Integrated Report


 
Business unit review – South African business
 
 

Sales and marketing

The South African business provides a diverse basket of high quality, affordable products which are supplied to pharmacies, retail pharmacy chains, hospitals, clinics, prescribing specialists, dispensing general practitioners, managed healthcare funders and retail stores across the private and public sectors, as well as to selected export markets in SSA. APIs are sold into South Africa and to export territories globally. Aspen’s range of branded, generic, OTC, consumer and infant nutritional products offers the convenience of a “one-stop-shop” service to its broad base of customers.


  2011  
R’million  
  2010  
R’million  
Growth  
%  
Revenue   6 296     5 575   +13  
Pharmaceutical division   5 178     4 491   +15  
Consumer division   1 119     1 084   +3  
EBITA*   1 934     1 639   +18  
EBITA* margin   30,7%     29,4%    

 

Sustained growth

Revenue from the South African business increased by 13% to R6,3 billion and EBITA* grew 18% to R1,9 billion. There was an improvement in EBITA* margins as a consequence of production efficiencies, procurement savings, a change in mix away from low margin ARV tender products and relative Rand strength.

The South African pharmaceutical market remains robust

The Pharmaceutical division led growth in the South African business, increasing revenue by 15% to R5,2 billion. This was achieved despite enduring the challenges of its two biggest brands, Seretide and Truvada, coming under generic competition for the first time, as well as reduced pricing and lower than expected offtakes in the new ARV tender which commenced in January 2011.

The South African private pharmaceutical sector grew by 6,3% (2010: 11,1%) in value during the year. The curtailed value growth in the pharmaceutical market is largely attributable to a 0% SEP increase being granted by the Department of Health in 2011, despite rising consumer and producer price inflation. Furthermore, as patents on originator products expire, the values of the branded products are diluted by genericisation. Demographic factors and the social imperative of improving access to medicines are likely to sustain growth in the demand for medicines in South Africa for several years yet.

Aspen has retained its position as the number one company in private sector pharmaceuticals with a 17% (2010: 17 %) share.

Growth in the private pharmaceutical sector was driven by generics which increased by 13,1% over the year. Aspen, as the category leader, excelled, growing ahead of the market at a rate of 13,6%. At 30 June 2011 Aspen had a 31% share of the private generics segment. Aspen also continued as the leading supplier of medicines to the public sector. This was underlined by the award to Aspen of the largest part of the ARV tender (41%) as well as the 2011 TB (29%) and Anti-infectives (21%) tenders. Regrettably volume offtake in the new ARV tender has been well below expected levels as the Department of Health has used substitute donor-funded products.

Aspen lost market share in the branded category of the private sector, where it is ranked second, as its two biggest brands, Seretide and Truvada, came under generic competition for the first time. The South African team has been particularly successful in its strategy to defend the Seretide molecule by launching a generic, Foxair, which has more than compensated for volume declines in Seretide. Approximately R100 million in revenue has been lost in Truvada sales. Although Aspen has launched a generic, the lost Truvada sales are not expected to be recovered as this double combination product is being replaced by the triple combination product, Atripla, which was launched recently and has convenience and compliance benefits. Additional Aspen generic triple combination products have been submitted for registration.

The 2011 Campbell Belman Confidence Predictor Survey again showed Aspen as the leading pharmaceutical company in South Africa as ranked by independent pharmacists, managed healthcare providers and managed healthcare funders. Aspen’s ranking among GPs also improved to 9th position from 14th in 2010, a most credible performance against the original-research-based multinational companies.

The Impact Rx data for June 2011 confirmed that one in four script lines in South Africa continue to be dispensed for an Aspen product. These achievements have been realised through continued prioritisation of customer relationship management and ensuring sustained access to high quality, cost effective Aspen medicines for patients in the private and public sectors.

Despite the slow rate of product registration through the MCC, Aspen launched a total of 17 products over a 12 month period as reported in the June 2011 IMS data, the most by number and value in the industry. Following enhancements to the product launch coordination process and renewed management focus, good performance was seen from recently launched products which include Aspen Meropenem, Aspelone, Foxair and Synflorix.

