Aspen Pharmacare CEO Stephen Saad. Picture: FINANCIAL MAIL
Aspen Pharmacare CEO Stephen Saad. Picture: FINANCIAL MAIL

Africa’s biggest generic drug maker, Aspen Pharmacare, said on Thursday that it was intent on carving out a niche market in the US, one of the few remaining territories in which the Durban-based company has yet to make its presence felt in a big way.

Aspen markets products in more than 150 countries and sells generic and branded medicines and baby formula.

"The US has to be the next frontier for us," Aspen CEO and co-founder Stephen Saad said in a telephone interview.

The US offered opportunities for niche Aspen products that relied on its manufacturing technology and intellectual property rather than the commodity generics it had in its portfolio, he said as the company released its results for the six months to December.

Revenue rose 13% to R19.8bn and normalised headline earnings a share increased 6% to 692c in the period.

Saad’s US ambitions drew a mixed reaction from investment analysts. Sasfin Securities analyst Alec Abraham said Aspen had historically struck a good balance between high-volume, lower-margin generic copies of blockbuster drugs, which faced stiff price competition from rival drug makers, and the more profitable niche products, which had less pricing pressure from rivals. Expanding into the US on the back of niche products made sense, he said.

"Typically, generic blockbusters tend to see prices discounted by as much as 70%, but in a niche generic you typically only see a 20% to 30% discount," Abraham said.

But Aeon Investment Management’s chief investment officer, Asief Mohamed, expressed scepticism, saying China was a better bet. The Chinese government was actively promoting greater private sector involvement in healthcare and Aspen would probably get a warmer welcome than a US multinational pharmaceutical manufacturer, he said.

Fairtree Capital portfolio manager Jean-Pierre Verster was also unconvinced, saying that while the US offered the world’s highest margins on medicines, it was fiercely competitive. "Aspen has specialised in tough emerging markets. I struggle to see the competitive advantage they could bring to the US," he said.

He described Aspen’s performance as "subdued".

Aspen was hit by foreign exchange losses as the rand strengthened against forward exchange contracts and the pound weakened in the wake of the Brexit vote; an expected decline in the South African business; and lower margins in its Latin American business as it moved inventory out of the Venezuelan operations it closed in 2016.

These problems were to some extent offset by its acquisition of an anaesthetics business from AstraZeneca and the conclusion of a supply and distribution agreement with a major pharmaceutical company from the sale of hydroxyprogesterone caproatein the US.

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