists.

It also services dispensing general practitioners, managed healthcare funders and retail stores across the private and public sectors.

Aspen’s leading prescription brands treat a range of conditions, including allergic rhinitis, asthma, bacterial infections, and chronic obstructive pulmonary disease.

They also have products for coughs and colds, hypertension, chronic inflammatory skin diseases, epilepsy, constipation, gout, and mental health disorders.

The Lennon range has established brand equity with more than 35 line items. Its other renowned consumer brands include Borstol, Eye Gene, Movicol, and Ulsanic.

Its manufacturing segment has 23 manufacturing facilities across fifteen sites on five continents.

The manufacturing capabilities include steriles, oral solid doses, liquids, semi-solids, biologicals and active pharmaceutical ingredients.

Aspen financial results

Aspen recently released its annual results for the year ending 30 June 2024, which revealed mixed results.

The group’s revenue increased by 10% from R41 billion to R45 billion. However, profit decreased by 16%, from R5.2 billion to R4.4 billion.

Aspen CEO Stephen Saad said that the decrease in profitability was mainly due to the impairment of intangible assets in China.

The main impairments were in the GSK thrombosis business and the AstraZeneca anaesthetics portfolio due to the volumes-based-procurement (VBP) policies implemented in China.

The Chinese government implemented the VBP policies to cut drug costs, making them more affordable in China.

The VBS policy negatively impacted Aspen’s Chinese operations, reducing its revenue and profitability outlook. This led to Aspen writing down the impacted businesses by R1.7 billion.

In addition to its losses in the Chinese market, Aspen experienced a R4.3 billion foreign currency loss due to adverse currency movement across all its operations.

Despite these challenges, Aspen saw strong growth in its manufacturing segment, with revenue increasing by 25%.

Saad said Aspen has spent significant amounts on its manufacturing business over the years and that the recent result has been the turning point for the company.

He said the manufacturing segment is only starting to grow. In the next two and a half years, Aspen expects this segment to add an additional R2.5 billion in EBITDA to the rest of the group.

However, despite the very strong revenue growth, the manufacturing segment’s gross profit only increased by 1.6%.

The segment also experienced significant margin pressure since 2020, with its gross profit margin falling from 30.1% to only 9.2% in the 2024 financial year.

A 9.2% gross profit margin or R1.3 billion leaves very little room for operating and financing expenses.

This means this segment has a long way to go before meeting the R2.5 billion EBITDA target.