• Wednesday, February 21, 2024
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BusinessDay

GSK, Sanofi exit to pave way for market grab – Meristem

GSK, FIDSON

The exit of pharmaceutical multinationals from Nigeria last year has been identified as an opportunity that existing companies will explore to expand their market share in 2024 as analysts anticipate an increase in pharmaceutical and consumer health product prices.

Meristem in its outlook for the year stated that the Nigerian healthcare sector demonstrated growth in 2023, highlighted by an improved real output, with the chemical and pharmaceutical products GDP expanding by 6.77 percent year-on-year in 2023 third quarter compared to 6.41 percent in the previous period.

Fidson Healthcare Plc’s collaboration with Asia’s Aidea Pharma in the second half of 2023 to produce drugs for HIV treatment and the listing of Mecure Industries Plc on the Nigerian Exchange in 2023 were some of the major highlights, which resulted in increased investor participation in the sector, Meristem said.

The industry grappled with challenges amplified by economic headwinds such as inflationary pressure and exchange rate volatility.

As a result, GlaxoSmithKline Consumer Nigeria Plc, a major pharmaceutical giant, announced its exit from the Nigerian market due to difficulties accessing foreign exchange (FX), impacting product availability.

Sanofi-Aventis Nigeria Ltd, a major supplier of polio vaccines, also announced its exit from the Nigerian market and transition to a third-party distribution model.

“We posit that these exits create an opportunity for existing companies to capture market share further. We also anticipate an increase in pharmaceutical and consumer health product prices in 2024,” Meristem said.

However, of these companies, only Fidson registered an increase in earnings as surging raw material prices, increasing operational costs, and rising borrowing costs undermined the uptick in revenue.

The firm anticipates a strengthened financial performance at the industry level in 2024 full year, propelled by anticipated growth in sales volumes and projected price adjustments to align with the prevailing macroeconomic conditions.

“However, we foresee a corresponding upswing in production costs and operational expenses, attributed mainly to expected increases in transportation and energy costs and sustained high inflation,” it said.

Considering the industry’s reliance on imports for its critical raw material, active pharmaceutical ingredients (API), the firm projects that the naira’s continuous depreciation is poised to spur the industry’s import bills. This could lead to marginal improvement in earnings for players in the sector.

It also maintains a positive outlook for the sector in 2024, hinged on expansion across business segments, especially the life insurance segment, which should support premium growth as insurance uptake increases.

In the same vein, we anticipate increased health insurance coverage as policy reforms by the new administration support developments in the health sector.

“Also, our expectation of a high fixed-income yield environment in the year should lower provisioning for life and annuity funds and bolster investment income,” it said.

“We expect underwriting profit and net income to increase during the period. On the other hand, increased underwriting and operating costs resulting from the high inflationary environment may drag profitability for the insurers during the year.”