Aspen set to sign deal with Indian supplier

Major HIV/Aids drugmaker seeks better terms on active ingredients

Aspen CEO Stephen Saad
Aspen CEO Stephen Saad
Image: FINANCIAL MAIL/PETER MOREY

Aspen Pharmacare is poised to sign a deal with an Indian company to provide it with the active pharmaceutical ingredients (APIs) used for making HIV/Aids drugs, CEO Stephen Saad said on Thursday, shortly after presenting the company’s annual results to investors.

Aspen, SA’s biggest pharmaceutical manufacturer and one of its longest-standing suppliers of antiretroviral drugs (ARVs) to the government, has consistently said that the low-margin, high-volume business is vulnerable to exchange-rate fluctuations that affect the cost of imported APIs, which are priced in dollars.

These ingredients accounted for between 60% and 70% of the cost of the finished product, Saad said.

Aspen has to pay for the APIs in advance, long before it gets paid for the products it supplies to customers, leaving it vulnerable to both foreignexchange and working capital exposure, Saad said.

Aspen had entered into a partnership agreement with a supplier, which Saad declined to name at this stage.

The interim agreement will see Aspen only pay for the APIs once customers have paid their debts and Aspen has deducted its share, and the supplier will carry the exchangerate exposure.

The final agreement, which is still subject to competition authority approval, will see Aspen licensed to manufacture and distribute the APIs for its partner.

Aspen won 11% of the three-year government HIV/AIDS drug tender announced in February – a share it said then was worth R1.9bn.

It hopes to get a significant slice of a supplementary tender due to be awarded in October.

“Aspen has a social commitment to providing HIV/Aids drugs to the public sector and would like to see the government do more to support local manufacturers,” Saad said.

He suggested the state could consider running a separate tender for APIs, which it would source on behalf of local pharmaceutical manufacturers.

The low-margin, high-volume HIV/Aids drug business is an important part of maintaining a good relationship with the state and using spare manufacturing capacity, rather than boosting the bottom line.

The three-year tender is a key aspect of the government’s strategy for meeting its goals of ensuring six-million people are on treatment by 2020-2021.

SA has the world’s worst HIV/Aids epidemic and biggest treatment programme: there were an estimated seven-million people living with HIV by the end of 2017, and at the last count, the state was treating 4.2-million patients.

Aspen reported lower profits for the year to June 30, with headline earnings per share dipping 15% to R12.54 for the year to June 30.

It said it had cut its debt 27% in the past six months to R39bn. It elected not to pay a dividend to shareholders – a position it last took in 2010. - BusinessLIVE 

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