JSE-listed Aspen Pharmaceuticals will not grow fat manufacturing Johnson & Johnson’s Covid-19 vaccine, but if an in-principle agreement comes off, Aspen could find itself the African licence holder of the J&J vaccine, producing this particular vaccine for all of sub-Saharan Africa. 

Scale counts in the low-margin world of manufacturing, and this agreement could see a quantum increase in vaccines produced at the firm’s Gqeberha facility.

“We cannot count our chickens before they are hatched,” says co-CEO Gus Attridge. “We haven’t crossed the t’s and dotted the i’s, but if it comes off it will be a step towards Africa becoming more self-sufficient in medicine supply.”

He does not say what it will do to the company’s bottom line. Presumably, much depends on the nature of the t’s and i’s. Suffice to say that in its results for the year to June 2021, the company included revenue of roughly R400-million earned from the inaugural and slightly rocky three to four months of manufacturing the J&J vaccine. It also noted that the mix shift to manufacturing had seen group margins diluted slightly. This is where scale comes into play.

Aspen is converting its existing capacity in a way that will see it increase vaccine capacity from 300 million doses per year to about 450 million by February 2022, and more than 700 million doses by January 2023. The company believes it can produce 1.35 billion doses off its existing footprint, with limited incremental capital expenditure. 

“There is global pressure to see a vaccine manufactured in Africa, for Africa,” says CEO Stephen Saad. 

Overall, group revenue increased 12% to R37.8-billion, with commercial pharmaceuticals growing organically by 6% and manufacturing advancing 12% in reported terms. Within the commercial pharmaceutical business, the sterile business (thrombosis and anaesthetics) benefited from some Covid-19 tailwinds, with products used as interventions for Covid patients.

However, the regional brands, which is the bigger business, faced headwinds caused by a negative pricing adjustment to the European oncology products and the persistent unfavourable influence of Covid-19 on certain therapies within this portfolio, as fewer people caught colds and other socially transferable diseases.

Normalised earnings before accounting treatments were 3% higher at R9.9-billion, as a lower gross profit percentage and reduced other operating income were partially offset by well-controlled operating expenses. 

Normalised headline earnings per share increased 10% to R13.10, benefiting from finance costs that were R500-million lower than last year.

This comes as Aspen makes headway in reducing its debt overhang. Net borrowings declined materially to R16.3-billion from R35.2-billion in the prior year. This was after Aspen sold the commercial rights to its European thrombosis business to Mylan for R12.7-billion, strong operating cash flows, and the benefit of a stronger rand relative to the Euro and Australian dollar at year-end. 

“Our debt has halved, which means there are now no constraints on any investment decision,” says Attridge. That said, the company is busy with a number of opportunities that may not require acquisitions, a fact that might please investors. “Acquisitions are good for accelerating opportunity. But it’s the growth behind it that is important,” he adds.

Management made much of the company’s metamorphosis between 2013 and 2021, a period that saw it reshape its commercial footprint from a producer of commoditised, generic brands present in just 19 countries, to a global company producing, marketing and distributing a range of high-end brands with resilient margins. 

However, the shift in strategy has yet to generate the growth that investors would like to see. In the same timeframe, Aspen grew revenue at a compound average growth rate of 8.8% and normalised headline earnings at 5.6%. The share price grew from R125.55 to R162.09, but since year-end has risen to R199.90 as investor faith grows in the revised strategy.

Also pleasing is the reinstatement of dividends at R2.62 a share. DM/BM