Aspen crashes 34% on surprise MRNA dispute, faces R770mn hit

Key topics:MRNA contract dispute may cost Aspen R770mStock plunges 34%, biggest drop since 1998Aspen's French facility faces profitability threat.Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.Support South Africa’s bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here..By Zinhle Xaba and Arijit GhoshAspen Pharmacare Holdings Ltd. plunged the most almost 27 years after the South African drugmaker disclosed a dispute with a client that could reduce its profit and may lead to 770 million-rand ($41 million) charge.The stock fell 31%, the most since June 1998, to 112 rand by the close in Johannesburg Wednesday. That’s the lowest since October 2020. The dispute is around “a manufacturing and technology agreement with a contract-manufacturing customer for mRNA products,” Aspen said. The impairment could arise in the current financial year that ends in June, and estimated earnings before interest, tax, depreciation and amortization for the manufacturing segment could be “less than 50%” of the 1.85 billion rand reported for fiscal 2024, it said. “It really did come from left field” and management wasn’t aware of the dispute until “just a few weeks back,” Chief Executive Officer Stephen Saad said on an investor call Wednesday. He added that the dispute relates to Aspen’s production facility in France, and that it has “a direct impact on the profitability” of the unit. The contract was on take-or-pay terms, he added. “This development is clearly a significant disappointment, exacerbated by the loss of the value of our investment we have made to access the mRNA technology,” Saad said.The possible 770 million-rand write-off was “also subject to the dispute,” Group Chief Financial Officer Sean Capazorio said, adding there is a potential of losing access to the mRNA technology’s intellectual property.Read more:. COVID didn’t necessitate mRNA. Existing mRNA vaccine technology necessitated COVID.Aspen has assigned some capacity at the French factory toward producing GLP-1 obesity and diabetes drugs, but it still has as much as 120 million units of annual available capacity.Aspen’s “absolute highest priority” is to get a return on its manufacturing assets, he said. “Until they perform, no one is going to ascribe value to them.” The company is already engaging third parties about using the facilities, and a few new contracts on the site “can have a material impact on group profitability,” Saad added. While confident Aspen can replace the contract and increase volumes through the facility, he wouldn’t commit to timings for new agreements. JPMorgan Chase & Co. slashed its recommendation on the stock to underweight from overweight, cut the target price to 128 rand and trimmed the forecast for Ebitda for the 2026 financial year by about 20%. Absa Bank Ltd. analyst Rendani Magalela said consensus downgrades could continue.Aspen’s “foundations are all intact and opportunities remain, although not immediate,” Saad said. Recent geopolitical turbulence from US tariffs and aid cuts, while disruptive, “have started galvanizing actions from those who were previously indecisive,” he said.

Aspen crashes 34% on surprise MRNA dispute, faces R770mn hit

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