Aspen Pharmacare reports strong interim growth amid financial headwinds

SOUTH AFRICA— Aspen Pharmacare Holdings Limited (APN), a leading multinational specialty pharmaceutical company, has reported strong unaudited interim financial results for the six months ending December 31, 2024.

The company demonstrated consistent growth, with group revenue increasing by 4% (9% in constant exchange rate [CER]) and gross profit rising 12% (20% CER), driven by an increased share of sales from Commercial Pharmaceuticals and improved profitability in Manufacturing.

According to the company’s statement, normalized EBITDA increased 12% (21% CER) to R5, 823 million (US$322,441.52), closely mirroring the 11% (23% CER) rise in operating profit.

 However, normalized net financing costs grew by 20% to R681 million(US$37.72 million), primarily due to higher interest rates and increased net debt levels.

Additionally, higher tax expenses, influenced by regional profit distribution and the introduction of BEPS Pillar 2 in South Africa, dampened normalized headline earnings per share (NHEPS) growth to 5% (17% CER), resulting in NHEPS of 724 cents.

 Meanwhile, headline earnings per share (HEPS) increased by 4% (16% CER), while earnings per share grew 3% (17% CER), impacted by restructuring costs and intangible asset impairments.

Higher working capital investment in manufacturing inventory weighed down Aspen’s operating cash flows, largely due to seasonal factors.

This led to a decline in the operating cash conversion rate to 63% compared to 89% in H1 2024.

Additionally, net debt increased from R26.9 billion (US$1.48 billion) to R30.0 billion (US$1.66 billion) over the six-month period; however, the leverage ratio of 2.5x remained within the company’s targeted range.

Commenting on the results, Stephen Saad, Aspen Group Chief Executive, expressed satisfaction with the company’s operational performance while executing strategic goals.

He highlighted double-digit CER revenue growth and normalized EBITDA in Commercial Pharmaceuticals, supported by strong growth in Finished Dosage Form (FDF) Manufacturing, which benefitted from expanding sterile manufacturing contracts.

 The Group also made significant progress in its GLP-1 initiatives, which are expected to enhance Commercial Pharmaceuticals and Manufacturing in the long run.

Aspen’s revenue growth of 7% (13% CER) to R16, 102 million (US$891,551.48) was bolstered by a product portfolio acquisition in Latin America and organic CER growth across all three segments.

Gross profit margins remained steady at 59.1% (H1 2024: 59.8%), with normalized EBITDA rising 13% CER, despite higher operating costs from the Sandoz business acquisition in China.

Prescription Brands, the largest segment within Commercial Pharmaceuticals, achieved 19% (25% CER) revenue growth, reaching R 6,340 million(US$351,059.81).

The Americas led this growth, followed by Africa and the Middle East, which benefitted from the Lilly portfolio.

Meanwhile, the injectables portfolio returned to growth, increasing 4% (10% CER) to R5,019 million (US$277,851.84) in H1 2025.

Lilly’s products boosted Africa Middle East, including the successful South African launch of Mounjaro in December 2024.

While Asia gained from the recent product swap transaction with Sandoz, Europe experienced a decline, though the net impact on injectables growth was positive.

However, gross profit percentage dropped to 57.5% (H1 2024: 58.9%), affected by national volume-based procurement (VBP) in China.

The manufacturing revenue of R5,858 million(US$324,298.88) fell 4% (0% CER), as growth in FDF revenue was offset by declines in the Heparin and API businesses.

A 59% increase in sterile manufacturing contracts supported FDF growth, while Heparin revenue fell due to last year’s transition to a working capital-light toll model.

API revenue declined 21% to R1,888 million (US$104,487.49) due to order phasing, though a strong recovery is anticipated in H2 2025.

Nonetheless, gross profit percentage improved to 15.9% (H1 2024: 5.3%) due to the higher FDF contribution, with normalized EBITDA more than doubling from the prior period.

Looking ahead, Aspen expects the adverse impact of VBP in China and reduced Russia CIS sales to phase out, stabilizing the Commercial Pharmaceuticals segment.

The company anticipates double-digit CER revenue and normalized EBITDA growth for the full year, driven by organic growth across all three segments, portfolio expansion in Latin America, and the promising rollout of Mounjaro in South Africa.

Following the acquisition of Sandoz’s China business, Aspen plans to reshape its operations in H2 2025 to enhance capacity and flexibility for future opportunities.

Additionally, progress is being made toward commercializing the Novo insulin manufacturing contract, with final technical milestones expected in Q4 2025.

Manufacturing is set to maintain strong growth in H2 2025, supported by sterile manufacturing contracts and a seasonal rebound in the API business.

The company expects CER normalized EBITDA growth in Manufacturing to be similar to that achieved in H1 2025.

Aspen is also preparing for the anticipated legislation on localization preferences in Q2 CY 2025, which will ensure priority review of locally manufactured dossier registrations by SAHPRA.

This regulatory change is expected to accelerate the approval of Serum paediatric vaccines, potentially leading to commercial sales from 2026.

The company remains committed to achieving incremental CER EBITDA growth of R 2,450 million (US$135,607.10) in sterile capacity fill initiatives for FDF from FY 2025 to FY 2026, compared to FY 2024.

The GLP-1 market, particularly in diabetes and obesity treatment, represents Aspen’s most significant growth opportunity.

The company has made notable progress in securing intellectual property rights for generic semaglutides, developing the injectable dosage form, and expanding its marketing and distribution reach in preparation for the product launch.

Aspen expects its first revenue from GLP-1 initiatives by the latter part of FY 2026.The company anticipates a reduction in Manufacturing inventory levels in H2 2025, following the seasonal buildup in the first half.

Combined with stronger operating cash flow, this should allow Aspen to achieve its year-end target of over 100% operating cash conversion.

 Additionally, lower effective interest rates due to recent cuts across EUR, ZAR, and AUD debt pools are expected to reduce finance costs in H2 2025.

However, effective tax rates are projected to rise from FY 2025 onward due to higher profit contributions from sterile manufacturing and the retrospective implementation of BEPS Pillar 2 legislation in South Africa.

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