The Aspen share price is slowly digging itself out of the hole into which it fell after the price-gouging allegations hit the international headlines just more than a week ago. Given that ethical issues seem to matter to investors only when controversy sticks and that news about the out-of-patent cancer drug controversy has died down (for now), it’s likely the share price will recover much of its losses.
Perhaps when the dust has settled someone might undertake a cost-benefit analysis of the substantial increase in drug prices in the EU.
Aspen has been dismissive of the matter, saying the drugs involved represent a very small part of its business.
If this is so, the decision to raise prices looks like a poor one unless a 4,000% increase on a small part of the business represents a significant profit gain. And for long-term shareholders, will that profit gain be significant enough to compensate for the drop in the share price?
What must also be calculated into the cost of the price rises is the fact it has led to a DA-initiated Competition Commission investigation into Aspen’s pricing practices in SA.
Aspen has welcomed the investigation, saying it provides an opportunity for the company to set aside allegations of anti-competitive behaviour.
It says local pharmaceutical prices are approved by the Department of Health within the context of the single exit-price regulatory framework.
In which case, the outcome of the investigation should provide a welcome reminder that South African consumers are better protected than their counterparts in the EU. Unless it doesn’t. The commission does have a way of digging up uncomfortable truths.
No doubt the share price will recover but the group’s reputation has taken a knock from which it may never recover.
Increasingly, analysts and investors will ask whether the group has grown too fast for its management capacity.
Sometimes it is difficult to interpret the intentions expressed at a company’s annual general meeting, particularly if it is trying to put tension into the market to prepare for an asset sale at the highest price.
At Anglo American’s latest meeting, chairman John Parker, who is stepping down from his position at the diversified miner, commented on the company’s asset-disposal strategy, outlining why Anglo started it in 2015 to address debt of about $13bn at a time when commodity prices were low.
Two comments were particularly interesting for those following Anglo’s strategy in SA, where it has found a buyer for its thermal-coal mines supplying Eskom. CEO Mark Cutifani had earmarked Anglo’s export coal mines, its 40% stake in a manganese venture with South32 and a holding in Kumba Iron Ore as assets it wanted to sell.
In February, he seemed to pull back on the sale of the 70% stake in Kumba that, even with ore prices falling a third in two months, is a cash machine.
Parker said China’s efforts to improve air quality meant it would need higher-quality iron ore, which is what Kumba sells, and which Anglo was positioned to supply. There was no urgency to do further deals in SA.
With Anglo’s debt down to $8.5bn and the sale and closure of 27 assets, the pressure is off and it can negotiate more favourable deals, able to walk away from an offer that doesn’t suit it.
• Neels Blom edits Company Comment (blomn@bdlive.co.za)
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