Aspen Pharmacare's run-ins with European authorities raise governance questions

Stephen Saad.
Stephen Saad.
Lulama Zenzile
  • The South African drug manufacturer has had a number of run-ins with European authorities over the pricing of its medication.
  • The group's share price has fallen since its high of 2015, but doubled in value since an all-time low in August 2019.
  • Aspen says its board and management are committed to effective and robust corporate governance and compliance.

Over the past few years, the story of the rise of Aspen Pharmacare [JSE:APN] as a global drug manufacturing giant has been punctured by concerns around its debt load and, in more recent times, a series of run-ins with European authorities over the pricing of its medication.

Led by Stephen Saad for the past 20 years, the company on Tuesday announced plans to cut prices for six of its cancer drugs in the European economic area by between 27% and 79% and maintain the price reduction for 10 years. The proposal came after a preliminary probe by the European Commission that began three years ago, which found it may have abused its dominant position by imposing unfair prices on the medicines.

In 2019, the UK's antitrust authority imposed a R45 million fine on Aspen for entering into illegal market sharing agreements with two other companies. The fine was confirmed last week.

It followed an agreement to pay the National Health Service R168 million last year for the practice. Four years ago, the drug producer was fined for fixing prices in Italy.

The run-ins with regulatory authorities have raised questions about the governance of the company, which had an astronomical rise in its share price peak at the beginning of 2015. It has since seen its valuation fall just under 70%.

Makwe Masilela, chief investment officer at Makwe Fund Managers, says Aspen's issues with the competition authorities was "embarrassing" and not morally sound.

"The whole exercise boils down to market share and making super profits, so they are just worried about their back pockets. It cannot be justified at all but who are they if people can [even] fix bread prices. It's just so worrisome, the moral decay that's there."

The antitrust findings exhibit compliance and governance issues at Aspen, he said, adding that companies resort to such practices in order to get rid of their competitors and establish the market dominance.

On concerns around governance Luresha Chetty, corporate Affairs executive at Aspen said: "Aspen, its board and management are committed to effective and robust corporate governance and compliance."

Izak van Niekerk, a co-portfolio manager at Mergence, says it was "regrettable" that Aspen had to pay fines to European competition authorities.

But "…our understanding is that the company strengthened their internal governance and approval processes on price increases following the announcement of the investigations to reduce the risk of such an event recurring," he said.

Michael Treherne, portfolio manager at Vestact Asset Management, says Aspen was a "fairly" ethical company. He couldn't speak on the UK competition authority's recent fine, but dismissed the Italian fine of four years ago as a bit of a "joke".

In Italy, Aspen had been fined for hiking up prices but other companies that had been doing the same thing had not.

Outside of regulatory missteps in recent years, what has hampered Aspen has been its rising debt levels. It peaked at R53.5 billion in 2018 and has since come down to about R38 billion by the sale of assets. At close of trade on Tuesday, the company was valued at R65 billion.

On their debt, Masilela says the slowdown in the global economy over the past couple of years started affecting Aspen revenues and its capacity to repay debt.

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