Aspen gives South Africa a booster shot

Despite the negative cloud that we typically find ourselves under in South Africa, we still boast world-class technology and manufacturing capabilities in a number of industries.

Aspen Pharmacare has had a really tough few years on the JSE, having struggled with a debt-funded globalisation strategy that hasn’t worked out. However, the market cheered the news that Aspen has entered into a preliminary agreement with a subsidiary of Johnson & Johnson to manufacture their COVID-19 vaccine candidate.

The vaccine candidate is Ad26.COV2-S, which puts financial jargon into perspective.

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Preliminary, not final

There are many things that need to fall into place for this agreement to be worth anything.

Firstly, the vaccine is currently undergoing clinical trials. There’s no guarantee at all that the vaccine is going to be successful or worth anything.

If this goes to plan (and it’s a big if), then the agreement is still subject to finalisation of commercial terms. It’s unlikely that the deal would fall over completely at that stage, but we have no idea how profitable the deal might be for Aspen.

It seems as though the company is utilising spare capacity for this agreement, so even thin margins should result in a solid outcome for shareholders.

The likes of Pfizer, Moderna, Novavax and AstraZeneca also have vaccines in late-stage trials, but results are only expected in early 2021. Only time will tell who the winners of this race will be.

Still, good news is good news

Aspen invested heavily in the Port Elizabeth plant that could manufacture the vaccine, so it’s great to see international companies taking notice of our potential. Aspen’s investment of over R3bn in the facility has created capacity to produce more than 300 million vaccine doses per annum.

As lockdowns seem to be the flavour of the month again and governments grapple with the ongoing trade-off of economic hardship vs. measurable loss of life, it does seem that a vaccine is the only way to sustainably deal with this issue.

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Don’t get too excited about our access to vaccines

Vaccines are big business, so you can expect the wealthy nations of the world to be first in the queue. Johnson and Johnson has already entered into advance purchase agreements with many of the world’s richest countries.

We might receive the vaccine at a favourable price, but local manufacturing won’t necessarily improve our access to supply.

Will Aspen investors catch a break?

Aspen started 2020 at R122 per share and is now trading at R117 per share. It may sound like there hasn’t been much action in the middle, but that couldn’t be further from the truth.

The share price dropped below R92 in March and then rallied to R154 by mid-June, a tasty 67% profit for those blessed with the gift of perfect market timing (if such people exist). Since then, the share price marched steadily downwards, with a particularly nasty recent trend that saw it drop all the way down to below R106 per share, erasing most of the gains since March.

Aspen rallied 11.45% on the news of the vaccine, giving a much-needed break to the ongoing selling of the share.

If the vaccine trial fails or if anything else goes wrong in the next few months, you can expect a nasty drop in response. Lots of risk in this one and I’m already playing roulette with Sasol, so I won’t be injecting my portfolio with a shot of Aspen.

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