Recession leaves pharmaceutical firms grasping for breath

The financial meltdown has left drug makers in Africa’s most populous nation grasping for breath as a shortage of dollar made it practically difficult for them to import raw and packaging material.

Since 95 percent of raw materials used in the manufacture of drugs are imported, an FX crunch has fuelled the influx of cheap and substandard products into the country.

The unfortunate situation means the lives of Nigerians that rely on cheap drugs from local stores-since inflation have eaten deep into their pockets- are in peril.

One of the firms beleaguered by these challenges told BMI that they cannot even pass on the costs to consumers. He says gross margins have dipped while huge energy costs are eating into the bottom lines.

A cursory look at the financial statements of 3 dominant players in the industry for the nine months through September showed Union Diagnostic and Clinical Services, Pharma Deko Plc and Evans Pharmaceuticals Plc recording losses of N326.16 million, N110.29 million and N722.06 million respectively.

Stocks of companies that recorded lower sales, battered bottom lines and rising input costs have on average performed worse than the NSE All Share Index.

Fidson Healthcare Plc, May and Baker Pharmaceutical, Evans pharmaceutical, Neimeth Pharmaceutical, Pharma Deko, Union Diagnostic, returned -41.60 percent, -17.29 percent, nil, -25.61 percent -24.41 percent and -24.41 respectively, compared to -10.56 percent return for the NSE –ASI in the same period.

Demand for medicine in Nigeria is rising as its population ages and the incidence of cancer, heart disease and diabetes increases.

Analysts say such increases in cardiovascular diseases are supposed to boost businesses for drug makers but a tough macroeconomic environment has hindered these firms from tapping such opportunities.

“On the flip side, gross margin reduced marginally. As indicated above, raw and packaging materials were difficult to import in the first half of the year because of the scarcity of much needed fx and where materials are locally sourced, prices had increased significantly,” said an industry source.

An expert said the ECOWAS Common External Tariff (CET), introduced in 2015, is a huge threat the existence of local drug manufacturers.

Pharmaceuticals no doubt are an extraordinarily profitable if the environment is conducive for expansion and investment.

In fact, the world pharmaceutical market is said to be worth about $1.6 Trillion currently, and it is expected to increase by 7.2 per cent on a year-on-year basis up to 2020, according to Frost and Sullivan, an internationally reputable consulting firm that specialises in providing market research and analysis in a recent survey it conducted.

 

BALA AUGIE