The share price of Aspen Pharmacare Holdings slid on Tuesday as allegations around the impropriety of its cancer drug pricing came to the fore over the weekend.
Aspen’s share price declined by 4.14% on Tuesday to R268.50 per share, representing more than R5 billion being wiped off the company’s value, on a day that saw the JSE Alsi close 1.57% lower.
Weekend reports in two British newspapers The Times and The Independent allege that JSE-listed Aspen Pharmacare exploited laws pertaining to the branding of generic drugs that allowed them to apply predatory pricing on products used to treat cancer.
The drugs, collectively referred to as ‘Cosmos’, were acquired from GlaxoSmithKline in a deal valued at £273 million back in 2009. They include: Busulfan (used to treat leukaemia), Leukeran (leukaemia), Melphalan (skin and ovarian cancers), Purinethol, and Tioguanine.
According to the report published on The Independent, “a loophole in drug pricing allows drug companies to change the price of medicines if they are no longer branded under the same name”. This conventionally allowed cheaper generics to enter a market once patents had expired. But instead of lowering prices, it appears Aspen was using the loophole to increase the price of the drugs the company owned.
Effect on pricing
According to the articles published over the weekend, in 2014, Aspen reportedly threatened to stop supplying Spain with the drugs unless prices increased by 4 000%. The Times reports that the company said it would stop supplying Italy with the drugs in October 2013 unless prices rose by 2 100%.
It appears the price increases brought the drugs into line, and in some cases, slightly above, European target prices.
The Italian Competition Authority (ICA) fined Aspen €5 million in October last year for unfair pricing of its cancer drugs. Aspen had attempted to inflate prices by as much as 1 500%, and even threatened to stop supplying the drugs unless the increases were approved. Aspen was the only company supplying the drug at the time.
The company also did not notify shareholders as it was deemed “immaterial” in the larger scheme of things. Aspen has since appealed the decision in Italian courts.
Aspen defended its increases on the basis that drug prices for those concerned had not been increased in Italy in 50 years, and even with the increase, the prices remained below that of alternative treatments.
The company – via a brief Sens issued on Tuesday – declined to comment. “The content of the reports concern matters that are sub judice. Out of respect for the integrity of ongoing legal processes with European regulators, as well as the court in Italy, Aspen will not comment on these public allegations.”
It did point out that its Oncology department, which accounts for the sales of the drugs concerned, generated R963 million in revenue for the year ended June 2016 versus group revenue of R35.6 billion.
South African shareholders still account for half of the company’s shareholders as per the financial year ending June 2016. The largest shareholder outside of Stephen Saad, is the Government Employees Pension Fund, whose stake is overseen by the Public Investment Corporation (PIC). Foord Asset Management was listed as the company’s second largest institutional shareholder. At the time of writing, neither the PIC nor Foord had responded to requests for information.