• Thursday, February 29, 2024
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BusinessDay

Drugmakers’ profits up 17% amid rising costs, FX crisis

Drugmakers see decline in fortunes despite soaring prices

Three of the largest drugmakers in Nigeria saw their combined profit after tax rise by 17 percent from N6.36 billion in the 2022 financial year from N5.42 billion in 2021.

Business expansion activities and the rise in health consciousness among Nigerians boosted their revenue by 23 percent to N80.35 billion from N65.2 billion, according to their financial statements.

The companies are Fidson Healthcare Plc, May & Baker Plc and GlaxoSmithKline Plc, which are listed on the Nigerian Exchange Limited.

Fidson emerged the best performer, achieving a revenue increase of 32 percent to N40.6 billion from N30.86 billion in 2021; GSK followed with revenue of N25.3 billion in 2022 as against N22.4 billion, while M&B recorded revenue of N14.32 billion compared to N11.9 billion in 2021.

Fidson recorded the highest profit after tax of N4.18 billion, up from N3.71 billion in 2021; M&B followed with N1.49 billion in 2022, up from N1.04 billion in the previous year; and GSK recorded five percent increase from N658 billion to N692 billion in 2022.

Pharmaceuticals companies made a big break as producers of essential items following the outbreak of the COVID-19 pandemic as people prioritised their health and wellness, a development industry players said have continued since then and has driven demand in the sector.

Sammy Ogunjinmi, group chief executive officer of Codix Pharma Ltd, told BusinessDay that pharmaceutical firms have over the last year launched new products and also expanded operations and market reach, which has impacted their business positively.

“We have some remnant effect of COVID and that helped; we also embarked on some expansion activities and the introduction of new products helped to increase our revenue and income,” he said.

Ogunjimi, who is also the vice president of Nigerian Representative of Overseas Pharmaceutical Manufacturers (NIROPHARM), however, described 2023 as a year to watch out for, saying the first quarter of the year was tough for operators due to various challenges that could dampen the potential of the industry.

McKinsey & Company, in an article titled ‘Winning in Nigeria: Pharma’s next frontier’, said the Nigerian pharmaceutical industry has the potential to contribute significantly to the economy, but there is a need to address its health infrastructure deficit.

“The value of the Nigerian pharma market could rise by as much as 9 percent a year over the next ten years to reach $3.6 billion by 2026 (exhibit), making it as large as the South African market today. Over the same period, Nigeria could contribute between $1.9 billion and $2.2 billion to pharma sales growth, 55 percent of it from prescription drugs,” it said.

The report stated that Nigeria is a complex market, and companies will need to address short-term economic setbacks and deep-rooted structural challenges before they can take advantage of growth in the longer term.

Highlighting some of the challenges, Ogunjimi said FX availability and accessibility is a big problem with ripple effect on industry activities and competitiveness, even as naira depreciation, rising cost of production and raw materials, among other issues, remain major problems facing operators.

In line with some of the challenges highlighted, BusinessDay observed that these firms’ cost of sales increased by 36 percent to N53.23 billion in 2022 from N39.23 billion in 2021.

“The market is already shrinking as many operators cannot purchase needed materials; in addition to this, they are trying to save money without cutting jobs; hence even with the tough operating environment, some companies offer discounts to boost sales, while some are also dealing with receivables still hanging,” Ogunjimi said.

He said industry operators are being proactive and will continue to strategically position themselves to address and contain possible risks while ensuring that products are able to match demand.

“Everyone wants a stabilised environment; let us have a set exchange rate with available FX, so we don’t pay so much to get dollars through the black market,” he said.

Damilare Asimiyu, head of investment research at Afrinvest West Africa, speaking about the performance of these companies, told BusinessDay that pharmaceuticals firms embarked on business expansion activities, following the Central Bank of Nigeria (CBN)’s N100 billion intervention loan to pharmaceuticals industry during the pandemic to aid expansion, boost productivity or establish drug manufacturing plants in the country.

He said rising inflation made operators increase the price of their products while they scaled up production and expanded their footprints into other neighbouring markets.

“However, the sector is facing challenges such as the rising cost of production such as the cost of diesel and raw materials, the surge in brain drain which has seen them lose best hands, leaving them to incur so much cost,” he said.

Abiola Gbemisola, assistant manager, equity research at FBN Quest, told BusinessDay that the pharmaceutical industry has a robust outlook as people continue to prioritise their health, causing an increase in demand.

He however said the sector needs inflow of increased investments and government aid to maintain improved performance.

“The government should also collaborate with them to curb the menace of fake drugs; already it is a tough sector to operate in and pharmaceuticals need an enabling environment to thrive, there is also a need to build trust in the local healthcare system,” he said.