Neimeth international faltering performance means pharmaceutical industry facing challenges

The faltering perf o rma n c e o f Neimeth International Pharmaceutical Nigeria Plc further accentuate the challenges facing drug makers as infrastructure deficits, high interest rate environment, government policies and macro conditions continues to crimp growth potentials.

For the year ended 30 September 2015, Neimeth posted a loss after tax of N335.68 million, which was more than the N228.53 million losses it recorded in 2014. Sales reduced by 10 percent to N1.62 billion from N1.46 billion in 2014.

Neimeth’s floundering performance is a representation of the challenges facing other drug makers in Africa largest economy where high borrowing costs, government zero tariff on imported drugs, security challenges and economic lethargy stoked by fall in oil price remains a stumbling block.

The financial statements of four dominant drug makers that have released third quarter 2015 financial results showed all falling off the cliff as perverse environment didn’t give then leeway.

“Electricity, bad roads, access to good water is some of the challenges we are facing as a manufacturers of drug. And more importantly, lack of capital,” said Moses Oluwalade, managing director, Miraflash Nigeria Limited, a Lagos based drug maker.

“Government should help in making funds available, accessible and affordable to manufacturers. With the current interest rate of commercial banks, no manufacturers will survive. The issue of zero tariffs is another problem,” said Oluwalade.

Industry experts who spoke with businessDay say a zero tariff regime tend to make imported drugs cheaper than the local manufactured ones. They added that if this trend continues, a lot of drug maker may be forced to close shops.

Apart from loss of significant investment by local manufacturers as a result of the tariff regime, a sudden devaluation of the currency may see price of medicines balloon.

Also holding back the growth of pharmaceutical firms is the introduction of the Common External Tariff (CET) and the New National Drug Distribution Guidelines (NNDG). This new rules has threatened to the existence of 150 firms in the industry and cripple N300 billion worth of investment made so far in the sector according to Oluwade.

While four pharmaceutical firms have met the World Health Organization prequalification that will enable them be more self sufficient in the manufacture of drugs to meet the demand of over 170 million people, the slow economic growth in the past one year may sour such positive prognoses.

For instance, consumer purchasing power has dwindled on rising inflation and transportation costs. This means more people will have less money in their pockets to purchase drugs.

Economic growth rate slowed to 2.4 percent Q2 of 2015, with a marginal increase to 2.84 percent in Q3 of 2015 compared to nearly 4.0 percent in the
first quarter of 2015, and 6.2 percent in the fourth quarter of 2014, according the NBS data.

Unemployment rate already seed up to 9.9 percent, while inflation rate appeared to be stalled at 9.3 percent, high the CBN’s bench mark rate to 9 percent and 8 percent respectively.

Despite the devaluation of the currency driving production costs of other firms, Neimeth Pharmaceutical’s cost of sales reduced by 11 percent to N776.06 million in 2015 N874.43 million the previous year. Operating expenses were up by N916.09 million in 2015 as against N903.12 million in 2014.

Analysts are clamoring for Import Adjustment Tax of 20 per cent be immediately impose on imported Finished Pharmaceutical Products with HS Code 3003 & 3004 and interest on borrowing of 10 percent as a way of repositioning drug makers for better performance.

Neimeth Pharmaceutical share price closed at N0.89 on the floor of the exchange while market capitalization was N1.40 billion.