Picture: BLOOMBERG/WALDO SWIEGERS
Picture: BLOOMBERG/WALDO SWIEGERS

Africa’s largest drug company, Aspen Pharmacare, has written down the value of a heartburn medicine it sells primarily in Australia by R719m after it was recalled due to possible cancer risks.

The company’s full-year results to end-June have been restated on a “worst-case basis” after Australian regulators ordered the recall of all products containing ranitidine, which contains a by-product that may pose a low carcinogenic risk from long-time exposure.

This has led to the recall of Zantac, used to treat heartburn, ulcers and stomach acid build-up, Aspen said after markets closed on Monday.

Aspen deputy CEO Gus Attridge said the company had not been directed to recall Zantac in any other countries aside from Australia. He assured consumers of the integrity of Aspen’s products. “Aspen complies with global pharmaceutical regulatory manufacturing requirements and is committed to the better health and safety of our patients,” he said.

Several regulatory agencies around the world are investigating ranitidine, including the SA Health Products Regulatory Authority, the European Medicines Agency and the US Food and Drug Administration. Canada and France have removed the drugs from the shelves, and several drug manufacturers, including Sandoz and Dr Reddy’s, have voluntarily withdrawn their ranitidine products from the US market.

Graphic: RUBY-GAY MARTIN
Graphic: RUBY-GAY MARTIN

The R719m impairment was made assuming the brand will not recover from the recall, though the company is working to relaunch it with a different formula. The cost related to the recall and return of stock from the market is not material and has not been accrued as a liability in the statement of financial position, the company said.

The total revenue for Zantac in Australasia for the financial year to end-June 2019 was R119m, 0.3% of total group revenue, and the effect of the loss of Zantac on future earnings is not considered material.

The “highly cautious” accounting treatment by the management of Zantac was probably prudent, given the concerns that various market participants have raised regarding Aspen’s “indefinite life intangible assets”, said Sasfin Wealth senior equity analyst Alec Abraham.

An indefinite useful life intangible asset is an asset for which there is no foreseeable limit to the period over which it is expected to generate inflows.

Jean Pierre Verster, founder and CEO of Protea Capital Management in Johannesburg, said “in terms of their total intangible assets, the writedown is not material but it is not good sentiment and highlights the risks that some of its products are exposed to”.  

Aspen’s share price declined 0.63% to close at R105.99 on Tuesday, bringing its year-to-date loss to 21.38%. 

The company’s share price has been battered by debt concerns, though it has gained 23.6% since reporting its results to end-June in September, when it said net debt had fallen a quarter to R40bn over six months. This compares unfavourably with its market capitalisation of about R48.3bn.

In June, it finalised the sale of its nutritionals business to French company Lactalis, resulting in a net cash inflow of €635m (R10.6bn).

With Tamar Khan

gernetzkyk@businesslive.co.za