Fitter Aspen will still lick reputation wounds
Author: Neels Blom
Source: Business Day
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 percent 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 anticompetitive 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.