Aspen predicts strong second half, and big things from its new products

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This interview was originally aired on RSG Geldsake (in English). The Afrikaans introduction has been translated in this transcript.

TINUS DE JAGER: Aspen Pharmacare, the biggest pharmaceutical manufacturing company in South Africa with strong ties and outlets overseas today announced its financial results for the six months to end December. Turnover was 10% up to R21.1 billion. Earnings per share fell 6% to R6.20.

We are now chatting to Aspen CEO Stephen Saad. Good evening Stephen, and welcome. You had a strong second half last year, the last time you spoke to us. Do these results now show that you continue to build on that? Is that what we are seeing in the revenue growth?

STEPHEN SAAD: Yes, we had a very good second half, and this financial year we’ve really focused on delivering on our manufacturing contracts. That’s been critical for us. 

Read: Aspen H1 profit inches up

What drove some of our revenue was a change in the model of one of the commodity products that we have – which was heparin.

Just to spell that out a little, we have built a lot of sterile capacity across the world, as you know.

And you’ve probably been watching all of these weight loss products with interest, which are all in injectables, as we have.

You’ve seen the big Novo and Lilly – a massive run for these obesity products. We are really trying to get a place in it with our sterile build.

We had about R8 billion of capacity there. We are about halfway there, Tinus.

So we have about R4 billion done, and we are very happy with the mRNA – remember, mRNA was with all the Covid vaccines, that technology – so we’ve got a very big global partner there, which is using Aspen to manufacture. We are working diligently to fill the rest.

So we will have a very good second half again this year because of having those contracts in place. And they roll out quite substantially from, say, R500 million in this financial year, R3 billion next year, and at least R4 billion the following year. So it’s proving to be a worthwhile investment decision to have invested in that sterile capacity.

TINUS DE JAGER: Stephen, you are mentioning Covid-19. Are you still facing some of the challenges created by Covid-19, or is Covid and its consequences becoming something … [laughing]?

STEPHEN SAAD: If I tell you, Tinus, what we were promised with Covid, it ran into billions and billions and billions of doses and dollars. It didn’t manifest. It is what it is, and like with load shedding or whatever else, you’ve got to make a plan. I can sit and give you an excuse column that will [make you] feel sorry for it; it does not mean you are going to want to invest in Aspen.

But what we did do is we’ve repurposed those plants. So, where we had Covid, you are going to see we did a very big deal with Novo, the biggest European pharmaceutical company, and I’m very proud that they put us on the second page of their annual report.

They have entrusted Aspen with the manufacture of their insulin. It so happens that they use a similar capability and similar technology as [that for] Covid. 

Fortunately, we are able to substitute Covid with these products. So with insulins – and we’ve some other products, too – the seven products are active and paediatric vaccines. There is such a big push for Africa in Africa, and we are by far the best-positioned company in Africa to take advantage of it.

So it’s turning the lemon into lemonade. That’s where we are.

TINUS DE JAGER: You referred to Lilly. Is the partnership there bearing fruit as well?

STEPHEN SAAD: It is. We had to wait for the competition clearance. It starts in January, so it is bearing fruit. They’ve got a fantastic pipeline globally for Alzheimer’s, etc.

But I think we are hoping to launch what we believe might be the biggest product ever seen in the South African private market, being their obesity product – the weight loss and diabetes obesity product. It’s called Mounjaro.

That’s a very exciting launch for us into this country – the fact that multinationals are trusting us with their IP. We have done brilliantly in South Africa Amgen, GSK, Lilly, Vifor, a lot of big companies are now saying: ‘We want to work through Aspen. We are better off partnering [with] them than competing with them.’ It really is good news.

TINUS DE JAGER: Stephen, the rand’s volatility is still bad – it’s even worse than when you spoke to us six months ago. How is that affecting business?

STEPHEN SAAD: Well, it depends on how the volatility works. Because South Africa is a small section of our business, we are finding, for example, Latin American currencies have been very strong. The euro, the dollar and currencies we are more familiar with here are also strong. It means that we have better results in rands because we are now selling in euros instead of rands. 

So you’ll see, for example, our revenue is up say 10%, but in constant currency, it is like 3%. The difference really is it’s up by more because the rand has weakened against those currencies.

Aspen is a rand-hedge stock, and it will be even more so once we start exporting out of our facilities in South Africa.

So negative for the South African business. But of course, if the South African business alone is maybe 15%, and then by the time we export out of South Africa, it should be more than a hedge – which means we’ve got a very strong hedge. About one-third of our turnover is in euros, for example.

TINUS DE JAGER: Stephen, you’ve briefly referred to the second half. Would you care to look at the prospects for the first half of 2024 and then maybe slightly beyond that?

STEPHEN SAAD: In the first half, one of the big threats that faced our business was something called VBP in China. Just in lay speak, it’s like products going off patent. We have done so well in China, and really concerned that when they come off one, it would have an impact on results, and then we’d have to reshape our team and get rid of everybody and no longer be the force where we had 1,000 people on the ground as reps, for example, in China. 

We’ve been able [to have] good growth in the rest of our business to be able to manage that in this half. 

But also we’ve acquired another company called Sandoz in China, which has said, ‘Listen, we are not doing this VBP thing … We are out of this country’, and we were able to acquire their products, put them together with ours and keep a big team together.

So this half could result in the commercial pharma; the manufacturing was really boosted by the heparin, which was a commodity which was something [where] we had nearly R5 billion of stock, and we are sort of looking to get that down to R1 billion over the year with this new model that we’ve done. 

So very strong on cash flow. We had just short of 90% cash conversion in the first half – it’s always our worst half for cash conversion – so we will go well over 100% into the second half. So a very, very strong half for us, beyond what we had guided, and we always said H2 is our inflection point, the second half coming up.

From here, we have some very big contracts coming online in 2025/26, and hopefully, we do a few more. We are going into quite a strong growth phase in Aspen, Tinus, over the next period.

TINUS DE JAGER: Thank you, Stephen. That was Stephen Saad, CEO of Aspen Pharmacare.