1,100% drug hike 'less than price of meal in London'

In the midst of Aspen Pharmacare's spectacular fall from grace after facing accusations of "price gouging" and hiding the subsequent fine from shareholders, co-founder and CEO Stephen Saad says the truth will emerge in the fullness of time.

He says the company he started from "extremely humble beginnings" 20 years ago and built into one of the largest suppliers and manufacturers of branded and generic drugs in the world may have made mistakes but has done nothing immoral.

"Globalisation is really not easy. We are a new multinational. We need to learn from each experience. If we learn properly, then these things are not repeated. But it doesn't go to morality and ethics."

A front-page article in The Times of London accused Aspen of hiking the price of several cancer drugs to a level competition authorities regarded as exploitative, and then failing to disclose to shareholders that it received a €5.2-million (R75-million) fine for this last year.

Saad occupied the moral high ground for years after Aspen became the first manufacturer of affordable generic antiretrovirals for HIV/Aids patients. But he finds himself in a very different space now, which he seems to have made worse by using the sub judice rule to avoid responding to the allegations.

"We're not using the sub judice rule to avoid responding," he objects.

"That is the reality of the situation we are in."

Convincing the public of his innocence is not a priority, he says.

"We're not having a debate with the media. This is a discussion with regulators and a judicial process.

"You need to play by the rules to resolve this. If you play outside the rules you might win on the Twitter account and you might win on the front page of the newspaper. But we will lose as a group tremendously if we offend the people [who] really count in resolving these issues with us." Namely, the regulators.

"We're not going to go there. We can't."

Isn't it his responsibility to shareholders to manage reputational damage?

"Of course it is."

By refusing to respond?

"I don't see this as a sprint. It is not for us to respond to this in the media. These issues are best resolved with regulators and the judicial process."

Even if by then the company's reputation has been trashed?

"This is not a material issue in a commercial sense," he says.

Notwithstanding that Aspen's share price fell more than 4% after allegations that it covered up the fine were published, and expressions of unhappiness from shareholders about his handling of the situation.

"There is no investor I've spoken to who has given me another way of managing the situation," he says. "Most of our investors have been very clear to us, they fully understand sub judice. Particularly the international investors."

The Times reported details of how Aspen hiked the price of five cancer medicines after buying the rights from GlaxoSmithKline in 2009 as part of a £273-million deal.

"Our dilemma in many instances [is] we are buying brands that are post patent, they're old, they've had very little investment in them over decades," says Saad. "So we go and upgrade these products, get the quality right, fix them. We've spent a lot of money on facilities. What we try to do as a business is take brands that are affordable and make them sustainable. We don't just write them off."

Isn't it possible to increase prices to sustainable levels without making the drugs unaffordable?

"I don't think Aspen products have ever been unaffordable," he says.

Even after a price hike of more than 1100% for a drug used by leukaemia patients in England and Wales from £5.20 to £65.22 a pack? And a hike from £8.36 to £40.51, in the same year, 2013, for another drug used to treat blood cancer?

"Is that unaffordable in the space of oncology?" he asks. "It's less than the price of a meal in London."

Is a hike of more than 1,100% ethical? "Percentages are one thing, but you've got to also multiply it out and say: 'Well, does that pay for quality upgrades?'"

One wonders how well they did their sums before concluding the Glaxo deal?

He says the drugs in question were an insignificant part of the deal.

"Our primary interest with the deal that we did was the business in South Africa, and mostly to get us a bigger business in Africa.

"These products were not on the radar in terms of 'This is where the pricing is going to be' ... This fitted into a small part of a much broader transaction with Glaxo."

The oncology drugs generated a turnover in the 2016 financial year which was just 2.7% of its R35.6-billion revenue for the year, according to an Aspen stock exchange announcement. Given that volumes were so tiny and such an insignificant part of the business, was it worth the reputational risk to hike the prices so much?

"I can't answer that now. If I had to say to you it would be much easier to discontinue the product, what message would I be sending out?"

In fact, this is what Aspen stands accused of. According to The Times, the Italian competition watchdog described how Aspen threatened to stop supplying the drugs altogether to force health authorities to accept its price demands.

"You're going where I can't go right now," says Saad. "Believe me, we've got answers for all of these accusations that are being made."

Reputational damage has not had a material impact, he says, although investors have been aware of the accusations for a couple of years.

"The accusations are not news."

What is news to many of his investors is that Aspen was fined by the Italian competition authorities last year. Why didn't he disclose this?

"It was on Bloomberg. We got questioned by investors on the fine.

"Everyone was aware of it."

Shareholders have complained that there was no Sens announcement. "If you had to put a Sens announcement out for every fine that a pharma company gets, it's all you'll ever have out of global pharma companies," he says.

Being a global pharmaceutical company has been a steep learning curve, particularly in terms of managing the regulatory environment, he says. There are things Aspen could have done better.

"It's a very complicated environment. You sit with medicines that are complicated. You do something wrong with those medicines and you've got all sorts of public liability issues."

He's got to deal with 28 different pricing authorities in the European environment, he says. On top of that there are competition authorities looking over his shoulder.

"There is just regulation and risk everywhere."

Should Aspen be more sensitive to the mood of the public regarding affordable healthcare when it hikes its prices? "We stand for quality affordable medicine," he says.

This can be "contradictory", he says, but "there are companies like Aspen which manage that well".

A report for investors in the South African healthcare industry published by FarSight and Legae Securities last month says there is "scant evidence that a moral code is applied to its business dealings by Aspen". Saad says this is a "kick in the teeth" for a company that has done so much for South Africa.

"Speak to the health department. See who helps them out when they haven't got a multidose-resistant TB product, or when they desperately need Aids drugs. We were the only supplier at one stage. Everyone else was too scared to go there ... For some idiot to talk about a moral code in Aspen - let them tell me what we have done that is immoral in the South African environment."

Perhaps we'll know soon enough.

Aspen is under preliminary investigation by the South African competition authorities after the DA asked them to investigate claims of anticompetitive behaviour.

Saad says the company is committed to full and constructive engagement with the Competition Commission.