 

Leading pharmaceutical prescription and OTC brands include:

  Product       Description  
  Altosec       For the treatment of ulcerative conditions of the gastrointestinal tract  
  Aspen Lamzid       For the treatment of HIV/AIDS  
  Augmentin       For the treatment of bacterial infections  
  Avamys       For the treatment of allergic rhinitis  
  CiLift       For the treatment of depression  
  Eltroxin       For the treatment of hyperthyroidism  
  Flusin       For the treatment of cold and flu symptoms  
  Hyospasmol       For the treatment of conditions associated with gastrointestinal spasm  
  Lenadol       For the treatment of mild to moderate pain associated with tension and fever  
  Mybulen       For the treatment of mild to moderate pain  
  Rinex       For the treatment of colds, flu and allergic rhinitis  
  Seretide/Foxair       For the treatment of asthma and chronic obstructive pulmonary disease  
  Sinuclear       For the treatment of sinusitis and congestion  
  Stilpane       For the treatment of tension induced pain  
  Vectoryl       For the treatment of hypertension and congestive heart failure  

Aspen’s OTC business grew by 13,4% compared to IMS market growth of 13,7% in this segment where Aspen is the second largest player. Focus on accelerating momentum in this area of the business has been stepped up to achieve further penetration in the medium term in both the South African and selected export markets.

Challenges in the Consumer division result in modest growth

Revenue from the Consumer division for the year increased 3% to R1,1 billion in a slow retail market.

The Consumer division has had to adapt to the loss of the Pfizer infant milk formula distribution licence in the last quarter. Infacare Gold, a premium infant nutritional formula, has been launched and initial offtake has been encouraging. The infant nutritional product offering in South Africa has also been extended by the launch of Melegi, an acidified infant formula. Further specialist formulations are also available in the range, including anti-reflux and lactose free variants. Subsequent to year-end, Aspen was awarded the vast majority of all infant nutritional product categories for which it tendered in the Infant Nutritionals public sector tender, announced in September 2011.

This was the first time Aspen participated in this tender and the successful performance presents a springboard for further growing Infacare and Melegi brand awareness to a broader base of customers throughout South Africa.

The consumer retail brands achieved double digit growth in spite of very difficult economic conditions that have prevailed especially for the lower end of the consumer market. Key established brands, such as dutch medicines, Woodwards Gripe Water and Hamburg Tea, contributed to this strong growth.

As part of a strategy to exit the personal care segment and to concentrate its consumer business on infant milks and medicated preparations, Aspen made a number of disposals during the year, including the Playboy range of deodorants and the Formule Naturelle range of products. Subsequent to the year-end the toothpaste brands have also been sold.

Leading Consumer brands include:

  Product       Description  
  Flutex       For the treatment of cold and flu symptoms  
  Hamburg Tea       For the treatment of occasional constipation  
  Infacare       For the nourishment of infants  
  Lennon Dutch Medicines       For the treatment of assorted ailments  
  Woodwards Gripe Water       For the treatment of infant gripes  

* EBITA presents operating profit from continuing operations before amortisation adjusted for non-trading items as set out in the Segmental Analysis.

South African operations

Expansion, upgrade, diversification and rationalisation of manufacturing facilities have harmonised production. Aspen is well positioned to leverage its manufacturing expertise to supply increasing volumes to its South African and international markets.

Unit 1 (OSD facility) expands to record capacity

The capacity expansion project at Unit 1 was successfully completed in 2011. Unit 1 now has two 1 500 litre Integrated Granulation Suites. Supported by the existing two 900 litre Integrated Granulation Suites, the capacity in this facility has now been increased to 6 billion tablets, with the ability to supply US FDA, WHO, TGA, MHRA, MCC and Anvisa-regulated markets. This level of tableting capacity provides an excellent platform to accommodate volume growth from both the South African and International businesses.

The first transfer of selected global brands and Australian brands for production at Unit 1 has commenced, enabling the imminent supply of products into 14 markets in the European Union and Australia. A further transfer of products from other international manufacturers to Unit 1 is in progress.

Unit 2 (the second OSD facility) reaches full commercial production

Phase A of Unit 2, dedicated to the manufacture of fluid-bed dried products, was commercialised in September 2009, and Phase B, dedicated to the manufacture of oven-dried products, was commercialised in January 2011. Advanced technologies and improved manufacturing processes at enhanced levels of GMP compliance have been implemented in this upgraded facility. Transfer of products into Phase B from Unit 3 (the Heritage facility) is in the final stages.

The strategy for the conversion of tablet manufacturing technology and processes has yielded significant gains in production efficiencies and improved cost effectiveness of products, as evidenced in the recent ARV, Anti-infectives and TB tender awards where Aspen secured a significant portion of the products which were selected for tender.

Facility management and quality systems for Unit 1 and Unit 2 have been integrated and consolidated into the management and world class quality systems of Unit 1. This enables the manufacturing technology, manufacturing capabilities and capacity in Unit 2 to be used to supply the South African as well as the international markets.

