Following a tumultuous four months during which its share price plunged, Aspen is soldiering on, having already spent R1.1bn of its R3.4bn investment in its Port Elizabeth sterile anaesthetics manufacturing facility.
Once SA's pride and joy, Aspen lost the confidence it enjoyed after what analysts have described as an unclear strategy, overpriced stock and debt after an aggressive growth strategy.
The company's share price has fallen more than 46% in the past year, with its biggest drop, of 30%, taking place over two days in September - the week in which it released its annual results.
According to its annual results for the year ending in June 2018, Aspen said it had over R46.8bn in long term borrowings.
It has asked its lenders to increase its debt covenant ratio from four times to 4.75 times, which can allow it to increase borrowings.
But, in spite of market sentiment and the share price performance, Stavros Nicolaou, Aspen's senior executive of strategic trade and development, is upbeat about pharmaceutical prospects.
The Port Elizabeth expansion "is a R3.4bn investment. We've already spent over R1bn, the building's progressing nicely, we've ordered the equipment. The project should be completed by 2020," he said.
The facility is set to be fully operational by 2022 due to the regulatory processes it has to go through.
The stringent regulatory processes and trials for sterile anaesthetics make barriers for entry into the market high, Nicolaou said, but that was why it was attractive to Aspen.
"It's aligned to our core competency so we look at more complex stuff to manufacture. Making a tablet is not particularly complex, it's compression. To make a sterile product, that's got to be exactly that, sterile and not contaminated. The investment's a lot more difficult to make."
He said 18% to 20% of the sterile anaesthetics Aspen makes are for SA and the balance is exported to other countries. When the Port Elizabeth facility is running at full steam, the company will increase exports of sterile anaesthetics to 90%. This is because SA's pharmaceutical market is worth R50bn, and the global market is expected to be $1-trillion (R13.34-trillion) in 2020.
Aspen has owned and operated its Port Elizabeth manufacturing facility since 2004 and the investment in its expansion - and the acquisition of the AstraZeneca and GlaxoSmithKline anaesthetic brands in 2017 - are part of the company's strategy to grow its business in specialised therapeutic areas.
"If you look at our manufacturing contribution, most of it was sitting in oral solid doses and maybe 20% was in steriles. Moving forward, that picture changes, it's going to be 60% steriles and 40% the rest," Nicolaou said.
Andre Bekker, an equity analyst at Arqaam Capital, said Aspen's capital expenditure on the Port Elizabeth facility would allow it to reduce the cost of manufacturing, one of Aspen's key strengths.
On Aspen's fall from grace, Bekker said the question that should be asked is whether its share price, which saw highs of up to R400, had been justified.
"I think the market was very optimistic at that time and what the market was doing was taking everything that Aspen was buying and putting a premium multiple on it. When the reality is at that stage Aspen was pretty much a generics manufacturer and moved into the branded therapeutic space, into specialised pharma, so it was still an untested area for them," said Bekker, who this week revised his recommendation on Aspen's shares from "sell" to "hold".
He added that it would take five to 10 years since the acquisitions to see if the strategy worked.
Aspen found itself on the bad side of the market after announcing the sale of its infant-formula business just before its annual results. The view from the market was that Aspen had taken a low price for it, though Bekker believes otherwise.
"I think it was a very good price that they got for that business.
"The reason I think the share price has been depressed for the last couple of months despite this is the fact that the business is very geared and they've communicated to the market that they've expanded their covenants temporarily, asking for more headroom from their bankers.
"The reality is they've got short-term debt that is due, they've got deferred payments on previous acquisitions.
"They've got close to R2.8bn in capex spend that they are doing, so the market is always concerned when businesses are highly geared and cash flows become constrained and I think that's been weighing on the share price," Bekker said.
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