Ailing pigs could be boost for SA pharma

05 May 2019 - 00:04 By PENELOPE MASHEGO

The outbreak of African swine fever that continues to ravage pig populations in China, parts of Europe and Africa has had an unexpected casualty: blood-thinning medication.
A key ingredient for the blood-thinning medication Heparin is pig mucosa, which is found in the intestines of pigs. The medication is used for heart surgery, dialysis and to treat deep-vein thrombosis. With China, which farms more than 50% of the world's pigs, having to cull large numbers to contain the African swine fever outbreak, the cost of this medication is expected to rise.
For SA's biggest pharamaceutical company, JSE-listed Aspen, whose core business includes Heparin, this could present an opportunity to gain market share.
Analysts say the company could gain market share because its supply chain is not in China. Germany and France are the European manufactures of Aspen's Heparin and both countries are free of African swine fever, according to the latest World Organisation for Animal Health update.
And though Aspen has built a more than 12-month stockpile ahead of expected Heparin price increases there are worries that pharmaceutical companies' margins will be under pressure as Heparin becomes scarce.
"There is also the possibility that Arixtra [a blood-clot prevention drug] may take market share if porcine-based products are unavailable, suggesting Aspen could even benefit in an extreme scenario," they said.
Aspen strategic trade and development executive Stavros Nicolaou is confident, saying: "Aspen anticipated the Heparin shortage and built up stock levels in our last half-year reporting period."
He said though this had an impact on the company's working capital in the second quarter, it was a good decision.
"It's proven to be a commercially sound decision as it will ensure Aspen can sustainably supply its Heparin-based products to patients," he said.Zaid Purak, a portfolio manager and analyst at Aeon Investment, said any increase in Heparin prices should be beneficial to local suppliers due to the country's excess capacity after the listeriosis outbreak, which has led to declines in demand and prices."However, the global Heparin shortage will impact global supply going forward. With the global shortage, especially in China, which is the world's largest producer of pork, we could see prices increase as customers move to 'secure' their supply. We have already seen international pharmaceutical companies, including Aspen, stockpiling inventory to guarantee no stock outages occur. For Aspen, this included suspending Heparin sales to third parties. Many pharmaceutical companies are penalised heavily if they are unable to deliver product, so availability of supply is top of mind," Paruk said.He said Aspen's thrombosis medication is a material part of its business and Aeon sees the increase in Heparin prices putting further downward pressure on margins and increasing working capital requirements."Aspen is already in a tight cash-flow position. If Aspen is unable to procure supply, we could see customers being forced to switch to alternative products. This is bad news for Aspen as 'biosimiliars' in Europe have already begun to take market share from the established players," said Paruk.JPMorgan this month said Heparin scarcity could have an impact on earnings per share of between 2% and 15% in the worst-case scenario."Ultimately, anticoagulant end-selling prices should adapt to higher input prices but, given regulated pricing in most markets, we would expect lagged increases and subsequent margin pressure," said JPMorgan analysts Alex Comer and Catherine Cunningham, in a note.African swine fever, which was first detected in China late last year, is already beginning to have an impact on pig prices in the futures and spot market, said Comer and Cunningham.Other companies that are likely to also be impacted by a scarcity of Heparin include Spain-based Rovi, French company Sanofi and Amphastar Pharmaceuticals in the US.

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