Upgrade and expansion of the East London site

The upgrade of the East London site is progressing in accordance with plans. The enhancement of manufacturing capability and capacity for the production of suppositories, creams, ointments and dutch medicines was completed in 2010. During the year, the new raw materials warehouse was constructed and the upgrade of the off-site warehouse was completed. The construction of a new dispensary is currently in progress and is expected to be completed towards the end of the year. The levels of GMP compliance have been significantly enhanced in alignment with PIC standards. Following the completion of this upgrade project, the East London multi-purpose site will be able to supply to South African and SSA markets.

The capability at the East London site is being further diversified for liquids manufacturing. Construction of the first phase of the new Liquids facility is expected to be completed during the 2013 financial year.

Production of lyophilised vials at the Sterile facility

The multi-product suite at the Sterile facility continues to produce eye drops for export to the United States for Prestige Brands Incorporated. In conjunction with Prestige, the Clear Eyes and Murine ranges have been extended to further increase export volumes. In addition, Aspen has introduced its own eye drops product range for the South African business which has been transferred to the Sterile facility from outsourced suppliers.

A number of additional lyophilised vials and high potency products for international markets are in the process of being introduced into the multi-product and hormonal high potency suites.

The Sterile facility commenced supply of the multi-drug resistant product, Capreomycin, following the successful technical transfer of the product from Eli Lilly.

Plans to extend the lyophilised vial capacity as well as to introduce dry powder and ampoule filling capabilities have been initiated.

Once the intended projects are completed, the multi-product and high potency manufacturing capability at the Sterile facility will provide a niche platform to supply a wide range of sterile product presentations to customers worldwide.

The MCC has granted an export certificate to supply products manufactured at the Sterile facility to US FDA markets. The facility is awaiting a US FDA inspection which is pending confirmation from the regulatory authority.

Restored Aspen Nutritionals site well positioned to support infant milk formula growth

An explosion in the drying tower in August 2009 disabled production at the Aspen Nutritionals site for most of the 2010 financial year. The restoration project was completed and the site recommenced production at the end of August 2010.

The replacement drier represents the latest drying technology available and additional drying capacity has been added to enable production of higher infant milk formula volumes more efficiently. During the restoration phase, selected other manufacturing areas were also upgraded to meet latest hygiene standards and to increase powder handling and storage capacity.

In response to the unforeseen termination of the Pfizer infant milk licence, Aspen has focused its strategy to further grow the Infacare brand and develop the product range for South Africa and SSA. Investigation is also underway to explore export opportunities in selected emerging markets.

Continuous improvement delivers results

The focus on continuous improvement has been expanded across the South African sites and has increased efficiency, reduced complexity and improved cost effectiveness. Continuous improvement targets are set and monitored regularly to measure progress.

Manufacturing efficiencies have been realised through the implementation of projects focusing on increasing machine output rate, reduction of change-over and cleaning times, improved engineering standards and improvements in product yields. Packaging efficiencies have been improved through packing component innovation and rationalisation, packing automation and process optimisation projects.

The management structures across sites have been consolidated and integrated, improving consistency of processes, efficiency, responsiveness and lowering costs.

Investment has been made in supporting more learnership and apprenticeship programmes to mitigate the risk of skills shortages in South Africa. Investment was also made in structured skills development, functional and managerial training programmes in alignment with business objectives, to ensure sustainability of Aspen’s human capital.

Significant advancements have been made in better leveraging available information technology to support continuous improvement objectives. automated systems have been implemented in the Quality Assurance, Quality Control and Human Resources areas. A project is in place to replace all paper-based manufacturing and packing documents with electronic on-line documents. The project will be completed in 2011. Barcode inventory management systems were implemented at the warehouses to improve inventory management controls and efficiencies. These systems are in the process of being rolled out into production operations.

The commitment and diligence of the South African Operations team, the continuous improvement initiatives and the various site upgrade and expansion capital projects, have contributed to the realisation of a widely accredited, flexible manufacturing base, able to ensure continued supply of high quality and cost-effective medicines to Aspen’s customers throughout the world.

Investment at FCC

Investment is being made to increase the capacity and enhance GMP compliance levels at FCC to create additional capability for contained manufacturing at this API facility. This is in alignment with the Group's vertical integration objectives for selected global brands. The construction of the high potency API laboratory as well as the expansion and refurbishment of the administration areas were completed during the year. An upgrade and expansion project for selected manufacturing blocks on the sites and for the enhancement of supporting quality systems commenced in 2011 and is phased over a period of five years. To date, this upgrade project has progressed in accordance with planned milestones. A US FDA audit took place at FCC during September 2011 and re-accreditation was successful.

A technical development project for Azathioprine, a leading product manufactured at FCC, has progressed to an advanced stage of testing and validation for use in the manufacture of the global brand, Imuran. Commercialisation is expected to take place during the 2013 year.